Why the VCs aren’t the bad guys

Venture capitalists (VCs) … are a combination of professional gamblers and loan sharks. The secret to success is pure luck and ruthlessness, and when the combination works and the ball lands on the exact number on the spinning roulette, venture capitalists make lots of money.
-Margalit Gur-Arie, via KevinMD.com

The tone of this article, Why venture capitalists shouldn’t try to solve health care, exemplifies what is wrong with healthcare. In an industry plagued by uneven quality and relentless cost increases, we need everyone working together to solve problems.

Health is universal, and no one group holds a monopoly on solutions. Everyone has something to contribute, including the villainized venture capitalists (VCs) mentioned above. VCs have played a supporting role for many industries, including healthcare, and we need them as one of many engines behind our movement in digital health.

Disruptive innovation is a fundamental constant of every industry; it has and will continue to transform healthcare. Over the course of 2012, millions of health consumers walked into a retail clinic with sore throats. They were likely given a rapid strep test, potentially provided antibiotics if the test was positive, and sent home. These visits were handled by a nurse practitioner, not a physician. A new medical technology for convenient diagnosis emerged, a simple treatment algorithm is applied, and voilà, physicians were relieved from these types of low-acuity cases.

This is disruptive innovation, and it leads to lower cost and higher efficiency. Quidel, the company that developed the first CLIA-waived rapid strep test was venture-backed. What if 25 years ago, we lambasted those who invested in these types of technologies that could eliminate the need for physicians to provide certain services (and instead focus on something more important)?

Arguing against disruptive innovation, and those who fund it, is useless—it is a force that has transformed, and ultimately improved, virtually every sector in the economy. In healthcare, this means parents can eventually do the work of nurses, nurse practitioners the work of primary care physicians, primary care physicians the work of specialists, and specialists the work of surgeons. The end result is not the elimination of skilled labor from the sector, but a cascading reconfiguration of the work so that our most highly trained are able to use their unique skills versus spending time with things that others can do with the assistance of technology. In a country burdened by high healthcare costs and complex care, we should ensure that primary care physicians like Jeffrey Brenner can dedicate more of their time to coming up with comprehensive treatment strategies and coordinating teams versus handling a common case of strep throat.

The digital health movement is about using technology to improve healthcare, including its productivity. And labor productivity in healthcare is a huge problem: in the past 20 years, it has actually declined by 0.6% per year within healthcare, while growing by 1.8% annually in the overall economy. Technology-enabled transformation is desperately needed, and entrepreneurs in our space are dreaming big—from Dr. Dave Alpert with his iPhone ECG to technologist Ryan Howard creating a free EMR. Some may argue that Vinod Khosla and others are gamblers playing a game of roulette. We believe that they are helping make the future happen—by investing in visionary entrepreneurs.

Providing the resources and support for individuals to take these types of risks is critical for changing healthcare. It will enable to us to find the big, disruptive ideas that can transform the largest and least productive sector in our economy. Those are the ideas we are looking for at Rock Health. And we welcome everyone, including venture capitalists, to join us.

Halle Tecco is CEO of Rock Health, the first seed accelerator for digital health startups. Malay Gandhi is the Strategist in Residence at Rock Health.

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  • Terry Amiel

    Looks like BS, smells like BS, tastes like BS and it is probably BS! You are advocating that algorithms and technology will replace knowledge and experience to expedite care and reduce cost. Nobody mentioned here has any practical medical experience or has ever been in the “Trenches” so how can you honestly expect us to take this seriously?

  • http://onhealthtech.blogspot.com Margalit Gur-Arie

    Dear Ms. Tecco,
    Thank you for reading kevinmd and for your thoughtful response. Let me assure you that I fully understand the role played by venture capital in funding new technologies and disruptive innovation in a free-market. But let’s be honest, venture capital’s first and foremost interest in any funded company is, and by definition must be, return on investment.

    There is currently a perceived opportunity to obtain sizeable returns from disrupting health care with technology products and hence the interest of venture capital in digitizing health care. That’s not to say that some funded entrepreneurs are not entertaining lofty dreams of “fixing” health care, and it is entirely possible that by happenstance a useful idea will be indeed funded with venture capital. I guess there are some minuscule odds that this will be an overarching idea that will indeed “fix” health care. It looks like a reasonable gamble to me and it seems that this opinion is shared by a variety of venture capital firms and other private, and public, investment programs. But a gamble it is nevertheless.

    This is not much different than the current “green energy” gamble, and I find it humorous that VC firms engaged in building a visionary image of themselves, or the market segment they choose to invest in, are hedging their bets by also investing in “water flooding” (a.k.a. fracking) and technology aided identification of most fortuitous fossil fuel extraction sites (a.k.a. drilling for oil), which have a different shade of green attached to them.

    I’m sure you understand that health care is a complex beast, and I am certain you understand that technology in health care is a double-edged sword. While automating pregnancy tests and strep tests may have saved a few dollars (and the lives of many rabbits), other technologies also funded by venture capital have added and are adding much larger costs to health care delivery, sometimes with good outcomes and sometimes without. I am not holding venture capital responsible for these unfortunate circumstances, because it is up to society to close the feedback loop on the investment gamble and vote yay or nay on each offering, sending returns through the roof or through the floor.

    And this is why I found Mr. Khosla’s series of derogatory epithets aimed at the medical profession, and its long standing commitment to ethical relief of human suffering, objectionable and largely misinformed. There should be a fine line beyond which the (valid) need to make money should not be allowed to confuse public discourse. The last thing health care needs right now is a “dot health” debacle. Although Mr. Khosla has of course a right to his opinions, or PR campaign on behalf of his portfolio, as rude as it may be, the fact remains that our health care problems are much more related to predatory business models than to lack of technology, sci-fi notwithstanding, as evidenced by the practices of multiple other developed nations. And it certainly has nothing to do with the inferior quality of our physicians.

    When venture capital stands up and declares that it will forgo all profit and all returns on its investments in order to bring quality medical care to all our citizens regardless of socio-economic status, and to that end will finance our physicians’ timeless quest for providing the best and most compassionate care possible, to each and single patient, I will happily and gratefully retract the sentence you quote at the opening of your article. But such selfless act wouldn’t qualify as venture capital funding any longer, would it?

    • CPO_C_Ryback

      MGA, you and the “HCBlog” crowd (Obama) are a bunch of property-grabbers, because you can’t create enough interest in your own creative work.

      No one with a brain follows your crew because they don’t want to live in caves. They’re smart enough to know, iPods require capital.

      And BTW: ven-caps funded Apple. How about them apples, MGA?

    • http://twitter.com/davisliumd davisliumd

      Agree with everything you said!

      • http://onhealthtech.blogspot.com Margalit Gur-Arie

        Thank you, Dr. Liu. Your opinion means a lot to me.

  • buzzkillersmith

    Mr. Businessmanman: Your life’s purpose in a nutshell: Buy low and sell high.

    You talk of change, challenges, win-win, opportunities, transformation, disruptive opportunities, productivity, visionaries. Perhaps you should add that it is what it is. My advice: Go to med school and spend some time saving people’s lives in the middle of the night. Otherwise you have no standing to discuss these matters with us.

    So go sell your crazy somewhere else. This is a blog where people aren’t buying it.

    • CPO_C_Ryback

      Yeah, and a lot of people are tired to paying for the medical-industrial complex, with all its unsustainable waste and BS.

      Not buying your crazy BS.

  • azmd

    “In healthcare, this means parents can eventually do the work of nurses, nurse practitioners the work of primary care physicians, primary care physicians the work of specialists, and specialists the work of surgeons. The end result is not the elimination of skilled labor from the sector, but a cascading reconfiguration of the work.”

    This is really the crux of what is going on in healthcare these days, and it parallels what is going on in the corporate world: workers are being squeezed to do more and more with less and less, all in the name of “productivity” aka putting a greater share of scarce resources in the pockets of management, investors and executives, and less in the pockets of the front-line workers and the patients who are struggling to survive in an increasingly unbalanced system.

    “A cascading reconfiguration of the work” when you come right down to it, just means that people are being forced to do more work. Parents and family members are being forced to take on nursing tasks that in a previous generation would have been accomplished by trained nurses in a hospital setting. And the internist, who previously could spell herself in between challenging cases with a 20 minute break taking care of a less-complicated strep pharyngitis patient, is now seeing a continuous 10-hour stream of high-acuity cases, because the strep patients have been siphoned off to a nurse practitioner. All very efficient, but it doesn’t take into account the inconvenient fact that people are not robots with an unlimited capacity for work.

    To hold these trends up as an example of visionary thinking and “disruptive innovation” is just more self-justifying blather from those who are profiting handsomely from corruption in our healthcare system.

  • matt298

    What’s wrong with all of you?

    People besides former nurses and doctors can positively affect healthcare, and for the record, a lot of Rock Health startups and VC-backed companies have experienced doctors at the helm. And, you do know that Mayo and Harvard believe in what Rock Health is doing? Some very smart and visionary people in healthcare do buy Ms. Tecco’s “BS”.

    As for “unsustainable waste and BS”, maybe you’re referring to Medicare fraud, or the lack of price transparency in healthcare, or poorly compliant patients, or no preventative medicine, or ridiculous insurance paperwork and defensive medicine practices. These are the problems that Rock Health and the health IT movement are trying to solve.

    It’s scary to those of us in medicine. Once upon a time, cardiothoracic surgeons made a lot of money doing bypass surgeries, but for-profit companies created stents and now cardiologists can fix those coronary plaques. Bad for CT surgeons that spent a lot of time training to do bypass surgery, good for patients who don’t need their chests opened anymore.

    Yes, innovation and aggressively for-profit startups can be bad for providers but good for patients. Instead of pretending to be without self-interest (everyone likes job security), shouldn’t we in healthcare be innovating instead of letting outsiders do it for us?