January 12, 2018
Interviewed by: Matt Malone
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Value-based care & PE: where are we now?

Roger Holstein of Vestar Capital Partners, Adam Dolder of Great Point Partners, and Carole Faig of EY discuss the future of value-based healthcare and other changes that could rapidly impact private equity investment.

Roger Holstein of Vestar Capital Partners, Adam Dolder of Great Point Partners, and Carole Faig of EY discuss the future of value-based healthcare and other changes that could rapidly impact private equity investment.

Value-based care & PE: where are we now?

Matthew Malone, Privcap:
Hi, I’m Matt Malone from Privcap. I’m very happy to be joined today by Carole Faig of EY, Roger Holstein of Vestar Capital Partners, and Adam Dolder of Great Point Partners. Welcome, everyone.

Unison: Thank you.

Malone: We’re talking today about the transition to value-based care within the U.S. healthcare system. As I understand it, one of the changes borne of that transformation is where care is delivered. So, can you talk a bit, Carole, about how that’s changed over time? Or where we stand today in that evolution?

Carole Faig, EY:

I think, just simplistically, you see a tremendous transformation from inpatient care to outpatient care. So, just the outpatient setting itself less, and less being done within the four walls of the hospital setting and moving into outside the hospital setting.

Roger Holstein, Vestar Capital Partners:

I think there is as much of a shift from a red state to a blue state, or a blue state to a red state. Because it’s not just a matter of moving from a physical location—inpatient to outpatient—or employee, physician, from affiliate physician, to ER, to urgent care, office visit to virtual visit. I think it’s actually larger than that. It’s really about a fundamental cultural change, because in the end it’s about changing fundamental behaviors about what is appropriate utilization and whether that’s the consumer making the informed decision, or a provider making an informed decision. It’s very different.

If we’re going reduce the volume of MRIs, reduce the numbers of inappropriate surgeries and improve the practice to guidelines, it’s really a cultural change. It’s not merely a physical change. Therein lies a lot of opportunity, though, which is where are the companies that you can reward because they’re driving efficiency, they’re driving effectiveness, they’re driving outcomes. They’re part of this cultural change where the behavior, whether to the provider or the consumer, can be impacted and changed.

Malone: From the perspective of private equity investment and the delivery of care, where does opportunity lie today? Where is the money going, if you will?

Adam Dolder, Great Point Partners:

Yeah, sure. Picking up on one idea, home care is a natural here. Both from the traditional home care, paid by Medicare. But when we think about it from the private-duty landscape as well, because that has just better growth dynamics. A few more consumer dynamics. One thing to think about is what’s the consumerism capability in any of these investment themes? If you look at other provider-based businesses, there’s a big buzz around dermatology, people still like dental. These are things that will have consumer overlays to them, where I think you see a lot of capital in pursuit of. We probably take a bit finer strain because why does it make sense for some of those guys to be aggregated is a question that maybe we could spend some other time around. But those are some things we see come across our desks.

Malone: Roger, where are you seeing opportunity today when it comes to the delivery of care in these non-hospital settings that move away from the traditional modes of care?

Holstein: A couple of areas come to mind. I probably focus more on provider services than the providers themselves. So, I’m looking for opportunities to find services that these providers will need to succeed in a value-based environment. That could be anything from … For example, take a look at MIPs today. Doctors are about to be measured on the quality of their performance and, in the next couple of years, a pretty significant amount of their Medicare reimbursement will be driven by that.

So, I think we’re going to see a lot more investment in companies that are organizing around performance-based measures, as a good example. Providing that kind of capability into providers is a good example. Another example for providers in this new world is that, regardless of the movement, with value they need to be able to acquire, maintain and communicate with patients. If you want to get to a lower-cost environment where you’re at risk, one of your biggest issues is that people see the doctor three to four times a year, 15 minutes at a time, maybe an hour, in the course of a year. Yet our health happens, as consumers, in the roughly 8,750 hours that we’re not with a physician.

Faig: Just a couple of things I would add, because we talked about the setting, we’ve talked about the services…. The organizations that are helping to manage accountable care organizations—the backoffice functions, those managing—even Medicare Advantage plans, getting into the payer side of things. I think there is tremendous opportunity to derive value out of those areas and that will continue to be increasing.

Malone: Given that the delivery setting is, on one hand, the provider’s part of the equation, maybe this is the big question: How do you influence the behavior of consumers?

Dolder: I don’t want to make it too simple—maybe I’m too much of an Adam Smith fan, but I honestly believe people do exactly what you incentivize them to do. Now, in this equation there’s more than just an economic incentive, where our copays, our coinsurance, our deductibles can be set to encourage us to take a first look at a particular path. Then, there are all these other things that come down the pipe a bit, which is, what is my quality of life going to be afterwards?

We were talking a bit offline earlier on this idea of going to a specialist. You will have hip specialists, and you will have knee specialists. The data that is in that case, the knee specialists get total knees down to less than 27 minutes per procedure. From entry to OR to exit. The Nosocomial infection rate is lower, the physical therapy protocol they have afterward is faster. The outcomes are just better, right?

Those types of things—if you can get that information into a consumer’s hands, consumer patient’s hands, then combine it with economic incentives, I think we will really have a transformational outcome on the healthcare system.

Faig: Something we haven’t really touched much upon would be the concept of the customer experience. I do think that you can drive consumer behavior by the experience itself and making the access easier, making the actual delivery of the service—really addressing it from a customer/patient experience perspective. I think there’s opportunity there to influence the consumer.

Malone: Roger, back to this notion that health happens well beyond the handful of hours we’re in front of a doctor in any given year. When it comes to the consumer and getting away from treating things when they’re acute and preventative care, what sort of innovations are there right now that are helping to make that transformation maybe shift in the consumer’s mind the way they think about how they’re getting care delivered?

Holstein: This world that Carole mentioned of population health—and there’s many, many aspects of that—is an interesting notion. Because what it’s really talking about is can we influence the behavior of patients and can we influence that in a variety of ways? From the decision they make in terms of what provider, to the care that they may get, the treatment, their maintenance, their lifestyle. It talks to many of these issues. The original point that Adam made earlier—we’d like to believe it teaches us that the decisions we make are rational. But what Thaler shows us in behavioral economics is that that’s not the case at all. For physicians, what they say is that overconfidence is the mother of all biases. For consumers, what they say is that present bias is the biggest bias we have. It’s that decision we make to have that donut or to drink that diet soda, or whatever we’re doing that’s probably wrong for us. To not exercise, to not eat correctly, to not get the right rest, etc.

If you think about the influence we have upon each other, it’s dramatic. So, you ask the question, “What can we do, what can influence behavior?” I think social media appropriated in the healthcare space is going to be a very important part of the equation. Now, we have a lot of issues with social media in the press today, in terms of how perhaps propaganda may or may not have influenced an election. But, these engines of social connection have huge influence on how we behave. If we can find ways to capture—there’s many companies looking at this right now—so that we can influence the health of the population and to guide people in the right direction, I think there’s real opportunity there.

I think the other area is around AI. A good example might be that you’re monitoring patients who have congestive heart failure. It’s important that they monitor their weight on a daily basis. How are you going to really do that? You might have a device or a scale that’s connected to the internet. But how are you going to prompt them? The beauty today is that the mobile phone is the connecting point. We all have one and that mobile phone allows us to not passively—most of the internet today has been passive: we access it, we control it. But with AI, all of a sudden, that mobile phone can come alive, it can have a conversation with us. It can drive us to ask and answer questions that will allow the receipt of new data that’s needed—not by the physician in this case, but by the health system—to know how I’m doing, has my weight changed, have I been eating correctly, did I take my medication, am I adhering to my treatment?

Dolder: It’s a wonderful overview of behavioral change to impact the cost of healthcare system. One thing we haven’t spent any time talking about, which is beyond behavior, beyond anything else, beyond only one hour with your physician per year is that we are all made up of a certain genetic code. There is nothing that anybody can do to change the fact that, if you have a cholesterol problem and it’s genetic, get on the statins. I don’t care how much you run, I don’t care how many burgers you cut out of your diet, you have a problem that needs to be solved through that therapeutic channel.

The overlay that needs to come into the traditional healthcare universe, that pharma and biotech drive. If you look at the cost, the sequence, the genome, the first genome cost $100 million to sequence. You can now sequence anybody’s genome for less than $1,000. That data should absolutely be in all of our profiles for the healthcare system, because science will continue to match protocol and personalized medicine basis to increase our quality of life before it gets to an acute stage where it becomes very expensive to manage. I still find that to be a massive disconnect between pharma biotech and, then, the whole healthcare info structure universe that needs to be crossed over in order to really address a lot of the things we’ve discussed here today.

Holstein: That’s a great point. I think it gets to that issue of what I said—that physicians, too, play in a field where they scale to sort of worded against them. We don’t have all the information we need to make more informed decisions. While it’s a privacy issue on the one hand, when you have that genetic information, it would really guide physician decision-making in a lot of ways.

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