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The venture capital industry is leading the way in groundbreaking medical technology. In this episode, we explore what startups need to know about navigating the challenges and regulations in the healthcare space.
Welcome to the Venture Capitol podcast, the place where politicians can impact the startup industry nationwide. Join NVCA President & CEO Bobby Franklin for a unique podcast that looks at public policy through the eyes of America’s venture capitalists — the people who are investing in the high-growth companies of tomorrow. This show brings together VCs, policymakers, and policy influencers to discuss and debate issues that affect our nation’s economic future.
Speaker 1 (00:05):
Hello everyone, I'm Bobby Franklin. Thank you for joining me for another episode of NCA's Venture Capital. In this episode, we'll talk about how the startup ecosystem plays a critical role in healthcare innovation. You'll hear from Vineeta Agarwala, General Partner at Andreessen Horowitz and Mohamad Makhzoumi, Managing General Partner Healthcare NEA. Before we get started, we want to know what you'd like us to discuss in future episodes of Venture Capital. Email us at podcast@nvca.org with your ideas and suggestions, or reach out to us on Twitter or LinkedIn and help us spread the word about Venture Capital by writing a review on Apple Podcast and telling your friends about the show.
(00:49):
Now let's get the show started. The pandemic put Healthcare Innovation in the spotlight. We all know how Moderna, a VC back company created a COVID vaccine and got it to the market quickly to save lives, but Moderna is just one example of how the venture industry is leading the way in groundbreaking medical technology, improving the health of Americans and people all around the world. I'm excited to introduce our listeners to a unique VC. After all, not many doctors decide to become venture capitalists, but this doctor did just that. Please welcome Vineeta Agarwala, General Partner at Andreessen Horowitz. She's also a current member of the NVCA Board of Directors. Vineeta, welcome to the show.
Speaker 2 (01:34):
Thank you for having me, Bobby.
Speaker 1 (01:35):
So Vineeta, first question, and this is also a little bit about your background. You've played many roles in the healthcare space, a physician, obviously, as an operator at health tech startups, and now as a VC on the a16z Bio and Health Investing team. Tell me how each of these roles have shaped what you're doing today.
Speaker 2 (01:57):
I think that the unifying theme for me really has been patient impact. And although these roles sound very disparate and sometimes hard to weave together, they are all actually quite unified on that basis. And I entered medicine as a physician to have an impact on patients, realized I could have an enormous impact on the patients who I could see in a given day with whom I could help chart a path of care, but that was a limited set of patients that I could impact as an individual physician. I got very interested in translational research and science as a path by which to take an observation that you make in the clinic and say, "Hey, this is a set of patients for whom we can, we ought to, we must do better." Maybe science can help push the boundary of what's possible and what's possible to translate ultimately into patients.
(02:50):
And that's been another place where I've grown a lot and learned a lot and been very inspired, is in the research setting. And then ultimately, had the realization that the two really come together in a substantial and scaled way in the industry setting. And that a lot of really exciting startups are really living at that bleeding edge of bringing science, clinical impact, research all together in a combination of both healthcare focused and life sciences focused startups. And so really caught the startup bug and ultimately that led me to VC. So I think in a way, all of these roles are laser focused on figuring out how do you make an impact on the patient at scale and how do you do that sustainably in a way that can be financed and executed to excellence.
Speaker 1 (03:43):
Well, that's great and thank you for what you do on behalf of all of us that need improved healthcare in our lives. Let me ask you from the startup perspective, what's the biggest challenge in the healthcare space?
Speaker 2 (03:59):
The top challenge, frankly, I'll just say, is always related, I think, in some ways to the Hippocratic Oath, which is that any clinical provider has taken a really quite serious oath to do no harm. And we already have a healthcare system. It's not perfect. We all know that. We all have experienced as patients and as family members, the ways in which, gosh, couldn't this be better and couldn't that be better? But if you're a new entrant coming into this space, into this ecosystem that already exists, that already has practicing providers, infrastructure care delivery resources, a communication infrastructure, I really do think the first oath you have to remind yourself of as a healthcare startup is do no harm. The worst possible outcome would be that you muck it up in some way that's worse or you cause patient outcomes or patient impact that you wouldn't be proud of.
(04:55):
And that's really important to keep in mind as your north star and to recognize that that's not easy to create better outcomes or to create a more seamless experience or to create even better transactions, even if you're a startup working on the backend infrastructure of healthcare without figuring out how to actually connect to that existing infrastructure and ecosystem. And it is just very hard. The reimbursement, the systems of record, the technology infrastructure, the users of that technology, every one of those steps has some inertia to change.
(05:33):
The startup has to navigate this tight rope of getting it to change but in the right direction, not in a direction that might be harmful to any of the constituents and incumbents and organizations already mission-aligned to delivering healthcare. So that's probably the greatest challenge that I see. And I also see a lot of policy that's been well-designed to try to make those challenges a little bit less challenging, which is initiatives around interoperability, initiatives around better reimbursement rails, initiatives around even EHR adoption, hearkening back to almost a decade ago at this point. And so these were all, from the VC landscape, initiatives that I see as making it easier for startups to integrate with that existing healthcare ecosystem.
Speaker 1 (06:24):
I'm picturing the healthcare system that I have experienced. My dad was a physician, so I do have some visibility as a young kid into that. And I'm thinking about what you just said about all the different players and the Hippocratic Oath, which I love. And now I'm thinking about, because I sit here in Washington here at NVCA, and I'm thinking about, okay, when the government is involved at many of these different layers, how can Washington be a better partner in advancing health innovation?
Speaker 2 (06:56):
First of all, I'll say people tend to view regulation and policy as hindering startup velocity. And I think in healthcare that is actually the farthest thing from the truth. Most instances of really creative policy, legislation, care model innovation, incentives for technology adoption, initiatives to leverage real world data, clinical trial infrastructure, there are myriad examples of policy that have actually been accelerants for the startups who have taken that oath and are committed to interfacing and integrating with our existing healthcare system. And that really paves the road for those startups to accelerate in a direction that everybody is accelerating towards. And that's just a fundamental law of physics and healthcare is that you can't accelerate on your own orthogonally to the way the rest of this healthcare infrastructure is. This is a 20% of GDP situation we're looking at. And so it's very difficult to move completely orthogonally from the rest of that system.
(08:05):
You have to work in a way that services the needs of many of the other stakeholders to ultimately scale as a startup. So I'll just start by saying that I think many of the policy initiatives that have come out of Washington have been enormously helpful for startups. Often the regulated industries are the places where you can have the greatest impact and actually benefit from regulation. What can Washington do better? I think for me, maybe the places where we can innovate together still more effectively are related to implementation against certain policy initiatives. And this is a call to action to the startup community as much as it is to the Washington community, which is that sometimes I think we are really good on both sides of this house, Washington and the technology community at needs identification. And we're really good at articulating the problems and we have a really clear understanding of what could be better.
(09:06):
We look at let's say maternal health care deserts in America and we can figure out which zip codes those are, we can figure out the conditions, we can figure out the patients, we can figure out the gaps in provider offerings, and we describe it very well. But then where we collectively struggle is to implement a technology solution that actually solves that problem. Sometimes it's because we can't quite figure out the technology, but I would argue more often than not it's because we can't quite figure out how to get the stakeholders aligned on a given plan. And CMMI has done this quite well, I would say, on a number of new care models that actually align to Medicare Medicaid reimbursement models. I view the kidney care models, for example, as very impactful in this domain, creating clear financial incentives to help patients access home dialysis in their journey, to avoid in-person hemodialysis options, to create lots of, ultimately, financial incentives, which are okay in healthcare. It is okay to have financial incentives.
Speaker 1 (10:19):
If you don't have financial incentives, you don't have innovation, if you don't have financial incentives, you don't have new product service.
Speaker 2 (10:26):
Agreed. Agreed. No, and physicians are extremely, I think, mission-oriented as we talked about with respect to the Hippocratic oath and desire for patient impact. But ultimately, there's still economic actors and I think that's something we need to embrace and be comfortable with. And so creating financial incentives for providers, for payers, for startups to jointly work on a problem like, I think, the kidney care model new care models did is hugely impactful. And then we might say, "Hey Washington, are there ways we could take even a step further where you could potentially collaborate with the technology industry in evaluating technology infrastructure that actually helps take to that last mile the care model that you have designed?" And so I think there are still examples of this in the world of primary care enablement, in the world of Medicaid incentive realignment where we've come up with ACO structures and different reimbursement regimes to incentivize different outcomes and different behaviors.
(11:37):
But often the majority of providers across the country don't have the technology to actually be able to change their behavior along those lines. A general problem with value-based care implementation, it's really hard. There are no easy solutions, but if you ask me as a doctor to really try to change my fundamental mindset from seeing one patient at a time to trying to figure out how to manage total cost of care, that's not what I got trained to do in med school. I got trained to make reasonably good diagnostic decisions and treatment decisions one step at a time. I didn't get trained, actually, to try to minimize the cost of care of my Medicare Medicaid panel in the wave of looming Medicare insolvency. That's not what I got trained to do. Certainly I think there's a huge role for technology to help providers actually, not just providers, but all stakeholders take to implementation the policy initiatives that are coming out of Washington. And so I hope there can be more collaboration.
Speaker 1 (12:44):
You made an interesting point just about how a regulatory environment can be enabling, and I think that's important. We just had an episode on Venture Capital where we were talking about cryptocurrency and blockchain investments and there you have a whole industry that's interested in there being a regulatory rules of the road. But back to healthcare, can you give us some examples of startups that have benefited from this regulatory enablement?
Speaker 2 (13:11):
Absolutely. So in a sense, the entire EHR industry-
Speaker 1 (13:17):
That's electronic health records,
Speaker 2 (13:19):
Correct, benefited from a set of incentives that originally came out of Washington, creating financial incentives for providers to adopt EHR technologies, created very clear payment structures and reimbursement incentives for providers that adopted electronic documentation systems and led to within a five year period, enormous adoption to the point where now it's a very tiny minority of doctors who if you go to see that doctor, they're not working with an electronic health record. And so there were a bunch of startups in that field actually that benefited from that policy legislation. At the time, Athena Health, now Epic, is a huge player in that system. So both scaled, small and large, EHR companies creating technology that they're trying to design with the provider in mind and the insurance companies in mind and everybody in mind to create difficult healthcare workflows.
(14:22):
The same is happening to some extent in oncology where a lot of great policy makers have come together with the oncology KOLs across the country and said, "Hey, what does good cancer care look like? What are the gaps that we're seeing today? Is it clinical trial access? Is it how we pay for biologics? Is it how we manage symptoms for patients? Is it access to care at the end of life for cancer patients? What are the real really important dimensions on which we could make cancer care better in America?" And all of that input was fed into a variety of different oncology care models over the last few years. I think there was also room for improvement and how we implemented against those models. Most oncology practices were left high and dry in terms of figuring out, hey, how do I resource against this new model? Who do I have to hire? What do I have to do? How will I get the data? And so I think there was a lot more we could have and can continue to do from an implementation standpoint.
(15:24):
The last one I'd flag is the 21st Century Cures Act. So lots of really interesting initiatives there related to data types and data assets that the FDA signaled that they were motivated to consider looking at as part of the evaluation of new drug products. And that created a whole set of companies that thought, okay, if real world data collected in the course of routine patient care can be part of our country's research engine for developing new therapies, well wow, that's a big opportunity. That should help new drugs get to market faster. That should help us figure out where new drugs should be purposed in our population. That should help us figure out after drugs are approved, whether or not they're actually working. And so in all these domains, companies were stood up and that included companies like Flat Iron Health where I worked, Verana Health, a whole bunch of other startups that have, Komodo Health, that have really benefited from the policy.
Speaker 1 (16:24):
So, Vineeta, talking about the role that Washington can play here, how important do you think it is for folks like yourself or physicians or venture capitalists and the few of you that or both of those to be in Washington and talk to policy makers?
Speaker 2 (16:41):
I personally have to say that it was eyeopening and an enormous experience for me to be on The Hill guided by the NVCA team and just to be in listening mode, frankly, to learn about what it is that policy makers want more exposure to, where they feel that startups can be a part of the solution that they're trying to create. And also to share a little bit about what our companies, the startup companies that we work with are doing out in the field, pretty removed from the academic discussions about where we might like to get to. The startups are in this different category of headspace where they're, what can I do tomorrow, what could I have done yesterday? And that's a really interesting energy to bring, I hope, to the policy discussions that happen in Washington.
(17:37):
But I felt really fortunate to meet with multiple policy makers, some of whom are physicians, which was really, really exciting. And many of them know that healthcare very top of mind for their constituents, rightfully so, right? We've all had the experience as a patient or a family member. When health takes a downturn, it can really occupy your whole life and really fundamentally change your productivity as a citizen and your ability to bring your full self to any initiative that you're bringing energy to on a normal basis. And so I think it's just there's no other way to say it. Healthcare is the most fundamental asset we all have as people. And it was wonderful to see the appreciation for that amongst policy makers on The Hill and the energy to figure out what we can do to make that healthcare get better and better. So I loved it.
Speaker 1 (18:38):
Well, it's great that you did it and we're probably going to ask you to do more of it, so thank you for that. And from a perspective in Washington, I think it's very important for policy makers to hear directly from people who are trying to impact change, trying to increase and bring more benefits of products and services to the healthcare teams and just the way we deliver healthcare, so thank you. Vineeta Agarwala, physician, operator in health tech startups, and now venture capitalists at a16z Bio and Health Investing. Thank you for joining us here on Venture Capital.
Speaker 2 (19:14):
Thank you, Bobby.
Speaker 1 (19:18):
My next guess is Mohamad Makhzoumi, Managing General Partner of Healthcare at New Enterprise Associates. He also leads NEA's global healthcare investing practice and has a strong background in the digital health space. And like our previous guest, he is also a current member of NVCA's Board of Directors. Welcome to the show, Mo.
Mohamad Makhzoumi (19:39):
Yeah, thanks Bobby. Great to be here. I would also say like your previous guest, a board member at Waymark, a really interesting Medicaid startup, Vineeta and I partnered on together. So great to be here.
Speaker 1 (19:49):
Awesome. Well, maybe we could talk about that. So thanks for joining us. VCs are right in the middle of the intersection of technology and healthcare. Talk a little bit about how are VCs helping to advance healthcare innovation?
Mohamad Makhzoumi (20:04):
I think fundamentally advancements in healthcare innovation, whether they're in the lab in the form of new technologies, in biopharma, biotech, in medical devices or innovations in how care is delivered in healthcare IT and healthcare services, the vast majority of that can trace its roots back to venture capital. I mean, the reality today is that the big pharma companies and the large life sciences companies have by and large abdicated large R&D budgets and they've effectively outsourced that to the venture backed ecosystem. And then they'll look to acquire those companies once they get positive phase one, phase two, phase three clinical data. And so candidly, even unlike technology enterprise software and consumer, healthcare innovation is almost entirely dependent on the venture capital ecosystem.
(20:56):
I mean, look, no further than two venture backed companies, Moderna and BioNTech were the reasons that we were fortunate to have COVID vaccines so quickly here early on in the pandemic. And so it's vital that our healthcare system have a vibrant, well-funded healthcare venture ecosystem to fund that innovation because it's not coming from any other pocket other than venture backed companies. And not only is that creating jobs, not only is it improving the quality of healthcare in our country, but it's saving all of us as taxpayers a tremendous amount of money as we remove a lot of that legacy cost from the system. And technology is helping to do that.
Speaker 1 (21:43):
Wow. Well said. Thanks for that. I know access to affordable healthcare in this country is a challenge. Can you give examples of startups you've invested in that have improved people's access to health services?
Mohamad Makhzoumi (21:56):
Yeah, Bobby, I've been doing for, this is 22nd year at NEA, believe it or not, and a lot changed in 22 years. What hasn't changed, unfortunately, is the challenges within our healthcare system and those challenges, I think you can bucketize them into three categories, access, cost, and quality. And access is where it all begins because a lot of the downstream increase in cost and reduction in quality comes from lack of access. And not only lack of access, Bobby, but lack of access to underserved communities because if you think about our healthcare dollar as a country, it's not equal. An engineer at Google on their Mountain View campus is not as costly, on average, on an actuarial basis, is not as costly to our system as a factory line worker at a GM plant in Michigan just based on actuarial data and based on socioeconomic class.
(23:05):
And so it's a huge problem and it's a problem that doesn't exist in other countries where there's more of a single payer healthcare system. But here in the US, we have all these different constituents that pay for healthcare, the government in the form of Medicare and Medicaid, employers in the form of self-insured plans, and obviously individuals in the form of a dramatically accelerating out-of-pocket copays and deductibles. And so one company that I'm particularly proud of, which is a company that is servicing those factory workers is a company called Everside Health and employer healthcare, that's where most Americans between the ages of 21 and 60 get their healthcare. NEA is a self-funded employer that offers health benefits to our employees. I know NVCA is the same, Bobby. Effectively, what that creates is every employer is its own health insurance entity. Every employer is responsible for managing that risk, establishing a network, managing utilization, managing out-of-network. And the result is it's a massive line item.
(24:15):
One of my partners, Jeff Immelt, who obviously was CEO of GE and GE Healthcare likes to say that every CEO in America is a healthcare CEO. I mean, when Starbucks spends more on its employees healthcare than they do on coffee beans, they're a healthcare company. So Everside is building onsite and near site clinics, some of which are virtual, by the way, using telemedicine and telehealth to allow employees for self-insured employers to access almost like a concierge style primary care without the cost. And so I'm based in Silicon Valley, as you know, Bobby, so much of what I see funded here is designed for Silicon Valley companies, Facebook, Apple, Alphabet, and that's great, but that is not indicative of what the majority of American companies are looking for or can afford from a healthcare experience.
(25:11):
So Everside is in places like Ohio, Pennsylvania, New Jersey, Texas. Their customers are Taft-Hartley plans, their customers are unions, their customers are Akron teachers. And they are fundamentally doing three things, not only are they increasing access for those employees who wouldn't otherwise have a primary care relationship, but they're delivering super high quality care and they're impacting cost for those employers. So it really is a triple aim. That business we funded in 2018, they had 20 million of revenue and today they're north of 200 just in the last four years. So it's super, super gratifying to see.
Speaker 1 (25:52):
That's awesome, so that was access. Now let's turn to another topic. I know you have some experience here, the senior population, and I didn't mean that because you're senior, you said you've been there 22 years. I've been in Washington 30 years, but I do have parents who are in their eighties and they live in Arkansas. So the senior population in this country's growing and during the pandemic, senior housing was hit hard. Tell me more about what can or is being done to improve the health services available for older folks in our country?
Mohamad Makhzoumi (26:23):
Bobby, you hit the nail on the head. I mean, by far the most vulnerable population over the course of this pandemic has been seniors. And if you want to be specific about it, seniors living in retirement communities, skilled nursing facilities, long-term care hospitals, those seniors are the ones most at risk if you think about COVID, but they're also managing multiple comorbidities. They've got typically a care team spread across different hospitals managing their care and care coordination for seniors becomes a challenge. And so we've spent a lot of time looking at how to better deliver care to Medicare age over 65, and particularly those seniors in those facilities. And it's a challenge because unlike your... I hate to go back to this Alphabet engineer analogy, but unlike your engineer at Alphabet, they're not used to living their life through a phone. They're not as comfortable with a... You and I love telemedicine, we don't have to leave our house. But that's not the case for most seniors.
(27:27):
And by the way, most of their high acuity conditions don't lend themselves readily to a telemedicine visit. So it's still very much in-person blocking and tackling to make sure that they're taking their medicine, that they're not enduring any suboptimal outcomes and managing them in a way that doesn't have them landing in an ER or crashing in an ICU because that's where bad outcomes happen and high cost is effectuated. So much of what we do at NEA is create companies. We're not waiting for the phone to ring. We've been in healthcare for a very long time. This is our 44th year investing in healthcare as a firm.
(28:12):
And so fundamentally, we saw this need and we started a company called Curana, which is focused on creating a special needs plan, called a SNP, that's tailored to seniors living in skilled nursing facilities, retirement communities, and long-term care hospitals. And so what they've done is gone from zero to about 300 million of revenue just in the last year and a half. We started this company during COVID in early 2021, and the best part about it is the outcomes they're delivering to these seniors. It's improving utilization, it's improving healthcare outcomes. And fundamentally, they're driving care to seniors who were not otherwise being seen until there was some adverse event and they were landing in an ER. But honestly, Bobby, it's such low hanging fruit in terms of a little goes a long way.
Speaker 1 (29:04):
We at NVCA obviously are focused on the intersection of public policy and the industry and many times we're translators for the industry to Washington and from Washington back to the industry. So my question is, what are some of the challenges you and the startups you've mentioned or others that you know of, invest in or just aware of, what are those challenges they face in the development and growth stages and how can policy makers here in Washington or maybe even at state level, better support innovation occurring in this space?
Mohamad Makhzoumi (29:39):
It's really hard to build a company. It's really hard to come up with a unique product. It's really hard to scale it and grow it and deliver it and then obviously effectuate an outcome that is positive for all constituents, employees, investors, and patients. All of that is hard. What makes it even harder is what we call stroke of the pen risk, which is healthcare is a highly regulated industry as it should be when you're dealing with people's lives, you're dealing with sensitive data like HIPAA, thank God healthcare is regulated by our federal and local government. At the same time, there are so many unintended consequences that I think regulators, politicians, people working in state departments of insurance don't necessarily understand when they're making decisions. Unfortunately, Bobby, the lobbies for large healthcare incumbents, they put the NVCA to shame in terms of their purchasing power. And when I say purchasing power, I mean on The Hill.
(30:40):
And so fundamentally, it's super important for politicians and regulators to be mindful of the startup ecosystem in healthcare and mindful that what is good for the large, massive incumbent who's gobbling up all this profit and is benefiting from this inefficient, expensive healthcare system, let's not solve their problems. Let's make it easier for disruptive new companies and technologies to come in because why? Because what we talked about, they are delivering lower cost care to more people with higher quality. And so let's create a system that incentivizes that as opposed to makes it even harder for them. I'm not talking about easing the regulatory hurdle. Let's hold them to a high standard from a high trust certification and HIPAA and patient privacy, but let's not change reimbursements.
(31:35):
There's all these things that go into... I mean, look, we saw it with the Affordable Care Act in 2010, "Obamacare." We saw it again when President Trump tried to pull out a lot of that. Healthcare is a political football constantly. And so super important, the NVCA does a great job of this of reminding legislators and regulators that you want to make decisions that promote and enhance the opportunity for new companies to come in because those new companies are doing what our system needs to be done, which is take this four and a half trillion dollar spend that we spend as a country and make it more efficient or hopefully bring it down.
Speaker 1 (32:16):
Well, you've just proven to my listeners what a great board of directors that I get to have by your comments here and the work that you do and your ability to share with policy makers what's important and why it's important, as did Vineeta, our earlier guests. So I just want to thank you Mo Makhzoumi, Managing General Partner of Healthcare at NEA. Thanks for being on Venture Capital today.
Mohamad Makhzoumi (32:39):
Well, I'm a privileged, Bobby, and invite me back anytime and let's just remember healthcare more important than tech. We'll talk about it the next NVCA at board meeting, right?
Speaker 1 (32:49):
I love it. Thanks, Mo.
Mohamad Makhzoumi (32:50):
You bet.
Speaker 1 (32:55):
Now before we leave you, here's another fun fact. The US Capital isn't totally American. In fact, it was designed by a Scottish doctor named William Thornton. George Washington and Thomas Jefferson held a contest to design the building with a winning prize of $500, but they didn't like any of the 17 entries they received. Thornton submitted his designs after the deadline, but Washington and Jefferson liked it so much, they chose his design anyway. Thank you for listening to Venture Capital, a podcast from the National Venture Capital Association. Don't forget to rate and review the show on Apple Podcast, share your thoughts and ideas with us on Twitter or LinkedIn and tell your friends about the show. I'm your host, Bobby Franklin. Wishing you good days ahead. Bye for now.