The federal shutdown may be over (for now), but President Barack Obama's new health care law continues to be one of the nation's hottest topics. In this week's edition of Elevator Pitch, we ask health-tech investor Lisa Suennen what the law means for Silicon Valley.
Suennen is a co-founder of Psilos Group, a 15-year-old firm with some $600 million under management. Based in Corte Madera, she focuses on health care IT.
Q How'd you get into this racket?
A I worked at a health-care company (Merit Behavioral Care) that delivered and managed mental health and substance abuse care to over 35 million people. I joined when it was a startup and left when it had grown to $800 million a year in revenue, and we sold it to a competitor. The focus of the company was taking a nontraditional model that emphasized matching people to the right care at the right time, regardless of benefit design, etc., to minimize cost and maximize clinical outcome.
It worked. We saved our clients an average of 15 to 30 percent on these health care costs, and patients got better care. After we sold the company, we decided that this approach of aligning the incentives of patients, payers and providers could apply to all of medicine, not just behavioral health. Psilos was started by several of us who had worked together to implement that philosophy at a time when it was considered a particularly strange idea. Today it is the story on everyone's lips.
Q What kinds of pitches are you looking for now?
A We are particularly interested in products or services that reduce costs while improving quality. It is a uniquely transformative time in the health care system. The combination of stress on the economy, Obamacare and readily accessible cheap technology makes new solutions possible to help us remove the waste, error and poor quality that is too often the product of the system we have come to know.
Health care technology and service solutions that enable these great leaps forward in quality of care, value of care delivered and engagement of consumers in a changing system are very attractive to us. Also we want to see revenue-stage companies; we don't do Series A or early stage.
Q What's the next big thing going to be?
A In health care, it is going to be the dramatic changing role of the consumer with respect to purchasing health insurance and health services. In the past, people with health insurance had no role in purchasing it, by and large. Insurers sold to business and consumers spent the money, usually not caring much about how much things cost or what value was being had for money spent.
As the world shifts toward consumers purchasing through health insurance exchanges, combined with the significant cost-shifting that has happened as employers put more and more of the cost burden on employees, the insurers are going to have to think of themselves for the first time as business-to-consumer companies, not business-to-business companies. And the patients/consumers have to get savvier about how their own money is being spent, by having access to information about how much care costs and what they are getting for their money.
This opens up a whole world of products and services that facilitate the transition and, hopefully, get consumers to think more proactively about their health ... although that last part isn't easy.
Q Talk about the challenges of health care investing. On the one hand, lots of VC firms have shut their life sciences practices in the recent past. On the other hand, it's been a good year for biotech IPOs.
A Unfortunately, health care investing has become very unpopular among the institutional investors. They view it as very risky, given the changing market dynamics, reimbursement pressure, regulatory complexity, health reform etc. Their view has too often become, "Why take a chance on health care when the next Instagram may be around the corner?" It's a shame, because the type and amount of transformation going on in our health care system has created a rich opportunity for innovation to support those changes, and that innovation needs capital.
Fortunately, there are a number of strategic investors -- mainly companies in health care and adjacent sectors -- that see the opportunity and are helping fill the capital gap for an industry that represents 20 percent of our national economy. I simply cannot understand how people can avoid this large an opportunity out of lack of industry knowledge or out of fear of risk -- it is a profoundly missed opportunity.
Q Is the president's new health care law good for Silicon Valley?
A Absolutely yes. Obamacare, love it or hate it, has been a catalyst for changes we simply must make in our health care system if the nation is going to remain competitive as an international player. We cannot continue to spend money in the health care system the way we do and get very little to show for it.
We spend more than twice what the next closest nations do on health care and rank way down the list on actual health. It is time to bring efficiency, quality and consistency to this system that is so essential to our quality and way of life. Innovators with both health care and technology backgrounds have realized this, and increasingly so has everyone else engaged in the system.
This creates huge opportunities to build meaningful companies that deliver on the promise of health care value for dollars spent -- and that deliver outsize financial returns to investors who are brave enough to wade into the swirling health care sea.
Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap