20 VC 074 The Future of Healthcare with Bob Kocher, Partner @ Venrock



In the latest 20 Minutes VC episode, host Terry Stebings interviews Bob Kocha, a partner at Venroc with a focus on healthcare IT. Kocha, who serves on several boards and is a consulting professor at Stanford University School of Medicine, shares his journey from shaping the Affordable Care Act in the Obama administration to venture capital. He discusses the significant impact of information liberation and incentive changes in healthcare due to policy reforms, and how these are driving demand for healthcare IT innovations. Kocha emphasizes the importance of aligning incentives and leveraging technology to improve healthcare delivery, reduce administrative costs, and enhance patient care. He also notes the private sector's current role in leading healthcare advancements and encourages startups to think big and horizontally to address systemic healthcare issues.

Summary Notes

Introduction to the 20 Minutes VC Podcast Episode

  • Terry Stebings is the host of the 20 Minutes VC podcast.
  • The episode celebrates a "hat trick" of guests from Venroc, a venture capital firm.
  • The guest for this episode is Bob Kocha, a partner at Venroc with a focus on healthcare IT.
  • Bob serves on several boards and advisory committees and has a background in healthcare policy and economics.

It's the 20 minutes VC with your host Terry Stebings and stay celebrates the first for us as we celebrate a hat trick of Venroc vcs.

The quote introduces the podcast and the significance of the episode featuring the third Venroc VC guest.

Bob Kocha's Background and Career

  • Bob Kocha is a partner at Venroc and focuses on healthcare IT.
  • He has previously worked in the Obama administration and at McKinsey & Company.
  • Bob has been influential in shaping the Affordable Care Act.
  • He is involved with various boards and serves as a consulting professor at Stanford University School of Medicine.

Bob is a partner at Venroc and he focuses on healthcare it. He currently serves on the boards of Allied and GIF and is a board observer at grand Rounds and doctor on demand.

The quote details Bob Kocha's current roles and his focus on healthcare IT.

Intellectual Property Protection by Vidar Law

  • Vidar Law specializes in protecting startups' intellectual property.
  • They offer services for copywriting, trademarking, and patenting.

Does your startup have intellectual property that needs to be protected no matter what? That is where Vidar can help.

The quote underscores the importance of protecting intellectual property for startups and introduces Vidar Law's services.

Bob Kocha's Venture Capital Entry

  • Bob's entry into venture capital was serendipitous.
  • He transitioned from the White House to venture capital on the advice of Todd Park.
  • His passion for accelerating healthcare change influenced his move to venture capital.
  • Bob was hired at Venroc by Brian Roberts after they clicked.

So my path into venture capital is serendipitous.

The quote summarizes Bob's unexpected journey into the venture capital industry.

Transition from Politics to Venture Capital

  • Bob sees similarities between problem-solving in politics and venture capital.
  • Both require envisioning solutions and navigating complex challenges.
  • The creative process of turning policy into law parallels building a business.

When you're at the White House, you're trying to think through, how can I get 60 senators to agree on something?

The quote reflects the problem-solving aspect of politics that is relevant to venture capital.

Political Career Takeaways

  • Bob's major takeaway from politics is the importance of incentives.
  • He relates the alignment of incentives in healthcare policy to the success of small companies.
  • The principles of measuring performance and incentivizing use are consistent across both fields.

It's all about incentives.

The quote captures the essence of Bob's political career learnings and their application to business.

Significant Changes in Healthcare IT

  • The Affordable Care Act and the high tech act have led to significant changes in the healthcare IT sector.
  • Two major changes are the liberation of information and changes to incentives.
  • Healthcare has historically suffered from information asymmetry, leading to inefficient markets.

So I think that there's been two enormous changes, which are byproducts of the Affordable Care act, the high tech act, and the recession.

The quote identifies the major legislative and economic factors that have transformed healthcare IT.

HITECH Act and Healthcare IT Transformation

  • The HITECH Act was a response to the recession, aiming to modernize American healthcare by funding the adoption of computers.
  • The investment led to widespread use of computers in healthcare, with 90% of hospitals and 80% of doctors now using them.
  • Computers in healthcare generate data that enhances patient understanding of quality and value, and assists doctors in assessing the quality of their referrals and devices.
  • The data is also crucial for new payment models that emphasize efficiency and are part of the Affordable Care Act (ACA).
  • Medicare aims to have 80% of payments in risk models by 2018, with new payment models like bundled payments being introduced.
  • Employers are also adapting by using reference pricing and encouraging employees to choose more productive care networks.

"And so we gave roughly $30 billion to doctors to buy meaningfully used computers and to hospitals."

"And those computers create data. And that data allows patients now to begin to ascertain quality and value."

"And so, most of the payment models that we're putting forward as a result of the Affordable Care act rely on data to make sure that doctors aren't stinting on care, and rely on data to help doctors do the accounting and coordination necessary to make money in payment structures where they have to actually be more efficient."

These quotes explain the purpose behind the HITECH Act, the resulting increase in computer usage in healthcare, and how data generated from this is being used to improve quality and value for patients, as well as to support new payment models that require efficiency and coordination among healthcare providers.

Growth of Healthcare IT Sector

  • There has been a significant influx of talent and venture capital funding in the healthcare IT sector.
  • Success stories like Athena Health and Fitbit have made the sector attractive for entrepreneurs and investors.
  • The willingness of hospitals and insurance companies to try products from newer companies has increased due to the changes in the U.S. healthcare economy.

"I think we've seen amazing amount of talent in the form of entrepreneurs coming into healthcare over the last five years, and a commensurate amount of increases in venture capital funding."

"And they've been jolted enough by the changes in the US healthcare economy that they're willing to take risks of trying products from earlier stage, companies that may not pass the socks to compliance test that they used to put you through."

These quotes highlight the growth and attractiveness of the healthcare IT sector, driven by entrepreneurial talent and increased investment. They also mention a shift in the risk tolerance of hospitals and insurance companies, which now consider products from less established companies, reflecting a change in the market dynamics.

Barriers to Healthcare IT Innovation

  • Despite the growth, there are barriers to full-scale innovation, such as the success of incumbents due to expanded coverage and reduced bad debt.
  • Improved margins for hospitals and insurance companies have reduced the urgency for change.
  • Provider consolidation has led to increased pricing power, dampening the pressure to adopt new payment models and associated tools.

"For the last couple of years, quite frankly, the incumbents have done pretty well."

"And so margins have actually gotten better for hospitals and insurance companies, which allows them to change less quickly."

These quotes discuss the challenges to innovation in healthcare IT, noting that the current financial success of incumbents is slowing down the rate of change and adoption of new technologies and payment models.

Consumer Benefits from Tech-Healthcare Integration

  • Tech integration into healthcare can significantly enhance consumer experience and efficiency.
  • Companies like Doctor on Demand demonstrate the potential for telemedicine to reduce costs and waiting times for patients.
  • Telemedicine can handle a significant portion of healthcare visits, improving patient satisfaction and reducing costs for consumers with high deductibles.

"And what doctor on demand does is it allows you to use your phone or tablet to do a video meeting with a doctor within about a minute for $40."

"And so there's a lot of productivity you can unleash by shifting visits from brick and mortar places to video, and a lot of satisfaction that you can create."

These quotes illustrate the positive impact of technology on consumer healthcare, specifically through telemedicine services that offer convenience, lower costs, and high patient satisfaction. The comparison of costs and wait times between traditional and telemedicine visits underscores the benefits to consumers.

Integration of Software into Healthcare

  • Software is poised to significantly improve healthcare delivery.
  • Matching patients with highly experienced doctors in their specific conditions leads to better outcomes and reduced costs.
  • Software can curate medical literature to provide tailored care, ensuring appropriate medication, clinical goals, and timely interventions.

"And so I think that we'll use technology first to help match patients to the right doctors, because there's no question that matching a patient to a person that's very expert at their exact problem and their exact procedure leads to better outcomes and lower costs because there's fewer complications."

This quote emphasizes the potential of technology to enhance patient-doctor matching, which can lead to more efficient and effective healthcare.

"Software will help us actually curate the literature and give us the right information to tailor care."

This quote highlights the role of software in assisting doctors to stay informed and provide the most accurate treatment plans for their patients.

Healthcare Sector Administrative Costs

  • The U.S. healthcare sector has a high administrative cost, with a ratio of one doctor to 16 FTEs (full-time equivalents), of which nine are administrators.
  • Administrative tasks such as billing, collections, compliance reporting, and credentialing are areas where software could reduce the number of necessary administrative staff.
  • Reducing administrative labor is essential for lowering healthcare costs and increasing margins.

"Healthcare has to get rid of, hopefully seven of those nine people on admin as fast as it can, if it ever wants to have lower prices and higher margins."

This quote suggests that a reduction in administrative staff is critical for the financial health of the healthcare industry.

"It takes half an ft per bed to bill and collect for patients in a hospital. It's crazy."

This quote reveals the inefficiency in the current system, where a significant amount of labor is dedicated to billing and collections alone.

Disruption and Regulation in Healthcare

  • Regulatory risk is often overestimated by investors and entrepreneurs.
  • Regulators aim to make the healthcare system more productive and cost-effective.
  • Technologies that align with these goals are likely to be supported rather than hindered by regulations.

"Regulators, since I was one of them, are seeking to make the healthcare system be more productive and lower cost."

This quote clarifies that regulators' objectives are consistent with the aims of technological advancements in healthcare, which is to enhance productivity and reduce costs.

Encouraging Growth in Healthcare

  • Startups and VCs should aim for broad, imaginative solutions rather than incremental, niche improvements.
  • The U.S. healthcare system has room for significant improvement, with 30% waste and inconsistent outcomes.
  • There is a preference for solutions that address larger portions of the healthcare system.

"I prefer ideas that go after bigger parts of the pie and aren't sort of working on just one type of patient with one type of disease for one type of thing."

This quote encourages startups and VCs to think big and tackle widespread issues within the healthcare system rather than focusing on small, specific problems.

Managing Stress and Healthy Living

  • Finding joy in daily work is key to managing stress.
  • Enjoying one's job reduces stress more effectively than temporary solutions like meditation.
  • It's important to find happiness in the work itself and the people around you.

"First thing is find joy in what you do each day."

This quote suggests that job satisfaction and passion for one's work are essential for mitigating stress and leading a healthy life.

VC's Favorite Aspect of Work

  • The speaker enjoys contributing to the improvement of healthcare each day.
  • The goal is to make healthcare "suck a little less" by ensuring better care and reducing patient suffering and costs.

"Each day I wake up and say, can we make healthcare suck a little less today?"

This quote reflects the speaker's passion for their work in venture capital and their commitment to making a positive impact on the healthcare system.

Healthcare Improvement Strategies

  • Terry Stebings discusses improving healthcare by eliminating inefficient processes.
  • Streamlining healthcare involves reducing wait times and simplifying insurance benefits.
  • Castlight Health's role in providing price and quality information has significantly influenced the healthcare system.

Making it better is getting rid of stupid processes that require faxing. Making it better is getting rid of the waiting time to go get a simple problem solved. Making it better is helping an insurance company design a benefit design that actually is understandable.

Terry Stebings emphasizes that improving healthcare means removing outdated procedures, reducing patient wait times, and creating more comprehensible insurance benefits.

Impact of Private Sector on Healthcare

  • The private sector, according to Terry Stebings, currently offers the greatest opportunity to enhance healthcare.
  • Innovations in business models and embracing new incentives are key to improving healthcare margins and growth.
  • The private sector is seen as the primary driver for healthcare disruption over the next decade.

I think today it's in the private sector. Places like Venroc or at the companies that we and others fund, showing people the way forward and showing people you can build new businesses that have better margins and better growth by embracing new incentives.

Terry Stebings believes the private sector, including venture capital firms like Venroc and their portfolio companies, is leading the way in transforming healthcare by creating new business models with improved financial performance.

Personal Insights and Preferences

Favorite Book and Its Impact

  • Terry Stebings' favorite book is "The System" by David Broder, which covers the Clinton healthcare reforms.
  • The book provided lessons to avoid past mistakes during the Obamacare reforms.

My favorite book, I think, is a book called the system by David Broder. He wrote, I think, the classic on the Hillary Clinton healthcare reforms from 1993 and how they unraveled. It's a book that we all read before marking up on the Obamacare reforms. So we would not repeat all the mistakes and the lessons.

"The System" by David Broder is Terry Stebings' favorite book because it served as a cautionary tale that informed the approach to Obamacare reforms, aiming to prevent repeating past healthcare reform mistakes.

Most Memorable Quote

  • Terry Stebings shares a quote by Albert Camus that inspires him.

There's a quote by Camus which says, in the midst of winter, I find within myself an invincible summer.

The Camus quote represents resilience and finding inner strength despite external adversities, which is a principle that resonates with Terry Stebings.

Transformative Moment

  • A significant moment in Terry Stebings' life was his undergraduate research on protein trafficking and microtubules.
  • This research experience at the NIH under scientist John Hammer was pivotal in developing his problem-solving skills.

I think when I was an undergraduate, I began to fall in love with protein trafficking and microtubules. And that led me to do several years of research at the NIH, studying actomyos and motor proteins, working with a brilliant scientist named John Hammer, who taught me how to problem solve and then.

Terry Stebings' passion for protein trafficking and microtubules during his undergraduate studies, and subsequent research at the NIH, was transformative in shaping his approach to problem-solving.

Favorite Newsletter or Blog

  • Terry Stebings keeps up with healthcare policy through the "Political Pulse" newsletter or blog.

I like political pulse so I can keep up on healthcare policy.

"Political Pulse" is Terry Stebings' preferred source for staying informed on healthcare policy, indicating his ongoing interest in the intersection of politics and healthcare.

Most Recent Investment

  • Terry Stebings' latest investment is in Lura Health, which aims to integrate behavioral healthcare with the medical system.
  • Lura Health's approach involves using data to identify effective practitioners and technology to share information across systems.

My most recent investment is a company called Lura Health. And Lura Health is seeking to reimagine how behavioral healthcare works.

Lura Health's mission to revolutionize behavioral healthcare by connecting it with the medical ecosystem and leveraging data and technology is the reason behind Terry Stebings' investment decision.

  • The podcast host, Terry Stebings, concludes the show with a promotion of the podcast's resources and social media.
  • The host also promotes legal services for startups, emphasizing the importance of intellectual property protection.

And as always, all the resources and items mentioned in today's show can be found on the blog at www. Dot the twentyminutevc.com. And I'd love it if you'd follow us on Twitter by following the handle at twentyminutevC, all in letters.

The podcast host, Terry Stebings, directs listeners to the podcast's blog for resources mentioned in the episode and encourages following the podcast on Twitter for updates.

Remember a lot of the doors on your intellectual property, the foundations of your business, and check out www.vidarlaw.com.

The host underscores the significance of safeguarding intellectual property for startups and recommends consulting with Vidar Law for legal support, highlighting the firm's experience and expertise in startup law.

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