The Hype, the Hurdles, and the Opportunities
Given Vocap’s activity and interest in the healthcare IT space, we’ve kept a close pulse on the rise of precision medicine. In both our deal flow and industry conversations, the concept has been bubbling up with increasing frequency. So much so that we thought it would be worthwhile to take stock on our latest perspective on the topic, which is informed by having seen a cross section of early, innovative companies, as well as having direct insights into the mindset of the established, institutional stakeholders in the industry.
As a quick overview for those less familiar: precision medicine (aka precision med, or PM) is an emerging approach for disease treatment and prevention that takes into account individual variability in genes, environment, and lifestyle. Today, most medicine is non-personalized (or, imprecise), leading to mixed results at best, and dire consequences at worst. Adverse drug reactions (ADRs), for example, are estimated to account for thousands of American deaths, millions of injuries, and an economic burden that ranges from $75 to $180 billion per year. Furthermore, many chronic conditions – which could be prevented or at least mitigated through early recognition of personal predispositions and proactive treatment paths – are not effectively treated in today’s one-size-fits-all medical and wellness system.
The Hype: Why Precision Med makes all the sense in the world
Contrast that with a world in which patients are given holistic, personalized regimens that keep them healthier longer, thus reducing the ever-increasing chronic care management spend. In this world, adverse reactions would be virtually eliminated as we also become more effective at treating sudden illnesses. For better or worse, precision med has become quite the buzzword (just go to any healthcare tech conference). Much of this excitement is driven by:
- Proliferation of data: Apple Health, 23andMe, wearable monitors, behavioral apps focused on nutrition, mindfulness, and so on… All of this generates a richer, longitudinal dataset for every individual. Social determinants (e.g., quality of school, neighborhood safety, etc.) also represent a useful puzzle piece in determining how best to care for each patient.
- Advancements in computing, AI and genomic science: Data storage and compute power is greater and cheaper than ever, enabling a wave of new machine learning techniques that can be channeled toward this mountain of data. Additionally, the price of sequencing a full genome has dropped to a point where it can be done at scale.
- Shift to value-based care: Precision medicine aligns well with value-based care models focused on incentivizing quality, personalized care to reduce persistent costs. The growing shift of managed care from payor to provider accountability is also creating new opportunities. Buying decisions will likely be made at provider levels even under health plans while health plans will mandate metrics and solvency.
- Employers investing in health: Inflating healthcare costs and a growing awareness of the connection between wellness and productivity have driven employers to take on healthcare issues themselves. Many employers have started self-insuring by underwriting the population risk with their own balance sheet, further incentivizing expedited treatment paths in the hopes of avoiding costly conditions among its employees.
The Hurdles: Why precision med won’t become industry standard anytime soon
Even though PM seems like a no brainer on the surface, talk to anyone in the industry and they will tell you it faces significant headwinds to broad adoption. By and large, the challenges aren’t technical now, but rather lie in stakeholder coordination, deployment path, risk ownership, and economic model.
- Access to clean data: Consumer device data is still fairly noisy with low fidelity. On the other hand, physician-administered test data is sparse (roughly a quarter of Americans don’t have a primary care physician). And even if an individual’s data is comprehensive and reliable, then security, privacy, regulatory and competitive concerns create serious barriers to the collection and sharing of patient data. This is an ongoing and fundamental challenge for the healthcare industry. Without proper data collection initiatives, the available genomic, lifestyle, and behavioral patient landscape will remain fragmented, leading to gaps in our understanding of illnesses and diseases. And while genomic sequencing is cheaper than ever, in many ways it has now transitioned from a lab / chemistry challenge to a data collection and synthesis challenge.
- Validation: Largely due to the point above, it’s tremendously challenging to establish irrefutable validation of [insert PM application] across a large enough test population. Very few have been able to do it, which causes a chicken-and-egg dilemma: healthcare stakeholders typically want to see validation (and clear ROI) at scale before widely accepting but PM technology providers can’t demonstrate a compelling case without some level of market acceptance. The most innovative provider groups are willing to test drive certain PM applications, but ultimately their motives are largely research and marketing related.
- Alignment of risks and incentives: Healthcare is notorious for its complex web of stakeholders, each with their own set of incentives, agendas and time horizons. This is not a unique challenge to PM, but with PM, there is no set playbook and the players are still deciding how they feel about it. Just think about the theoretical conflict for pharma: right now, one product can serve the entire population with X condition. What happens when precision medicine starts to segment that market so that one product is now only recommended for 40% of those with X condition based on machine learning algorithms? Will pharma embrace that? And who assumes the risk? After all, it’s hard to sue a convoluted neuro network, it’s much easier to sue a provider group or a pharmaceutical company.
- Unclear political mandate: Legislature passed under the Obama administration largely mandated value-based reimbursement, but this direction is less clear thus far under the Trump administration.
- Regulatory hurdles: as a general rule, innovation within healthcare inevitably runs into some degree of regulatory red tape. We won’t dive deep into this here.
- A Ferrari when we need a Honda? Particularly on the preventative side, the universal basics of healthy habits have been known for some time. Even the biggest healthcare tech enthusiasts we know admit that there is a ton of low hanging fruit that doesn’t require the latest and greatest tech. Basic blocking and tackling, if executed well, will move the needle significantly on chronic disease risk reduction, for example, even without individualization. The 80/20 rule seems to apply here. Also consider the priority lists of most provider groups: most are focused on the burning operational challenges du jour, such as throughput, preventable errors, etc. It’s tough to capture the attention of hospital administrators with a pitch about bleeding edge tech in this environment.
As you can see, pureplay PM is not for the faint of heart. But it isn’t completely doom and gloom.
The Opportunities: What We Look for in Emerging PM Companies
While there is no set playbook for PM-based companies, we believe those that achieve real momentum in the near/mid-term will be able to clearly demonstrate the following (which could also apply more generally to digital healthcare). We’ve boiled it down to a few rules of thumb, or, “the rules of 3”:
- Address one of the top 3 pain points: As we’ve heard from industry practitioners,“if you’re not among the top 3 priorities of the hospital administration, you’re just noise.” The same principle largely applies to payors. Successful PM products will align with the most burning priorities of its buyers, not seek to reorder them.
- Achieve ROI in under 3 years: It’s imperative that the payback to payors on an individual level happens quickly (less than 3 years is a good rule of thumb). Pre-diabetic patients or individuals with high risk of heart attack or stroke could fall into this category. In addition to cost savings, ROI can be driven by incremental revenue such as winning new contracts due to a distinct advantage or differentiation. Employers also emphasize line of sight to payback, though they tend to be slightly more pliable on time horizon. Providers, faced with a myriad of quick-win opportunities and fires to put out, also have little appetite to invest time and money in a deployment with a long payback.
- Require buy-in from no more than 3 stakeholder types: Direct, uncluttered sales path is critical. The more stakeholders that must get involved (payors, providers, consumers, employers, etc.), the harder the sale and the more complex the operational execution. We like the sales velocity that comes with products that require buy-in from no more than 3 stakeholder types, ideally fewer.
Digital therapeutics is one promising subsector with potentially lower entry friction. For example, take Omada Health as a case study in adhering to these guidelines. Omada helps health plans and employers tackle type 2 diabetes and heart disease in the most personalized, effective, and scalable (read: digitally driven) way possible. Type 2 diabetes is among the costliest chronic conditions, and it’s on the rise.
Critical pain point? Check.
Omada’s pricing model is strictly based on outcomes – tied to program completion and weight lost by its program participants – not a fixed per-employee-per-month (PEPM) fee. Plus, the outcomes are generally achieved within 16 weeks. Per the website: “Based on our average participant results, employers are estimated to recoup their investment in Omada in as quickly as 6 months. What’s more, over 2 years, they are estimated to achieve a predicted net savings of up to $1,338 per participant.”
ROI positive within three years? Check.
Omada keeps it simple. They heavily target self-insured employers (one entity, one decision), and for the rest, they penetrate with partner payors who accept the program. They also qualify as a health care provider, so the Omada program can be billed directly through medical claims.
Simple go-to-market approach? Check.
It’s no coincidence Omada now boasts a long list of blue chip Fortune 500 clients and is valued at well over $300M.
If you are an entrepreneur attacking a large problem using PM techniques and your business aligns with our framework above, let’s connect! Go to www.vocappartners.com for contact info.