Digital’s Role in Tomorrow’s Care Delivery with Ken Ehlert

Speaker 1:
Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Charles Rhyee:
Hello, my name is Charles Rhyee, Cowen's Health Care technology analyst and welcome to the Cowen FutureHealth Podcast. Today's podcast is part of our monthly series that continues Cowen's efforts to bring together thought leaders, innovators, and investors to discuss how the convergence of healthcare technology and consumerism is changing the way we look at healthcare and the healthcare system. In this episode, we'll be discussing how the delivery of care is changing, moving out of the hospital in doctor's office and into our homes and on our smart devices. Innovation is occurring at a rapid pace like with telehealth, which was a great benefit during the pandemic as well as we're seeing new entrants like Amazon which are trying to disrupt status quo and perhaps central to this is the rule of technology in this transformation. And to help explore this and more, I'm pleased to be joined by Ken Ehlert with over three decades of experience in healthcare, his career in healthcare is focused on using data analytics and longitudinal understanding of disease to build products and businesses to improve the healthcare system.
His career consists of numerous leadership positions and entrepreneurial endeavors, including serving until recently as UnitedHealth Group's chief scientific officer. Ken, great to have you.
Ken Ehlert:
Thanks, Charles. Good to be here.
Charles Rhyee:
So, I want to start off, if we look at digital health in particular, I guess over the past five-plus years, we've seen an explosion in funding for these type of companies. And according to Rock Health, over $29 billion was raised in funding for digital health startups in 2021. And that was up from $14.7 billion in 2020. And that's a huge jump considering that in 2017, only $6 billion was raised. And even in this year when the markets have been challenging, we've seen over $12 billion raised through the third quarter. So, maybe first, want to get your thoughts, what do you make of these figures?
Ken Ehlert:
The first obvious one is they're big, but I think when you look at it, part of it is there's a question in there. So, what is it that we actually call digital health? So, that includes everything from companies that are providing pop health things to companies that are selling technology or services to automate different parts of the process. And if I was to divide digital health into two different really high-level categories, one being things that are now digital that improve the administrative pieces of health and then other parts of health, which are things that are digital that are actually targeted at the outcome of health and put it into those two different buckets, the most of those investments fit into that first bucket, improvements of administrative efficiency in some part of the system. So, when I look at the dollar amounts that are going in there right now, one interpretation could be is there's a perception amongst investors that there's an enormous amount of administrative inefficiency in the healthcare system.
And I guess I would say I actually agree with that particular hypothesis and if there's a number of inefficient things that are out there, there's probably a fair number of investible hypotheses that are available to investors today.
Charles Rhyee:
You talked about the admin side of it. If this is driving the increased investments, are you seeing that any of this is really making a difference? Maybe starting with the admin side, what you've seen so far, and then maybe let's touch on the second part too.
Ken Ehlert:
Yeah, I think there's a number of things that make a difference on the efficiency side of health and there's probably reasons to think about why some of those things make a difference. We can get into that in just a second. On the other side, if you're saying are there very many things that have made a meaningful impact against the outcome? The answer is I think we're in a very nascent stage on the outcome side of things right now. So, take that first bucket, a lot of people don't even really think about it anymore. There was a time where a provider network was actually a directory, like the phone directory that we sent out, that got sent out to people to your home when you signed up for your insurance and a book arrived and it was out of date the moment it got there. And the consequence of that would be an enormous number of phone calls that go into a call center to say, "Is this doctor in network? What doctor can I go to? What should I expect when I get there?"
So, you look at things there and there's pretty obvious gains that have been had there around, like I know for myself, but others would be in this category too. When was the last time you actually called to see if somebody was in network? You just went onto an app or onto a website to actually figure those things out. When was the last time you checked to see if a claim was actually processed? Those parts of health, I think there's been some tremendous gains that have actually come in those areas. On the outcome side though, just to keep it simple there is there are areas that have made a difference. For example, take a Fitbit for example. Nobody debates whether or not walking is good for you and makes a difference. So, from that outcome perspective, we like that. But when I look at and say, "Has the system figured out how to institutionalize the idea and to actually propagate the idea of walking in ways that are meaningful to patients that are actually in there?" I think the outcome on that has actually been pretty mild at best.
Charles Rhyee:
And I think as we got to go forward with this, I think we're probably going to focus a little bit more on the outcome because I think that's where the real opportunity and certainly a lot of where a lot of companies in this space are making claims where they can really affect outcomes. And so, maybe let's approach it from a few areas and maybe to start, want to look at it from the consumer, patient viewpoint, from the payer's viewpoint and then the provider's viewpoint as well. Obviously these overlap with each other and certainly as you discuss it, feel free to jump back and forth.
Ken Ehlert:
Sure.
Charles Rhyee:
I think this may help as we go along. Starting with the consumer, patient, a lot of what I see in this space, particularly companies that are focused on consumers is it's offering some type of app that a person uses to measure, keep track of something like you're talking about with the Fitbit. And then adds onto that some type of service on automated or live coaching to help improve some type of outcome here. To me, it seems like it asks a lot of the consumer and want to get your thoughts here. Do you find that these kind of tools really are that helpful?
Ken Ehlert:
I think there are use cases where they are helpful. What you just said though is something that really resonates. We ask a lot of a consumer in the process. There are consumers that are really into the quantified self type movements. I'm interested in staying healthy for as long as I can. And so, there are a set of things that I would do in my life to actually have a meaningful sort of change in trajectory of my own health. A little bit different though from what about a person that's not into that, that's not part of their core mindset. They don't track things, they don't look at things on a daily basis. So, when I'm in that state, now I'm looking at it and saying, "What do I need to do to convince the consumer that this is more important to them than all the other things that are competing for their time?"
In that area there, we're probably asking too much of a consumer. You're asking them to make a meaningful difference in how they allocate their time and we would likely need to move to a much more passive approach in terms of how do we collect, how do we actually do things? And then, the second piece that you talked about there is you get something, you do it and it's easy to think about wearables in this case, but I think there are other areas that are meaningful. But the idea of a wearable and we want somebody to track and do something, the reality is most of us are creatures of habit. We do the same things day after day, after day and that's part of what becomes uninteresting about tracking my steps for example. So, when I'm on the 57th day of getting exactly 11,252 steps plus or minus is 10%, it's not very exciting on day 53 and day 54 and day 55.
And so, the engagement of it itself actually falls down. In that case, there probably is a different approach that needs to be taken with the consumer to actually drive the fundamental engagement as necessary. But I don't think we should limit the definition of digital health to things that are wearable. There's probably a lot more ways that we can think about digital health in general.
Charles Rhyee:
Just sticking with wearables for a second though, we see, like what about like CGM in this case, right? It's passive collection of data. Does that change, do you think the dynamics of the consumer? They just have to put it on, they don't have to do as much perhaps, but it allows them to see in real time the effects of what they're doing on their blood sugar?
Ken Ehlert:
Yeah, CGM is a great example of digital health that has actually improved outcome for the actual patient. Now, there's different issues that relates to payers and as it relates to the providers around CGM, and we could talk about that for a minute. But for the patient itself, you look at what is accomplished there. A patient armed with CGM and their insulin, whether it's on a pump or whether it's multiple daily injections, that patient today can probably do a better job managing their own health than they were doing before with the endocrinologist and a set of finger pricks. There are lots and lots of stories that you could put your hands around where there is a patient that they get their CGM, they have access, if they're a type 2 patient and they're on insulin, they're reducing the amount of insulin that they need to take because they've gotten way better at the decision process that needs to go with that health.
And they are actually getting an improved outcome as a consequence. That technology was originally built for type 1 patients and it's been now looked at and used with type 2 patients in different areas. But that's a good example of, we should be asking the question of where else could the patient actually do something different? And I think there's a really key question in there, which is that type 1 patient who's on insulin needs to change their behavior in some way and CGM allows them to do just that. So, the question that you would apply then is say, "What other behaviors could CGM or something like it change a core behavior that needs to happen in there?" There are a number of examples where you could do that. CGM is not the only example though. You could take another one as long as you went with something that's popular and relatively well-known.
Take an example like a Cologuard, we don't often talk about Cologuard as a digital health example, but maybe it is. You don't need to go into a doctor to get it done. You do need to get a prescription to have that thing... There's an order that takes place. The test is done at home, it's processed in the central lab, it's data that gets generated, that data needs to be used in some way or another and now it gets communicated back. And in that process there's a couple of things that are notable that can come out. One is an indication as to whether or not you actually need a colonoscopy to investigate whether or not you have maybe early stage disease. That's one. Another one is you've obviated the need to actually go into part of the system today to get a procedure that you didn't need to have done before. I think that's another example of digital medicine that is advancing the outcome itself.
Charles Rhyee:
Right. If we think about digital health kind of broadly, what we're saying is we can escape from the traditional infrastructure of healthcare. We can get care delivered differently and then the Cologuard it's at home. And a lot of what we're talking about is sort of an on-demand kind of service. You touched on this point about this at-home testing opportunity as well, which really kind of centers around the consumer. The consumer can choose to take these tests now at home. Is that the type of engagement though that is actually kind of persistent, I guess? It's enduring because people see a benefit from taking such a test. So, I'm thinking of Q Health for example or Everlywell, these companies that are offering now a whole host of at-home, whether it's tests or other at-home tests that people can use.
You send it, yeah, it does get processed in the lab or in the case of Q Health, it gets processed in the device that you're holding at home, but either way, that data is then generated, you get it in a interface through an app and then allows you to make a decision. Is that how you can drive real engagement versus something where you talked about the Fitbit and taking steps?
Ken Ehlert:
Yeah. Okay. So, when you think about health, health, everybody likes it from an investment perspective, it's a huge part of the economy and we think about it that way. 20% of the economy, rough figures, but it's only 20% of the economy. Like you, me and my parents, they don't spend 100% of their time thinking about health. They don't. We spend our time thinking about a lot of other things, our social connections, who are we engaging with, how we shop, all those types of things that are not health. And so, when we try to apply the model and say, somebody wants to keep in contact with all of their friends on a daily basis and see what's happening, should we get the same level of engagement out of a patient that a media company gets out of a consumer that's demanding entertainment in some way or another?
That might be a unrealistic expectation to think. In fact, actually if it's a patient that is that engaged, then we'd probably go next to, "How sick are they that they need to be that engaged in their health?" Maybe a way of thinking about engagement might be when the time to engage with the system is now, is there a compelling enough value proposition for the consumer to say, "I want to engage in this way? Do I know about it and I want to consume this way?" And there are things there that maybe could be done more at home. So, the FDA said with Cologuard, I'll use that one as an example. Every three years, that looks like a colonoscopy once every 10 years, probably a good idea to engage every three years. Colon cancer tends to be a slower growing cancer. There are risk factors associated with it. Testing somebody every three years is probably a good idea.
Leaving reimbursement out for just a second, but what would happen if you tested every year or every other year or every six months? Are there things that we could learn in that process or would we overwhelm the system by doing some of those types of activities? The question on that though becomes how easy is it to actually do that test and to engage when it's time to engage? If engage means I have to go set up an appointment, I have to go see a specialist, I have to work through and navigate a tricky schedule. Mine or somebody else's, engagement actually becomes hard. But if it's something that is part of a routine at home, that's not very hard. Your point on CGM I think is a good one. If you're a type 1 patient and you're making insulin decisions throughout the day, that's a great technology to engage on. It doesn't just cause you to engage when you take insulin, it actually causes you to engage every time you want to look at the number because you just ate something or whatever it might be.
And so, there's a number of feedback loops that have been created there. You asked about Everlywell or Q Health, those types of things. On those, it would be what's the type of patient that we're actually talking about? Most of our system, if not nearly all of the health system is built for when we are sick. It's a sick system. That's something that lots of people have talked about over the years. We could think about what does a sick system mean a little bit differently and say either we're dealing with the progression of your disease or we're dealing with the consequence of your disease. One seeks to get in front of what is going to come next from a health perspective. The other is dealing with mitigating the consequences of what just happened.
In that perspective, when I'm worried about your heart, if I'm worried about progression, I'm thinking about what might happen tomorrow, next week or next month or next year. If I'm worried about consequences, I wait until you show up at the ER. Now, are there patients that we could say, "Hey, it makes sense to track the following things so that we can be in front of." There definitely are, but there are questions in there that impact, you said up front, the consumer, the provider and the payer. There are questions that are in there that says, how do we get alignment across that? An easy example, stage one chronic kidney disease, what do we do about that? The answer is the system doesn't do a whole lot about it. Is there a drug that's indicated for, a therapy that's indicated for stage one disease? No, not really.
There are some things that we might say, "Well, they have some hypertension, we should work with that." When we know that it's not just hypertension but generally the combination of diabetes and hypertension together that causes somebody to progress down that track relatively quickly, then we might say, "Well, if I have a stage one patient that has pre-diabetes, now what do I do with them? Is there some engagement that needs to happen at home?" There's a really big problem, which is we don't, at least in this country, we don't have a pre-diabetes, stage one kidney disease intervention that's gone through the FDA. So, there's nothing in the dropdown list if you're the doctor to actually do. So, there's the fallback, which everybody knows, we need to tell this patient to eat better, sleep better, exercise more, and we'll see you in six months. There might be ways in there that we could talk about how do we engage digitally in-between those things.
Charles Rhyee:
You touched on that for diabetes though, obviously we have companies like Better Therapeutics for example who is going through the FDA to create a product that a doctor could prescribe that in theory would be able to coach them through better nutrition, better exercise to manage their diabetes using basically psychotherapy embedded into an app here. Is that something though, that you think can be engaging for consumers or like... Because I get back to your earlier point, which is you said that we don't think about our health most of the time and I completely agree. We're dealing with our everyday lives and our kids and work and it's only when we don't feel well then we start thinking about our health. And it kind of gets to this idea, I think, ultimately what is the responsibility of us as consumers and actually potential patients in taking care of our health? And I'm saying that in the context of to the broader healthcare system itself.
Ken Ehlert:
Yeah, that's a good question, which is there's a lot of different perspectives on that one, Charles as to who owns the responsibility for somebody's health? I would take a perspective that the patient has a huge responsibility for their own health all the way through, right up until if you're in the hospital you have a job to do there. Now, there are some problems that come with that. The number of people who have been educated on even what are the right questions to ask, that's a pretty small number. Most of us, the education we have on what question we should ask is ask your doctor if this is right for you. And that's the limit of what we know. We don't know to ask, here's an easy one that patients should have been asking over the last two years a lot. "I'm overweight and I just had COVID. I have not had my kidney function tested in the last few years. Should I be getting that done right now?"
But your average primary care doctor has not run that test. There wasn't a reason to. Maybe you're in your mid-forties and we don't really think about that then. And yet for those that have run that test, there's a real problem that's sort of brewing out there, which is this seemed to be pretty hard on people. The question of what are the right questions that people should be asking, how should they engage? How much of their own energy should they exert in the process is a real one. Now, we can make that easier for people to do. There are some structural things that we could cause to get a lot easier to say, "How do I make the patient more engaged in this?" But that requires a pretty big shift in our thinking. If you think about other markets, there's a lot of talk a few years back about Web 1.0 and then Web 2.0, right?
Web 2.0 was the users started to generate content. In the media industry, prior to things like YouTube and then years later, Instagram, Facebook, things like that, media was generated in a centralized way and then disseminated out to the population to consume and then along comes a thing called YouTube and all of a sudden now individual users are generating the content itself that they're also consuming. And that's a monumental shift and that happened in market after market. One of the questions maybe we should be asking is what does Health 2.0 look like along the same lines? What does user-generated health look like or patient-generated health look like? Are we comfortable that patients have an ability to generate their own diagnostic plans, for example? The first response that probably many of us would have is we'd say, "Oh, my gosh, we're not comfortable with that at all." Really? Go look at Facebook groups and see just how many patients are actually advising each other on what to do next in their disease state. Go look at sites like PatientsLikeMe or... There's a number of areas out there, but we haven't really embraced that idea.
So, the idea that patients need to be in charge of something is a little bit farther out there for us to be considering and there's ideas that we need to consider between here and there. What are the tools that actually they would need to be able to pull that off. And again, I'm not saying we should institutionalize the idea of patient-generated health, but if there is a Health 2.0, it probably includes that and that means that maybe the patient has a much larger role in the actual generation of their health plan going forward.
Charles Rhyee:
When you're talking about patient-generated health, it makes me think of, to your point, right? There's a lot of these support groups for people who do have conditions and known conditions, I don't know if you know that company, Evidation Health, it seems like you can get people to contribute their information in a community. Is that kind of the model then? I'm just trying to think through what you've said here because I like this idea of patient-generated health because ultimately then if we are contributing our information or generating our information, and maybe this is where you talked about before, something beyond CGM that can collect other information, maybe our cholesterol on a continuous basis or cortisol on a continuous basis, any number of things, I guess, right? In a passive way perhaps, is that probably a way we can all then be more engaged? Because we're constantly generating data, it maybe is contributing into a larger data set. But then I guess the question is what is that data being used for and who has access in using it?
Ken Ehlert:
Well, yeah, I think you hit on some of the key issues there. Who does get to use that then and what do they do with it? And then a question that we should be asking, which is, and who gets the profit from that? Does a company get to gather that all together and then go sell rights to it, for example? In my own case, I would be opposed to that unless I had explicitly said, "You can take my data and go make money with it." Now, I might have an extreme view on that, but there are a number of others who would feel that way. There's others that feel like, "Well, once the data's been pulled together, if we do something with it, it's up to us. We can decide if we want to sell it to somebody else." But I think you are touching on the issues there that actually matters.
For example, let's go back to one that we talked about before. We'll use a couple of them. The Cologuard example. What would happen if users started to generate or push their data back into a spot and say, "Use this to improve the Cologuard algorithm itself." There are tricky questions about who owns what there, but improving the algorithm means what? If you're trying to create a Cologuard to replace a colonoscopy, your algorithm might look one direction from a sensitivity and specificity perspective. But if the algorithm was said, "I just want to see if you need a colonoscopy," well, now we can think about false negatives and false positives maybe a little bit differently and that user content might actually improve that quite a bit.
Now, there are vested interests that are out there in the industry. Maybe if my job is doing screening colonoscopies, I might not like that very well. Or if my job is, I run a Medicare plan and we have a process in place today for colonoscopy every 10 years and there's STARS and other things associated with that, but maybe that gets a little bit disruptive in how I need to think. But from a patient perspective, would that get me to a better outcome? I eliminate colonoscopies when I don't need it and I get it only when I do need it and it's highly likely to progress to an actual diagnostic colonoscopy, that therapeutic benefit as well. That's a pretty potent way to start thinking about health. There are other measures that are out there though, and I think you could do this along a lot of different angles, whether it's certain proteins that are floating around. Maybe we should think about mRNA tests, maybe there's some genetic information. PatientsLikeMe is originally built around rare disease and contributing back in. There are pieces there that are super helpful to the community as a whole.
You could get to other areas too, but you used CGM as an example, that has something that behaviors are attached to it. So, the engagement piece would be there. Cortisol is interesting but cortisol has some other features with it. We trigger cortisol for a lot of different reasons. Do you track it? Well, does that mean that you're under high stress? Does it mean that you're sick? There's a lot of things that that could mean is that important to track it? I think there's some questions that are there that are open. There might be other signals that you need to look for that you could actually enhance. And most likely, Charles, it's the combination of signals that actually get you the answer you need. So, if you look at Q and the technology that they have, sort of feel like I'm doing commercial. I have no vested interest in any of those organizations. But if you look at Q and the technology that they've and what they can put into your home, there are some really interesting things that you could do, especially with certain subclasses of patients.
And how that gets generated and aggregated together would actually be really helpful. Think about what that means when you move from a test that has 30 or 40 or 50 patients into it, into a data set that has tens of thousands, hundreds of thousands or millions in it. Your ability to improve care for those patients would be astronomical.
Charles Rhyee:
Yeah. And when we think about who benefits, right? Maybe we can segue here and maybe look at it from the payer point of view, right? Because it seems to me that the payer has a great incentive to invest in digital here because you can potentially intervene earlier more often and potentially in a lower cost way and possibly avoid more expensive care later. And I think you've already seen large payers kind of dip their toes in a little bit, right? I think Cigna bought MDLive, United bought Rally Health a number of years back among other things. And does that make sense strategically from the payer point of view?
Ken Ehlert:
Well, it does and it does not. There's some pieces there to pay or finance that are probably important to understand if you're looking at companies in the space. So, if you think about it on all my comments, I believe that people are well-intentioned when they put whether it's rules, regulations, laws, whatever else in place. And there's good reasons for some of these things, but a lot of them have different perverse consequences that come with it. So, think about one that sits out there in the payer world. If you are, again numbers, I'm just going to do simple estimates on this. If you have a minimum loss ratio of 80%, meaning you need to spend 80% of the premiums that you collect on medical expenses, that has a really well-intended reason that that's in place. We don't want insurance companies to be able to underwrite out everybody that has high risk because we've made a decision as a society that we want people to be able to access care.
So, not debating that issue at all. We put a rule in place though that says you need to spend 80% of the dollars onto actual medical expense itself. So, here's where the rub comes in, above 80%, there's administrative costs and distribution costs, number of different things that are there. Anything that comes above that line, the payer has tremendous incentive. And so, when I said administrative efficiency earlier, the payer has tremendous incentive to invest into things. Every phone call you could reduce, that's actually worth something. You can put a dollar figure to that and say, that's a good answer from an economic perspective. You could also probably make the experience a lot better in the process too. But look what happens when you start to spend on dollars that come underneath that line. If I actually reduce you from 80% to 78% from a lost ratio perspective, so I reduce the total medical spend that you might have.
If I'm right at that threshold, every dollar that I reduced, actually that dollar doesn't belong to me anymore. So, actually the return that you can get just got way smaller. And so, a payer is going to look at that and say, "Well actually, it's only 20 cents on the dollar now that I actually get to keep there. So, if I had to spend 20 cents to get 20 cents, now all of a sudden maybe the math doesn't work quite as well anymore." If I'm on the other side of that 80% threshold, say I'm at 84% and then I can look at it and say, "Wow, could I move an ER visit to a televisit and radically reduce the cost of care in some way there," because maybe the patient has a heartburn but they think they have a heart issue because they're in their mid-fifties and maybe they want to run in, but all it takes is five seconds with somebody who has some skill to real life now they're probably just have a heartburn-related issue or something there.
That's great. I can invest into that there and actually reduce that out because if I reduce the medical spend from 84% to 83%, the payer can actually keep that savings that they actually generate in there. So, what you said is correct, the payer does have an incentive to actually go and invest into things, but there are limits to where they will make those investments and where they will not. Anything that falls in the efficiency zone where every dollar they save, they can keep, that's free game. And when you look at the acquisitions that they've done, that's where most of them sit because there's a defined return that they can actually get there. When it comes to the other side, they do have an incentive, but there are some well-intentioned rules that have been put in place. Another one would be RAF, risk adjustment. Risk adjustment makes sense. We want people to actually get the right amount of premium for the person that they're getting. But then there's an issue. If you use diabetes, but if you're a complex diabetic, I know what your RAF looks like.
If I actually make you healthier, your RAF actually goes down. So, any amount that I spent to make you healthier actually now evaporates and I need to figure out what that looks like. Kidney disease would be the same thing and well, actually, all chronic diseases would look this way. Chronic diseases are by their very nature progressive that follows a very defined biological curve. Anytime I move you back that curve, those dollars that flow through might belong to somebody else in the process. And so, there should be an incentive there, but it gets mitigated by how the rule structure looks around it. Are you tracking with how I walk through that?
Charles Rhyee:
Yeah. No. Yeah, yeah.
Ken Ehlert:
I know you're depressed. There's something for depression too.
Charles Rhyee:
Well, when I hear that, it kind of... Because I was thinking that the incentives would be around... I was thinking a little bit like STARS to get the better patient experience, to obviously, because particularly let's say Medicare, seniors are filling out these surveys and they're kind of rating how they experienced their plan and I would think that, "Well, if I had better tools to make it more convenient and efficient," but it sounds like it's really more mechanical. If I'm already pretty good at managing the health of my population, it seems like I would already have a disincentive to really add incrementally more. Whereas if I'm not doing it well, right? If I'm below 80% anyways, then it sounds like there's less incentive for me as a health plan to really invest more, it sounds like.
Ken Ehlert:
It's a good way of looking at it. If you are a high-functioning health plan and pretty good at managing the clinical risk in your population, when you think about those rule sets, they're done at the averages, right? Effectively it's how they're done. Because at the end of the day, whatever you collect from everybody has to be used to be able to pay out for everybody. So, one way of looking at it, if you're average at that or a little bit better than average, your incentives dissipate really quickly in that process. Now there are some ways that you could actually get around that and there are methods there to say, "What happens if a payer and a provider are both working on the same patient?" Well, a payer could capitate the risk of that patient to the provider for a fixed amount and then now it's the provider's problem because to the payer now, they've already said, "Okay, I gave you that life at exactly 80%," or 85%, whatever the number might be, it's now up to the provider to actually figure out how to make that go.
And, Charles, not to make those really complicated, but that then gets into what type of provider did you capitate that to? How do their financials run? If it's a hospital-based system for example, that you capitated to a hospital-based system, their financials revolve around the OR effectively. In order for them to generate additional savings from there, they need to reduce the number of procedures going into their hospital and there are areas where that would make sense and other areas where it would not make sense.
Charles Rhyee:
It's interesting because we do see a lot now, plans farming off that risk to provider groups. I mean there's a whole slew of companies that have come public over the last couple years doing just that. And what role then is the health plan doing? Is it just distribution, marketing, sort of member services generally because I farmed out the care or I've cut that piece out and capitated to somebody else? What then is the role of the health plan?
Ken Ehlert:
Sure. There is distribution and there is basic administrative costs that actually goes there too, who does the processing and actually adheres to the rules that are there? But I think the way to actually think about what is their role, the health plan runs on a financial risk model. So, there are two different types of risk really in health. There's the financial risk and then there's the actual clinical risk associated with the patient. So, for example, when a hospital says, "Well, we don't take on risk." It's like, "Nah, that's not true." Every day that you have a patient walk into an OR, you're taking a patient's life into your hands, you do have risk and a lot of it. You just call it something a little bit different because you're familiar with it. Doctors are very familiar with the risk that comes with taking care of a patient.
The health plan still has the financial risk management pieces. So, the risk management pieces that come from that are the more lives you have in that, the more efficient you can be at managing that risk. So, the risk premium actually shrinks some. That's probably a longer podcast for a different day as to how that all works. But it's very real. You want to be able to aggregate that across as many people as you possibly can. When we think about financial risk, like for example, if I switched this to car insurance, it's easy to think about a simple, an accident or you broke your windshield on your car and that needs to get replaced. And that's how we tend to think about the real financial risk that sits in the car insurance. But if we were to really go through the math, the real risk in car insurance is you got into an accident, you're found liable and it's actually, this is a $3 million claim that gets done here.
The reason we don't think about that is those things are really rare. The same thing happens in health. Thankfully most babies are born under very normal circumstances and they're relatively inexpensive to do. But occasionally one is born that isn't and they might be several million dollars to actually move through that. When you look at the health plan, the insurance company, the payer, whatever you might want to call them, there is this risk aggregation function and then there's the pieces around that financial risk that you need to manage still. Sadly, there is fraud, waste and abuse that takes place. There is the right sizing, the size of the premium to the size of the medical expense that comes with things like risk adjustment or underwriting and those type of things that are there. What gets delegated away is on average these patients should cost a number, 85% of the premiums, whatever it might be that you have delegated away.
What you're really saying there is at the margin we think there is more resources to be saved. So, from an economic perspective, by allowing somebody else to manage now the clinical risk associated with this patient. And that's really what you're capitating away at that point. So, still doing a very useful function in that, which is to help with the financial risk itself. And that's why when you look at it even on things like risk adjustment that gets done, that actually still comes back to the payer itself working with different clinical organizations to make that work.
Charles Rhyee:
I want to go back to something you said earlier, when we talked about a high-performing health plan, obviously that maybe has a little bit of a disincentive to make that incremental investment. But doesn't that mean though they are already probably well-invested in technology to help them achieve that? And maybe from the technology perspective, what are the systems that a high-performing health plan needs to have? And when we think about in this area, we're starting to talk about big data, data analytics, AI, we're seeing a lot of companies coming around this space. I guess like a Definitive Health or a Clarify Health where you are now taking not only just claims data, you're looking at social determines of health, credit data, all these other factors to provide a might a more robust picture of the patient to have a better sense of risk. What do you think about that?
Ken Ehlert:
Yeah. So, if I think about what does a high-performing health plan look like, if we went back to that concept that we kind of made it up while we were talking, but what does Health 1.0 look like and what does Health 2.0 look like? I think a high-performing plan has got a robust set of Health 1.0 tools at their disposal. They are good at helping to get a patient to the right doctor, at least what they believe to be the right doctor at the right time. They're good at identifying what does the network need to look like. They do those types of things that allow them to manage the financial risk and is there. What they're probably not doing right now is there's a fundamental question, which is, is the average cost of these types of patients, is the number that they're at today, is that the right number?
If it costs us $10,000 to take care of a patient on average, is that really where it should be for this disease type? Or could it be $7,000 or $6,000 if we engaged in a different way? The incentive isn't there really to look at it from that perspective. That would take a different type of health plan to actually say, "Okay, we're going to actually reconsider this in a different way." There are some rules that you could change in the system to actually get closer to it. I mean, here's one which is instead of re-certifying your RAF every year in Medicare, what if that number became your RAF adjustment so the HCCs that you got, what if that became stable for three years? I identify you as congestive heart failure. I don't have to re-certify you every single year. Well, if I did that, I would instantly have an incentive now to actually invest into you if I really could actually make you actually get better.
So, there's some of those types of things that are there. So, what would it look like? I think if you're a high-performing plan, you probably have a lot of those tools in place. If you're a low-performing plan, you're probably looking for a lot of those tools still to actually get that stuff in place. If you're a 2.0 version, you're probably looking at and asking questions like, "Is the medical expense where this is at and the clinical outcomes we're seeing, is this what it could be? And what are the things that now we would employ in this process to actually get better?" And it's probably some, I feel like I've used the word probably a lot, but we're in a probabilistic game here, so I'll keep saying it.
It's probably something that includes both the patient and the physician in that process of saying, "Is there health that can be generated in a new way that we could consume in a different way to actually drop the cost at the same time we're improving the outcome for some of these patients?" I don't see a lot of the companies out there right now that are working on those parts of it. I think they're still working against the 1.0 problems for the most part.
Charles Rhyee:
And when you say that, you mean payers in this case or what about new companies that are emerging trying to address maybe this 2.0 concept?
Ken Ehlert:
There's a few of them that are there. The one that you used earlier, I mean that really should be really built upon and pushed out farther is they've got a base and they can actually look at it. How do they actually take care of people in different ways? I'm not seeing a lot that fit into the space right now that are really going after those things. It's harder, because you think about it, if you have a service that you're offering, you have to go convince a payer or a provider organization to go to the next step and make a bet on the future, which by definition, that future's not here yet.
Charles Rhyee:
Yeah. Maybe it's a good segue because you started to bring in the provider into this equation here. To me, one area of care delivery that could really transform or be transformed from the use of technology is how care is delivered by your doctor. Telehealth is that classic example now I think where we've seen that during the pandemic, you didn't necessarily have to go into the doctor's office, but we were also used to that. If we think into the future then, is there any reason why we have to keep sticking with the status quo of physical interaction with our physician? Is the future where, and because to this other idea earlier where we talked about patient-generated health. How do you see the role of the physician then changing in how care is delivered if we move into this kind of user-generated model of data and information?
Ken Ehlert:
Yeah. That is a good question, Charles. When I think about, we still will need the physicians just as many, we're probably redeploying them against different parts of the problem. Maybe not quite so many against the problem of dealing with the consequences of disease and maybe a few more dealing with the progression of disease itself. But that requires us probably to think differently about how do those physicians even get compensated for their services. Just like when we were talking about payers before, if you limit the payer's return to only 20% of what they could possibly generate, that puts a pretty high bar on the types of things that they can invest into. It's reasonable that they get a return just like it's reasonable for you, I or anybody else to expect us to get paid for going to work every day. We might wake up in the morning and say, "I really want to spend time helping out at a homeless shelter." But then the reality of you have a mortgage and a family and grocery bill and everything else comes due and you say, "Actually, I kind of need to go to work today."
That's true in the provider world as well. So, for the physicians that are there. So, if we want physicians to play a different role, maybe one of the roles is how do we vet some of the user-generated content that's there? Maybe it doesn't need to be conversations. We've taken, I think this is more of a 1.0 version. The doctor's time is valuable, so maybe we need to hire a whole bunch of coaches to deliver the message to the patient. That still is a hierarchy-driven top-down approach to how health works. But maybe there's a few physicians that have actually figured out how the world ought to work and it's maybe in health, maybe some of our physicians need to be more of the influencers in health. I'm trying to use words that are known to people out there, right?
They're not getting paid by advertising, but maybe based on the patients that they're working with, they can get paid a lot better for actually taking better care of people along the way. I think there are some steps that are going in that direction in terms of how capitation works, but the underlying clinical models that are associated with those are not very robust yet to allow the primary care physician, for example, to do substantially better in investing into those patients. At least that's how it works right now. So, there's probably a few things that need to change in there, but I think there are some disruptors that will come along and actually make some of that work.
Charles Rhyee:
What about the provider groups that have employed physician, where the physician becomes employed so they know exactly what they're going to be earning. So, it's not volume-driven. I think one of the big critiques of the fee-for-service model here is particularly if I'm primary care, what am I getting? $60 a visit to the doctor? And if I want to generate a real income, I turn through as much volume as possible. And then obviously that reduces the experience both for the patient and the physician, right?
Ken Ehlert:
Sure.
Charles Rhyee:
And so, you've seen those companies like a One Medical and a few others where you employ the physician and in theory, they can spend more time with you, they don't see as many patients a day. Does that maybe help solve some of it or what could be problems with that?
Ken Ehlert:
Yeah, I think actually it does help solve some of it, especially if they don't have an economic model behind them, it would be harder to back up here. If they had an economic model behind them that depended on the procedure actually happening, then that would be a little bit tougher. But if it's an independent organization, the One Medicals, Iora was part of that. Oak Street, there's a number of them that are out there. They certainly do have the incentives actually aligned. At least the starting point is aligned the right direction. And I think there is possibilities there that they can invest into those things and actually move it the right overall direction. I'd have to think about what would they need to do next to actually get further down that track. Even in those models, they are still pretty rooted in the one-to-one version of health.
Whether I see you in an office or I see you on a telemedicine visit, it still... Ken and Charles are talking together, I need to do a prescription for you to do the following things, you're talking with me. But for years we've known that group medical visits, for example, are more effective at getting patients to change different behaviors or engage in different ways. We don't really have a very good model of how we've incorporated group medical visits into the overall scheme. There's pockets here and there, but it's not like that's a scaled up version that's out there.
Charles Rhyee:
Yeah. I want to touch on... We talked earlier about the consumer engagement at home, being able to do things at home and the pushes we're increasingly seeing is pushing other more acute care services into the home. They have these movements like Hospital at Home, skilled nursing at home, et cetera. And obviously the data shows patients do better if they're at home versus in an institution generally. And to me that seems like a great opportunity for technology to play a role to help health systems push out beyond their own facilities into the home setting. I guess two questions really. First, what kind of technologies would a health system need to effectively manage patients outside of their own domain? And then secondly, what does that mean for a health system? What does a health system look like? Because historically, it's been very facility-centric.
Ken Ehlert:
Yeah. I think there's some elements in there. Now, I feel like I'm all into the finances and economics of stuff and maybe at a future point, we can actually come off of that part. But I think it's important for us to understand as we're talking through it. If you're in a facility-centric environment, you think about that, like the OR is what drives sort of revenues and everything else that takes place there. I know there's some other pieces. There's imaging that takes place, there's ICUs, there's those types of things, but effectively OR drives what the financials look like. And you look at the environment right now. So, people have talked about staff shortages, but if we really talked about how that works? We haven't.
So, if a facility based system says, "I have doctors, but I don't have nurses to keep my OR operating. Now my OR is operating at 85% capacity." In a 2% or 3% margin business, that has a material impact on what might take place from a financial perspective there. So, could a hospital go out and at the margin acquire more nursing resources? Yes, they could because it's that valuable at the margin that they can make that happen. But then there's another problem that comes downstream, which is where and when do you discharge that patient?
If you went out and got a nurse and that nurse was in a skilled nursing facility and you brought them in, now you got your OR running, but now you don't have a place to discharge them to, that creates a problem for you. And as you attach reimbursement to that, if the skilled nursing facility has a reimbursement contract that's in place at the margin for the next incremental patient, their model does not allow them to pay whatever they need to pay to get the next patient in. It's very constrained. And so, when I look across those, it's kind of like that payer conversation we're having earlier, which is, well, yeah, they have a lot of incentive, but to a point, if there's a threshold that's been put in there in some way or another, that would limit how much you could actually move.
So, one of the movements that you would expect to see happen is, is there a way to maintain reimbursement at a skilled nursing facility but actually push that all to the home if you could. Could you have the same number of people, but distributed now across a whole bunch of different homes because families have become caregivers in some sense, and maybe some families feel like, "Well, if I'm going to be a caregiver, then you should actually pay me." And that's a reasonable request or demand to be made. Those types of technology though, that would allow that to actually happen, that's probably got a fair amount of leverage to it into the entire model is how do we pull that into the home? So, then the second part of your question, which is what would be necessary to do that? And that I think comes down to what are the types and classes of patients that we're actually talking about? Does every patient need to have 47 different alarms put onto them? Probably not.
In fact, actually most patients don't need any alarms that have been put onto them. They need to do things like, we need the patient to ambulate once they get home, but do it in a way that they don't fall. So, what do we need to do now? Well, now we need to do things like tracking. There are, well, I would say a set of technologies that would be super useful for most patients that are being discharged. You could either use things like accelerometers or cameras to actually look at that, which is the environment safe? How much are they moving? What does their form look like when they're moving? Are they actually progressing from that perspective? The relatively simple technology that can actually be deployed there to get a lot more scale in the process, there's another set of patients where actually they do require a lot more learning and alarming that would go with them. That tracking how their heart is performing right now matters. Tracking their respiratory vitals actually matters quite a bit.
And with those patients, we just have to think a little bit differently like what does that look like? There's plenty of technology around it today. It's just the technology is there is not really that integrated and pulled together into a platform that people could actually use. But then again, stepping away from that, most patients don't need really aggressive monitoring when they go home. They need relatively simple monitoring, but they need stuff to happen on a regular basis. So, we worked on a project years ago where we got patients up and ambulating after surgery and the goal was as quickly as possible after surgery and we had all kinds of great outcomes that came out of it. And the institution, the facility there has institutionalized that. They happened to be an at-risk facility and so, that's a good thing for them.
But looking at what was necessary there and then what did they need to go home with? It was pretty minimal what they needed to go home with. But one of those things is, "Okay, we got them ambulating, we need to keep them ambulating." If you're not tracking that, then you're going to come up short. And so I think the technology that's needed, the systems that's needed to do that is actually relatively straightforward. It's the decisioning that goes with it that needs to be powered. So, if the digital part means data that gets collected and now is used in a new way, that would be important. One really quick example on it, a good measurement is what does the stand up and go time look like for a patient? Meaning if I'm in a chair and I want to get up and start moving and walking forward, that's something that you can actually measure. You could do that with either a camera or an accelerometer, and you can actually get really good measurements on it to see is my patient actually progressing? That's not hard technology to put together.
Charles Rhyee:
You talk about the specific technologies needed. It sounds like all of that generally exists. Probably what doesn't exist or is not well-developed yet is that infrastructure or that software layer that can integrate all those devices to feed that data back to a facility, for example, or to the provider to then be able to monitor and make decisions, and then be able to then push information back to the patient who's sitting at home.
Ken Ehlert:
Yeah, I think there are folks that are working on some of that, but yeah, that needs to be improved. And I think there are two other areas that probably need to be improved for patients. One is around how is their mind doing? And the other is how is their immune system actually responding? So, are there simple blood tests that need to be done, for example, on a daily basis to understand is the body coming back to where it's supposed to be? And then the evaluation of what does their state of mind actually look like? The good news is on that, there are a number of ways that folks have developed out to do that through digital means. Not just a therapist checking in on a televisits type thing, but actually there are cognitive tests that somebody can do to say, "Okay, how are you processing? Is that improving or not, or degrading?"
So, those two areas are actually, I think, pretty important to actually integrate in. And those are also probably the areas where using the term artificial intelligence very broadly, which includes things like expert test systems and stuff like that to go from AI to the narrower sets where you're in the machine learning space. Having cognitive screen tools would actually be probably essential across all patients that you sent home. And those could probably be done a lot better with digital tools than with humans. You'd have consistency in the result. It's cheap to perform. It'd allow you to target, again, back to the progression, the progressive nature of disease rather than just a specific event or outcome.
Charles Rhyee:
Yeah. So, let me, to wrap this up then. If we take everything that we've kind of discussed so far, and particularly this idea of a Health 2.0 system, how would you say we need to create the right feedback loops, right? Because we've talked about the patient's responsibility, but their incentives aren't necessarily, they're not always thinking about their health. We've talked about the payer and they have certain thresholds where they have good incentives, where they don't, and then others where they don't. Same with the providers. How would you think that we'd want to create right feedback loops so we can have a better model for care delivery? That actually getting back to the beginning really addresses then the outcomes part versus maybe the administrative part.
Ken Ehlert:
Yeah. Yeah. If we want to get to the outcomes part, I guess a few simple principles. One, the patient has to be involved and aligned in the process. So we should think that some of the dollars that are there and generated should be used with the patient directly in some way or another. Number two is, even though there are some systemic things that can and maybe need to change in the system, for example, maybe we should keep minimum loss ratios exactly like they are, but we can work within the system today to say, "Delegate that risk or capitate that risk away to somebody else and actually just move it to a different part where the incentives can now get aligned again." Maybe the health plan gets some share of that savings that gets generated, but the provider actually captures the lion's share. And then some of it gets shared with the actual individual patient.
There's a feedback loop in the outcome itself and the dollars that are there that needs to be closed in order to actually get the stuff that we're talking about. The rest of the feedback loop though, needs to be technologies that allow us to attach biological signals to the behaviors that we need to see happen in the process. If we believe that immune system performance is critical in different chronic diseases, for example, then we need to have the diagnostic testing that actually takes place and feeds that forward into the system. So, not just back to say, "Hey, this happened," but actually feeding it forward to say, "If we move this and we move this particular behavior that's associated with this, we'll get better performance in those patient."
I think we need to evaluate what are the disease states that we think really need to have that happening, and then actually look at what are the signals that are actually needed there to do just that? And I would submit that I don't think we have a shortage of signals. I don't think we've organized them and use them in a way that allows us to provision care the way it needs to be provisioned for, for areas that we're trying to really intercept that disease progression that's taking place.
Charles Rhyee:
Well, so that certainly sounds like a lot of work ahead for everyone, right?
Ken Ehlert:
Yeah. That's why we're not doing it right now, Charles. Somebody else needs to do all that work.
Charles Rhyee:
Exactly. Well, hey, Ken, really appreciated it. This was really fascinating and hopefully people find it very, very thought-provoking here. Well, so hey, so just want to wrap it up and just thank you for joining us here today on this podcast and certainly thank everyone for tuning in and look forward to everyone joining us on a future podcast. Thanks, everyone.
Ken Ehlert:
Thanks, Charles.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

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