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March is National Colorectal Cancer Awareness month. While the GI world is busy educating patients about colonoscopy, the startup world is busy finding new ways to work with the gut.
With $3.3 billion in investor money, the gut indeed seems to be the next frontier in digital health. CB Insights called some of this technology as Poop Tech! Take a look at their market map of the fecal ecosystem.
Meanwhile, here are 10 startups that show you the spread of innovation in the digital gastroenterology space.
1/Kallyope: A NY-based startup harnessing the gut-brain axis, the bi-directional information highway between the gut and our brain. They are combining technologies in sequencing, computational biology, neural imaging, cellular and molecular biology and human genetics to develop new therapeutics.
2/DFree: A startup based in California created a wearable device for urinary incontinence. This device gives you a 10 minute heads-up (a notification) that it would be better for you to be near a toilet. It does so by tracking your daily bowel movements.
3/BiomeSense: BiomeSense is a startup developing biosensors. These sensors can detect particular kinds of bacteria in patients’ feces. Basically, they collect, store and analyze data of daily human gut microbiome profiles. BiomeSense plans to help improve the efficacy of clinical trials.
4/Docbot: An AI-enabled computer vision platform for gastroenterology practices to improve colonoscopy procedures. DocBot tracks withdrawal time, intubation rate, bowel prep, and adenoma detection rate. More than 2,000 procedures to date have used Docbot.
5/Vivante Health: This company has made it to the list of Digital Health 150. The company makes GIThrive an all-in-one digital platform for digestive health. The app includes microbiome testing to uncover bacterial imbalance, a personal handheld digestion monitor to identify “trigger food” with a breath test, therapeutic nutrition and self-paced patient education.
6/Geneoscopy: A life sciences startup that’s developing diagnostics that leverage RNA to prevent, detect and treat GI diseases. It has a stool-based, multi-target RNA biomarker panel that can identify colorectal cancer.
What does it all mean? Many advanced technologies are entering gastroenterology from different angles. They will multiply and accelerate the pace of digital GI. Simply put, it’s unlikely that the business of GI will stay the way it was a decade ago.
Do you agree or disagree? Are there other technologies you’ve come across that seem like digital GI. Leave a comment and let me know.
Disruption has redefined health care in the past decade.
For private practice physicians, the biggest disruptor has been consolidation.
The trend of local hospitals merging into massive health systems has significantly affected private practices. According to Avalere Health and the Physicians Advisory Institute, between 2016 and 2018 hospitals acquired 8,000 medical practices and 14,000 physicians left private practice to work in hospitals.
Here’s an example: In New Jersey, Hackensack University Health Network merged with Meridian Health system in 2016 to create Hackensack Meridian Health. Its acquisition of JFK Medical Center in Edison made Hackensack Meridian the largest hospital chain in the state. Three years later, it was a $5.5 billion not-for-profit system employing 6,500 doctors. And it isn’t done growing. At the end of 2019, Hackensack Meridian Health proposed a $400 million merger with Englewood Hospital.
Ever-larger health systems affect the flow of patient referrals a private practice needs to stay in business. They change the competitive dynamic for independent physicians, who aren’t left with many choices at this point. They must find a way to get bigger or discover a niche.
Hospital growth isn’t the only threat to independence. Big insurance companies are also venturing into the provider side of health care. UnitedHealth Group is doing this through its Optum division. Optum recently acquired Surgical Care Affiliates for $2.3 billion, setting the base for OptumCare’s primary and specialty care division, which focuses on acquiring or partnering with private medical practices.
Independent medical practices are now increasingly looking to private equity to grow and compete in response to these market forces. And private equity is responding, fueling health care consolidation with billions of dollars. A study recently published in the Journal of the American Medical Association found that the number of private equity deals with physician practices across specialties more than doubled between 2013 and 2016. According to EY, $32.9 billion in private equity was invested in 647 health care transactions in 2018 — that’s double the investments made in 2014.
Early on, private equity tended to fund specialties such as dentistry and dermatology. Later, private equity funds directed their investment philosophies to other specialties, such as ophthalmology, urology, orthopedics, and OB-GYN.
As the medical environment shifts to value-based care, private equity funds are increasingly interested in potentially profitable specialties that still have many independent private practices, opportunities where they may be able to consolidate regional markets.
One specialty that fills the bill is gastroenterology. As the population ages and people — and their doctors — focus on how the gastrointestinal tract affects overall health, the demand for gastrointestinal services will continue to expand. According to a report by Medscape, 53% of the nearly 14,500 gastroenterologists in the U.S. are employed at hospitals or other health care organizations. About 6,000 of them are in private practice.
In 2018, there were only two private equity deals for gastroenterology practices; in 2019 there were 16. In 2020, I expect to see merger and acquisition announcements for various mid-size or large gastroenterology practices. The groups supported by private equity will compete to acquire other smaller groups and expand. And new and innovative models will most likely arise as well, in gastroenterology and in other specialties. The team has made progress on an enhanced version of Cologuard®.
As these deals continue, it’s important to understand the role of private equity and be aware of the mistakes made by physician practice management (PPM) companies when they tried to consolidate medical practices in the 1990s.
PPMs brought in fresh capital and management talent, added new ancillary services, negotiated better contracts, and rushed to demonstrate to the market growth and higher revenues. Unfortunately, they also charged hefty management fees and used confusing accounting practices to make the platforms look more profitable than they were.
In the end, physician practice management companies struggled to execute on their business plans and ran out of money. By 1998, this space imploded and it only took a few years to almost disappear.
Today’s landscape is different. Physicians have become more knowledgeable about the business, technology, and advocacy components of health care. Professional trade associations, such as the Large Urology Group Practice Association and the Digestive Health Physicians Association, increasingly provide forums for private practice leaders to learn from each other and discuss ways to navigate issues that affect their ability to remain independent.
I believe that in 2020 we will see massive consolidation across health care, especially among private practices. It’s not a question of whether this level of consolidation is good — we can’t turn back the clock. The question that must be answered is how to consolidate in ways that support independent physicians and improve patients’ access to cost-effective, high-quality care.
Exact Sciences continues to be upbeat about Cologuard® and its overall business. The company expects revenues of $1.61-$1.645 billion in 2020 (Screening: $1.125-$1.15 billion and Precision Oncology: $485-$495 million). They are due to launch a liver cancer test in the second half of 2020.
Exact Sciences also made some strategic moves by buying two more biotech companies (in addition to Genomic Health): Paradigm and Viomics. That expands their total addressable market to $20 billion.
Total revenue was $295.6 million (compare that to $290 million in Q3 2019 and $143 million in Q4 2018)
Screening revenue was $229.4 million, an increase of 60%
Cologuard® test volume was 477,000, an increase of 63% (volume of Cologuard® in Q3 2019: 456,000, in Q4 2018: 292,000)
Average Cologuard® recognized revenue per test was $481
Average Cologuard® cost per test was $123, an improvement of $6
Precision Oncology revenue was $66.2 million for the period Nov. 8, 2019 through Dec. 31, 2019, following the close of the Genomic Health combination
Oncotype DX® test volume for the full fourth quarter was 41,000, an increase of 14 percent (The cancer diagnostic test Oncotype DX® is now part of Exact Sciences via its acquisition of Genomic Health)
These takeaways are based on the Q4 2019 Earnings Call. Kevin Conroy, Chairman and CEO, Exact Sciences and Jeff Elliott, Chief Financial Officer, Exact Sciences made these remarks.
1. Together with Genomic Health, Exact Sciences now has a $20 billion addressable market. The company has tested 41,000 patients with Oncotype DX® and made nearly $350 million in revenue.
2. The company is confident of reaching their long-term cost per test goal of $100 or less.
3. Cologuard®’s growth has been the result of:
◦ An expanded sales team
◦ Marketing campaigns, especially TV ads (they are already talking about Cologuard® 45)
◦ Growing payor and health system relationships
4. The company has doubled its lab capacity to conduct 7 million tests per year.
5. Exact Sciences has created a 1,000 person commercial organization (sales team). Of which, 60 sales people are focused on selling to gastroenterologists.
6. Cologuard® is very optimistic about the 45-49 years of age label expansion for screening. It expands their market to 19 million more Americans. They estimate that nearly all of them are unscreened. There’s a 50% rise in incidence in younger population.
7. According to the company, over 200,000 more patients are due for re-screening this year compared to last year. Over 370,000 patients coming up for three year repeat testing this year.
8.106 million Americans are in the average risk screening population category of ages of 45 to 85. About 15 million are either not screened or out of compliance with screening.
9. Exact Sciences plans to further differentiate Cologuard® as a frontline screening test. The team has made progress on an enhanced version of Cologuard®.
◦ They presented data, showing new markers with improved specificity, while maintaining a high level of sensitivity in comparison to the current version of Cologuard®.
◦ Based on this study, a 10,000-patient prospective trial was kicked-off to validate Cologuard®’s performance.
10. Exact Sciences presented its third data set for its liver cancer test in November. The data showed superior performance of their test in comparison to the alpha-fetoprotein test.
◦ The test showed 80% sensitivity for all stages of liver cancer at 90% specificity.
◦ The company plans to make this test available in the second half of 2020. Total addressable market for this test is 3 million eligible Americans.
◦ Through the MolDx program, this test received local coverage determination. The test has faster turnaround time and requires less sample input.
11. They recently signed agreements to acquire Paradigm and Viomics. These companies have deep DNA sequencing capabilities.
◦ Paradigm – provides a therapy selection test for late stage cancer patients. Today, the Paradigm test is a tissue-based test. In the future, Exact Sciences plans to make a blood-based version. With the acquisition of Paradigm, the total addressable market of Exact Sciences’ Precision Oncology team is now $4 billion globally.
◦ Viomics – a team that provides critical sequencing and biomarker discovery capabilities.
12. For 2020, the three core priorities of Exact Sciences are:
◦ Deliver more answers i.e., to grow their core business through Cologuard® and Oncotype DX®.
◦ Enhance customer experience by making the testing process easy.
◦ Power new growth that’s fueled by collaboration with Mayo Clinic, their experienced R&D team and a differentiated platform. They expect their liver cancer test to be next of many innovations in cancer diagnostics.
13. Exact Sciences also talked about its sales rep productivity. They laid out three key reasons of hiring a 60-rep GI sales force:
◦ To make sure GIs have proper background and clinical evidence on Cologuard®.
◦ To increase the direct orders from GIs for the patients who feel Cologuard® is a better alternative to colonoscopy.
◦ To sell the liver test and few tests in pipeline like the esophageal cancer test and pancreatic cancer test.
14. According to the company, health systems that have implemented an electronic interface order 95% more Cologuard® tests as compared to systems with no electronic ordering capability.
15. The company invested close to $1 billion in the brand of Cologuard®.
16. Data from Act Bold (a 7,500 patient study) is intended to be used to complete the design of Cologuard® 2.0 and blood assays.
Gastroenterology investment dominated the specialty in 2019, with no signs of slowing down in 2020.
Here, NextServices President and Co-founder Praveen Suthrum examined the current PE landscape in GI and offered insights into the future.
Note: Responses were edited for style and content.
Question: How will the four established (and fifth possible) PE-backed platforms coexist and continue to acquire practices?
Praveen Suthrum: Initially, platforms tended to be regional first and national afterwards. In 2019, we saw a few national deals. The PE platform in Texas [the GI Alliance] acquired a group in Illinois. The PE platform in Florida [Gastro Health] acquired a group in Washington. Newer platforms [like US Digestive Health] will tend to consolidate practices in their home region first.
However, that doesn’t stop conversations from happening across states. When a large or midsize practice puts itself in the market, it attracts bids from everyone. Investment banks will approach all the platforms on behalf of their clients to attract the best bids or determine strategic fits.
Through 2020, we will see merger and acquisition announcements of various mid-size or large GI practices. The PE platforms will compete to acquire and expand. And newer PE platforms will form in other regions.
Q: Three years down the road, what does the GI space look like?
PS: Three years down the road, we will see between eight and 11 PE and strategic platforms. We will see a significant portion of large and midsize GI practices consolidated into PE platforms or into alternative strategic platforms, like the one created by Jamison, Pa.-based Physicians Endoscopy and Silver Springs, Md.-based Capital Digestive Care.
Other players like Nashville, Tenn.-based AmSurg might come up with their own offerings. Companies like Eden Prairie, Minn.-based OptumCare might acquire a few GI practices. We will also see multi-specialty deals. Certain health systems will build GI divisions and acquire or partner with GI practices in their area. Some of these deals might fail, we just don’t know which ones.
We will begin to see [PE firms exit] around 2022-23 when some platforms will move onto the “second bite” of the apple. Newer PE players will enter the market, but overall the net result will [lead to] larger, consolidated GI practices.
Other trends will play out, such as stool DNA testing becoming more common. Screening colonoscopy will increasingly become a lab test, and endoscopies will be more about diagnostic colonoscopy. Artificial intelligence-based endoscopy will become available [which will help] GI doctors increase [polyp] detection. These technology trends will also accelerate business consolidation, because GI practices will see the advantages of getting bigger and more sophisticated.
Q: How many deals do you expect to close in 2019?
PS: There are at least 16-20 deals in the works at various stages right now. Closing deals before the end of the year could have certain financial advantages. For example, if the valuation of the PE platform increases in January, then the practices joining the fold now will benefit from that upside.
Q: Do you believe this level of consolidation is good for GI?
PS: Consolidation is inevitable and it’s not unique to GI. Large aggregators such as CVS and UnitedHealth Group create a trickle down effect across the spectrum. The entire healthcare industry is consolidating.
When hospitals in a certain region organize themselves to become larger health systems, it creates a risk for independent practices by impacting the referral network. In this environment, the consolidation of GI practices is necessary to remain independent for the future. The question is not whether consolidation is good or bad for GI. The question we must ask is how we make things better for GI.
In the 1990s, physician practice management companies tried to consolidate medicine. The reasons were similar — fragmentation, better contracts and so on. But PPMs failed badly, and it left a lot of debris. As the industry consolidates again, we must learn from the past and aim to do it right this time. Getting PE in GI wrong could have too high of a cost.
Written by Eric Oliver | December 23, 2019 | Originally published on Becker’s GI & Endoscopy
Did you listen to the latest quarterly earnings call of Exact Sciences on October 29th? It was insightful.
In Q3 2019, Exact Sciences screened 456,000 people with Cologuard® with over $290 million in revenues. In the last five years, the company screened more than 3 million people.
They are now ready to capture at least 40% of the US colorectal cancer screening market (currently they are at 5%).
These notes are based on remarks by Exact Sciences Chairman and CEO, Kevin Conroy, the Chief Financial Officer, Jeff Elliott and President of Cologuard®, Mark Stenhouse.
21 Takeaways from Exact Sciences Q3 Earnings Call
1. Three priorities for 2019:
> Powering Pfizer partnership
> Enhancing Cologuard®
> Blood based cancer diagnostic test
2. Over 180,000 physicians have ordered the Cologuard® test thus far. Over 3 million patients (456,000 people in Q3 alone) have been screened. New facility has capacity to screen 7 million patients per year.
3. Together with Genomic Health (acquisition in 2019), the company’s addressable market is $20 billion.
4. $35 million invested in R&D for pipeline projects:
> Cologuard for age 45 and above
> Cologuard 2.0
> Liver cancer test
5. Exact Sciences sees “a clear path to Cologuard® cost per test of $100 or better.”
6. Last month, the FDA approved their label expansion providing access to Cologuard® for 19 million average risk unscreened Americans from ages 45 to 49.
7. Several national and regional payors lowered their coverage screening age for Cologuard® to 45 years, following the American Cancer Society guidelines update last year, including Aetna, CareFirst and Blue Shield of California.
8. Exact Sciences implemented Epic’s health IT platform. They hope to enable electronic ordering for a greater share of customers.
9. At ACG 2019, the company presented data on Cologuard® to show a five-point increase in specificity with new markers (92%), while maintaining similar level of sensitivity.
10. To validate the performance of an enhanced version of Cologuard®, the company initiated BLUE-C, a prospective trial.
11. Along with Mayo Clinic, the company initiated a 7-year, 150,000 patients prospective study called Voyage to evaluate Cologuard®’s impact on screening.
12. The company will be presenting data at the Americans Association for the study of Liver Diseases, demonstrating superior performance of their liver test compared to the alpha-fetoprotein test.
13. The company gave in a broad comparison among colonoscopy, Cologuard® and the FIT test:
> Colonoscopy – highly accurate but low patient-friendly test
> Cologuard® – high accuracy and high patient friendliness
> FIT test – lower performance yet high ease of use of the patient’s part
14. The first time a blood-based cancer test would potentially be in the US Preventative Services Task Force guidelines would be in the 2026 to 2027 time-frame.
15. According to the company, 96% of Cologuard®’s patient population is able to receive Cologuard® without any cost share (i.e., a $0 co-pay).
16. The company said the re-screening business is a growing opportunity and would be a sizable business next year.
17. According to the company, 50% of people who get a Cologuard® test have never been screened before. With 19 million Americans in the 45 to 49 age group and about 35 million Americans in the older age group that have never been screened, this market is going to grow and it’s going to continue to grow at a steep pace.
18. To date, the company only captured about 5% of the addressable market (total available patients per physician). According to the company, there are about 300 patients on average per physician that could use Cologuard® today.
19. With electronic ordering, a physician orders an average at least 20% more than those on traditional fax orders.
20. A blood-based test is likely to model as an annual test and is likely to be priced at one-third of the cost of a Cologuard® test today.
21. The company is focused on bringing a lower-cost approach to market for people who refuse both Cologuard® and colonoscopy.
Towards the end of 2018, we saw two back-to-back PE platform announcements: The GI Alliance (by Texas Digestive Disease Consultants) and United Digestive (by Atlanta Gastroenterology Associates). That seemed to have laid the ground for deals in 2019.
2019 was a busy year for GI consolidation. Sometimes we don’t realize the pace of activity unless we look at it all at once. Download the infographic to view GI consolidation from 2016 until end of 2019 all at once.
We were recently at the GI Outlook 2019 conference in LA. As with GI Roundtable, the conference attracts GI leaders interested in the business of gastroenterology.
Topics and discussions gave plenty of insights of what concerns the GI industry at this time. Big insurances. Private equity. Colonoscopy. Private equity. Burnout. Private equity. MSOs. Did I mention private equity?
I couldn’t attend all sessions because we had a busy time. But I still managed to pause and capture 43 takeaways and then some. Here they are.
1) James Weber, MD (Texas Digestive Disease Consultants): When we were 60 doctors, we still didn’t get the attention of big insurance companies. After we expanded to 100-200 doctors, they are reaching out to us.
2) James Robinson, PhD (UC Berkeley School of Public Health): Doctors have to give up their autonomy so that they get to keep their autonomy as a group.
3) Lawrence Kosinski, MD (Illinois Gastroenterology Group): There’s a hunger, they (big insurance companies) want us to do it (consolidate).
4) Jack Lewin, MD (Lewin and Associates): Questions to consider on the future of GI:
– Will solo GI be gone?
– Shared risk and revenue?
– Telemedicine and e-consulting
– Extender use
– AI and big data
– Empowered patients
5) Jack Levin, MD: 3 key forces affecting health reform:
– scientific progress and demand for new and expensive services for aging population
– general economic factors
– politics on things
6) Ramya Raman (Medical Science Liaison, Exact Sciences): Cologuard 2.0 is in the works (early stages) – tests will be done with a blood sample, not a stool sample.
7) Abe M’Bodj (Provident Health Partners): The biggest risk for the large PE-funded platforms is that nearly half of the money they raised is leveraged debt. If the business doesn’t generate sufficient cashflows every year to pay the interest, bankruptcy could happen.
8) Abe M’Bodj: There have been 200 PE deals in ophthalmology, 20 of those are platform deals. With GI, we can expect to see at least 10 PE platform deals. At this point, there are at least 16 transactions underway, including acquisitions.
9) Lawrence Kosinski, MD: If all partners agree to take a 30% cut then you can use that money to sustain your independence (instead of raising money from PE). Now, try having that conversation with your partners.
10) Scott Ketover, MD (Minnesota Gastroenterology): (question to physicians during a session on burnout): Do you take a lunch break and not work during that time? (2 hands went up)
12) Nexus Health Capital: Recent transactions/active engagements (investment bank):
Closed: Texas Digestive Disease Consultants
Impending close: inSite Digestive Healthcare (largest in CA)
Active engagements: Arizona Digestive Health (largest in AZ), GastroOne (largest in TN), Allied Digestive Heath (largest in NJ), Associates in Gastroenterology (largest in Nashville), Gastroenterology Health Partners (largest in KY, S. IN)
13) T.R. Levin, MD (The Permanente Medical Group): Value based health care will continue to grow to meet the IHI Triple Aim of Population Health, Experience of Care, and Per Capita Cost:
– Payment will reward quality over quantity
– Quality will directly impact reimbursement
– Population health management will increase
15) T.R. Levin, MD: Kaiser Permanente Northern California FIT outreach program:
1) PCP Pre-letter mailed
2) FIT Kit mailed
3) Robb-Call reminder
4) Reminder Postcard > Review prompt at office visit
5) Secure Message
6) MA calls
16) Impact of organized screening:
Screening up to date: screening eligible changed from 50% (2007) to 80% (2015)
Colonoscopy: screening eligible changed from 15% (2007) to 30% (2015)
FIT: screening eligible changed from 5% (2007) to 40% (2015)
17) T. R. Levin, MD: Guidelines for surveillance colonoscopy are being revised. Most likely outcome: colonoscopy intervals will be lengthened for 1-2 (possibly 3-4) small adenomas
18) Jack Lewin, MD: U.S. Health care is way too expensive and complicated:
$10,000 per capita per year in 2018
$22,000 per family per year in 2018
18+% of GDP
19) Nexus Health Capital: Need for scale/negotiating leverage:
– Lowered reimbursement risk
– Hospital competition pressures (employment of GIs and referral sources)
– Increasing infrastructure requirements to succeed with MIPS and Value-based care
– Many consolidators recruiting GIs at premium, competing for referrals, competing for preferred payor relationships
20) Nexus Health Capital: Favorable wealth creation environment:
– Premium values for top tier practices
– limited window to consolidate sectors and build platforms
– Shared wealth-creation goal with physicians
– Opportunity to maximize equity “upside”
21) Joseph Garcia (Gastro Health): Often times your EHR is different from your PM system. And your financial reporting system doesn’t talk to any other system. So we knew early on that as our business was scaling, we needed better dashboards. We’ve been using Microsoft Power BI and have been on the project for 1.5 years now.
22) Joseph Garcia: When you are acquiring practices, there’s a lot of scrutinizing of financial reports that goes on. So to keep doing that manually is tough.
23) Joseph Garcia: Dashboards can provide a ton of information from multiple teams. It provides visibility and ability to track. It goes into performance reviews. Brings about great efficiencies.
24) Joseph Garcia: To build dashboards, do the following:
– Identify what you need to run the practice (Data and KPIs)
– Conduct a gap analysis (current reporting vs required reporting)
– Evaluate – build vs buy strategy (outsourced RCM or data analytics vendors)
25) James Leavitt, MD (Gastro Health): What drives PE’s interest in healthcare?
– Dry power of $1.8 trillion
– Healthcare growing faster than GDP
– Healthcare outperformed other PE investment sectors
– Provider fragmentation, lack of professional management
– Create value by increasing efficiencies
– GI of interest because of diverse revenue streams
26) James Leavitt, MD: By affiliating with an MSO, physicians can take upfront value of future earnings.
27) James Leavitt, MD: With a PE structure, physicians can treat their practices as more than just an ATM. They can be part of a structure that creates real value and equity above and beyond the revenue they withdraw as salary from the practice.
28) James Leavitt, MD:
– Understand who you really are
– What is best strategy to meet your needs
– Not everyone is a platform or needs to be a platform
29) Joseph Vicari, MD (Rockford Gastroenterology Associates): With PE, we have to understand who has control of the commodity that we’ll become? Who and what drives decision making as we become a commodity? Will we still be patient advocates? Will we still put quality first? Or, will PE drive decision making? What happens if you don’t meet those 20% growth goals?
30) Joseph Vicari, MD: If we sold or resold, it’ll become like a mortgage. What does it mean for young partners and patients?
31) Joseph Vicari, MD: What happens if the growth of ancillaries stops? What happens if we treat IBD with oral medications and we don’t need infusion centers?
32) Joseph Vicari, MD: If this (PE) goes bad, how does this “unwind”? Who gets what? What happens to the physical structure? What happens to patient records? What happens to ancillaries? If this falls apart, will we truly look at it as a business? What happens to our patients? What happens to us as physicians?
33) Glenn Littenberg, MD (inSite Digestive Health Care): PE is not a cure for:
– a stagnant group that’s unable to grow
– payor pressure
– financing your kid’s tuition
– “kick a mule all you want, it’s still not a race horse!”
34) Glenn Littenberg, MD: people are willing to put in a lot of money into us and want to make a lot more money out of it.. what is that going to do to us or for us? And that’s probably the question
36) Glenn Littenberg, MD: Some physicians are not educated enough but will still come behind you because there’s lack of trust there often based on very inaccurate information, misconceptions on how this could work.
37) Glenn Littenberg, MD: If you are going to do this, you have to become focused, stay focused before, during, after the process.
38) Glenn Littenberg, MD: The question is will they respect you in the morning
39) Glenn Littenberg, MD: What’s the end game? Because second bite is not the final bite
40) James Weber, MD: We anticipate our next partner will be a larger private equity firm with a longer horizon. The third partner may be somebody like Optum or Apple or Google or Amazon or a bigger private equity firm.
41) James Leavitt, MD: There are different types of private equity firms. Lower middle market – start of with $10-20M EBITDA. They grow it from $10M to $50M EBITDA. That’s a 5 times growth. Then there’s the upper middle market – they’ll take it from $50M to $100M. For example, Mednax – they did a PE play and suddenly they were a billion dollar company. They didn’t have a private equity partner to go to and they went public. But that’s four bites down the road.
42) Lawrence R. Kosinski, MD
Major drives of healthcare business model change
– Cost containment (e.g. declining fee for service)
– Structural changes (e.g. Affordable Care Act)
– Consolidation (e.g. PE in GI)
– Demise of independent primary care (e.g. employment of PCPs)
– Disruptive technologies (e.g. EHRs, social media)
– Management of chronic disease (e.g. VCs in this space)
– Consumerism (e.g. patients taking on cost burden)
43) Lawrence Kosinski, MD
[It can’t be] a coincidence the burnout of physicians occurred at the same time as the EMR revolution. We sit there, we watch a screen with procedures, we watch a screen with patients – we are constantly getting hammered with that.
Bonus: When I reflect on the entire conference, here’s what I finally took away:
1) GI is getting bigger faster. The structure of the industry is permanently changing. The industry is at the cusp of an exponential curve. We’ll see the hockey stick soon.
2) A very small portion of gastroenterologists comprehend these changes. It’ll take most of the industry by surprise. Most will respond based on emotion or hear-say or simply saying yes to whatever comes their way.
3) Plenty of disruption is underway (e.g. Cologuard 2.0) but we will be slow to recognize it. Dependency on colonoscopy reimbursements will be a big risk.
4) Technology will play a major role in shaping the future of gastroenterology.
5) GI practices will make less and less money from direct GI care. And more and more from ancillaries.
6) The need for GI care will keep increasing. How we finance and address that need will dramatically change.
Many summers ago, my buddies and I lost our way while boating in Lake Minnetonka in Minneapolis. It was fun! That lake freezes with over a foot of ice during winters when everything stands still.
GI is a bit like that lake right now. Back in summer, there were no rules. You could be solo or midsize or big. You could do anything you wanted. Life was more predictable.
But now, GI is advancing towards winter – when the ice freezes and rules are set. Once those rules are set, they stay that way for a long time.
Until of course a summer comes by and melts everything all over again.
The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily represent those of NextServices and its employees. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained.
A PE fund recently wanted to pick my brains on their investment strategy. They found me through my book. It wasn’t just any investment strategy.
It was about finding their sweet spot in gastroenterology. How should they fit in? How should they stand out? Where’s everything going?
I suspect that by 2020, there will be a lot more investors making a beeline for gastroenterology investments. With more deal announcements (there have been 4 big ones), more investors and GI practices will start seeking out each other.
A ripple-effect is inevitable. Money is a powerful force.
Expect the market to heat up.
But M&A within gastroenterology is not occurring in isolation. Beyond common investor thesis (aging demographics, demand for GI, fragmentation of practices etc.), there are bigger market forces at play here.
To understand what’s happening at the CVS-Aetna level, I spoke to Sid Sahni, Chief Strategy and Corporate Development Officer, Prime Therapeutics. Sid, a friend of mine from Ross Michigan, was previously the VP of Enterprise Strategy of Aetna and VP of Market Strategy, CVS.
He helped me understand present market dynamics in very simple terms.
Healthcare is divided into two camps: Consumer vs System.
1) US healthcare continues to be plagued by big problems. We spend more and yet achieve lower outcomes.
2) There are two big aggregators in the country: CVS and UnitedHealth Group. Taking two different approaches to solve the same problem.
3) CVS is thinking, let’s cover all consumer touch points and influence patient behavior to solve the healthcare problem (Consumer).
4) UnitedHealth Group is thinking, let’s fix the system to solve the healthcare problem (System).
5) The rest of healthcare are variants under one of these two camps: Consumer vs System.
Read Sid’s insightful interview below. It’ll prime you for thoughtful decisions.
Interview with Sid Sahni, Prime Therapeutics
Chief Strategy and Corporate Development Officer, Prime Therapeutics, Minnesota
Former Vice President, Enterprise Strategy Aetna, Former Vice President, Market Strategy, CVS
1) What’s driving the present wave of changes in healthcare
If you think at a very high level, there continue to be problems that plague US healthcare. We spend more, yet our quality of life and outcomes are not comparable to countries that spend far less. The question to ask is why? There are three main reasons:
• There’s fundamental fragmentation in the industry. Different players owning different elements, with no alignment with each other. Even if a player wants to do something right, the incentives are misaligned.
• We work on the mindset of paying for activities versus outcomes. I performed a test or prescribed a drug, so I deserve to get paid. We do not pay for value created or results delivered. Not yet.
• US does subsidize innovation for the rest of the world. The fact is we do spend more here but the benefits are democratized over the rest of the world.
With this line of sight, see what two of the biggest aggregators in the country are doing: CVS Health and UnitedHealth Group. CVS has been taking the consumer route. They are thinking let’s cover all the touch points of patients to influence consumer behavior. Somewhere the benefits to the company will accrue if I focus on changing patient behavior.
United on the other hand is taking a system approach. They are thinking the system is out of whack, let’s fix that first. Let’s reduce costs of hospitals by moving care to clinics, outpatient centers. May be they are building a Kaiser of sorts – a closed system. Somewhere the benefits will accrue if I have the right system.
Most other players in healthcare are taking variants of one of these two approaches: consumer or system.
2) What about new entrants like Amazon?
Well, there are a third-set of players: Google, Amazon, Facebook and so on. They are saying, unlike traditional healthcare companies, we have the trust of the consumer. People are usually skeptical about the healthcare system. The tech companies are thinking you need a fresh approach that’s unconstrained by today’s problems. Insiders can’t fix this. That’s the genesis of the Amazon-Berkshire-Chase approach. It’s also that they see a lot of return on investment if done right. Power to them but I don’t yet see a coherent strategy.
3) When you take a 5-10 year horizon, how do you see the healthcare landscape change because of these changes?
I do think that alignment of incentives, vertical integration, a more closed-loop system will bring healthcare costs down. If you get people to change behavior and be more rational purchasers of healthcare (which is notoriously difficult), it can drive enormous change.
It’s not unthinkable that CVS merged with Aetna. It’s a strategy they’ve been considering for years. So Amazon might not have influenced things beyond a point. Insiders are to leave no entry point for the likes of Amazon.
For example, by partnering with FedEx, Walgreens is experimenting with same or next day delivery of prescriptions nationwide. CVS is piloting a program for delivery of medications to home for an annual $4.99 membership in the Boston area.
The likes of Amazon may bring fresh ideas that might benefit everybody. But they will likely need to work with industry players to implement any idea.
4) Where do you think consolidation amongst private practices lead to?
My contention is that regional consolidation is more beneficial to patient care than national consolidation. If a group in Texas merges with another in Washington, what good will come for a local patient?
When you remove the problems of fragmentation that exist in specialties like gastroenterology, you can unlock greater value. In the future, we may see consolidation of large gastroenterology groups with other specialties. Insurance companies keeping pushing risk down to the providers. One doctor may not be able to take a risk on a certain patient. But when put together with a group (primary care, oncology, pharmacy, social workers), the group may be able to assume greater risk and be accountable for the health of regional populations. It is one of the key ways we will make a transition from paying for services to rewarding for outcomes.
5) What do you think about PE-led consolidation that’s underway amongst private practices?
Essentially, their play seems to be that of bringing efficiency in operations. Even for a minute, I don’t doubt that there’s money to be saved and made. However, this approach reaches its limit reasonably quickly. At some point, you’ll finish consolidating billing, accounting, technology and so on. Then what? You are ultimately always looking out for exit multiples. You aren’t solving fundamental problems with a long-term view. You’ll get some runway but that’s not enough for healthcare. The PE-view is completely different from the approach that someone like Amazon-Berkshire-Chase is taking. Perhaps, you need both approaches to solve our problems in healthcare: remove inefficiencies and innovate.
6) What should practices that are consolidating watch out for?
Just because you bring two entities together financially, it’s a stretch to assume there’ll be a match. Don’t underestimate the role of culture. Culture can take a bite out of the success you want.
Every once in awhile there comes a well-researched and clearly-written book that deserves to be read end-to-end. While Dr. Eric Topol’s Deep Medicine’s compass points to the future, the book’s heart is rooted in compassion and deep concern for patient care.
My printed copy has so many dog-ears that I’m simply going to list my takeaways for you – with a few comments (>>).
25 Takeaways from Deep Medicine
1) Delays in diagnosis or failure to spot a diagnosis account for a significant number of law suits. The underlying reason is poor chart documentation. AI tools (e.g. Ada, Your.MD, Babylon, Buoy Health) can help.
2) Crowdsourced diagnosis is an upcoming area. Figure One, Health Tap, DocCHIRP, Medscape Consult, CrowdMed (competitions) are some interesting examples. Human Dx has been used by 6,000 doctors and trainees. In the future, AI tools + crowdsourced diagnosis can be real aids for doctors.
>> Our medical knowledge is expanding and growing in complexity. ICD-10 diagnosis codes are 150,000 in number. It’ll soon be impossible for doctors to see patients without the aid of technology.
3) Machine learning works best with raw data and lots of data. If there’s enough data, then the noise gets filtered out on its own.
>> If we take stock of ALL the electronic medical records circulating out there, we’ll notice that the majority is templated and not pertinent. Using that data to create algorithms is dangerous and possibly futile. But with more data, the machine can possible figure out what’s useful and what’s not.
4) AliveCor’s Kardia band is possibly the first FDA approved AI algorithm to help patients with self-diagnosis. It can help users detect atrial fibrillation.
5) Gary Kasparov said IBM’s Deep Blue “didn’t enjoy beating me”.
>> We vastly underestimate the role of human emotion (in this case the joy of competing) in our transactions with machines.
6) 4 areas where deep learning has made big impact already: games, images, voice and speech, and driverless cars.
7) If a doctor makes a medical mistake, it can result in one death or coma. If an AI makes a mistake, it could be devastating – possibly resulting in hundreds or thousands of deaths!
>> Imagine if an algorithm that determines drug dosages for a certain condition goes awry. It’ll be far, far worse than a clinician overdosing one patient.
8) Problem of using current genetic data as input for AI algorithms is recipe for trouble. Because most of the data is from people of European ancestry.
>> The problem is we don’t really have that much data from other ethnicities. So there’s a lot of room in the future to make these algorithms more relevant and accurate.
9) NHS used an app (Streams) that helped triage patients in 30 seconds vs up to 4 hours in the past.
10) The paradox of driverless cars. In the accident that occurred in 2018, the AI detected a pedestrian in the dark but didn’t stop and the human backup driver trusted the AI.
>> I hear this all the time with staff at medical sites: “The computer told me to do this” and they simply do it.
11) In healthcare, there’s scope for building algorithms that are unethical, channeling patient care in a certain direction based on insurance or income levels.
>> Think of someone at a hospital saying this: “the computer suggests that it’s better for you to get a stent placement. Do you want to go ahead?” The problem is a patient will almost never question who told the computer to suggest that and on what basis.
12) In an experiment, 83% of radiologists missed a man in a gorilla suit shaking his fist into images, while reviewing for cancer!
13) It’s not about AI replacing dermatologists. But it’s about AI assisting family doctors who are called to do dermatology cases.
>> I wrote this article about a DNA stool test and colonoscopy and it created much angst among gastroenterologists. The reality is it’s general practitioners who are prescribing alternatives to traditional procedures because patients are approaching them first, not specialists.
14) AI speech processing exceeds performance of human transcriptionists. Can it be used in the medical office to speed up EHR documentation?
15) We are trapped in a binary world of medical diagnosis – normal or abnormal and ignoring rich, finer data on various possibilities.
16) Surgery 4.0. Imagine cloud-connected surgeons sharing data to democratize surgical practice.
17) Based on several acoustic biomarkers (voice), AI can sense various mental conditions – from depression, schizophrenia, bipolar disorder and so on.
18) In a study, AI learnt from electronic medical records of 160,000 patients to predict death with great accuracy.
>> Imagine what would happen if this information is released to patients or worse their insurers or employers!
19) Insurers like United Healthcare are experimenting with voice AI to replace keyboarding.
20) It’s likely that AI for medicine will take hold outside of US in countries like China or India. Economist characterized China as “the Saudi Arabia of data” (hospitals are training AI using massive amounts of data).
>> Healthcare is likely to be globalized and more and more uniform in the future. Discoveries in China will impact medicine in US and elsewhere. It’s in our interest to develop a more global mindset in healthcare and be open to new possibilities.
21) Nutrigenomics is an evolving field. Can we personalize food to control disease?
>> It’s too, too early. I doubt we are at the point where we can trust the food we buy yet. How do we then customize it?
22) With $600 million in funding, Chinese company iCarbonX is attempting to collect data on a massive scale across “lifestyle, DNA sequencing, proteomics, metabolomics, immune system via autoantibodies, transciptomics, the gut microbiome, continuous glucose monitoring, and the use of smart toilets and mirrors beyond smart phones.” The plan is to develop a more accurate AI health coach.
>> There many companies that are pursuing similar goals. For the machine to guide our health. We’ll see many forms of AI coaches – possibly not for all therapies but definitely for certain conditions.
23) In 1975, the term “health system” wasn’t coined yet, US spent $800 per patient per year and less than 8% of the GDP. Today, we spend $11,000 per patient, over $3.5 trillion per year and close to 19% of GDP.
>> This is so absurd. And what’s disturbing is that there’s no stopping it. It’ll increase more and more, with no guarantee of better outcomes.
24) AI will profoundly change medicine. Some of these changes will be for the better. Some could make it far worse. We have a choice right now to nudge AI development in the right direction.
25) AI can offer the gift of time to doctors by unshackling them from the burden of data entry into electronic health records. But this requires collaboration across the board from administrators to physician leaders and EHR vendors (some with “gag clauses”). The gift of time is not necessarily to keep seeing more and more patients but to go deeper instead.
My final takeaway: Machine-based medicine need not be the future of healthcare. Instead, AI can move us in the direction of greater human empathy and make space for rebuilding a genuine physician-patient relationship. If we allow it to, it can recreate the space for caring, trust and empathy. To ultimately result in healing.
>> The last chapter had a profound impact on me. It seemed to say, let’s rapidly embrace the future the right way so that we can go back to a simpler past.
Re-reading my dog-eared takeaways, I see that they hardly do justice to what the book represents in its totality. Deep Medicine adds up to much more than this.
Read it if you are in healthcare. But read it even if you are not. Because sooner or later, healthcare affects all of us. So would AI.