Psilos Investor Waxes Poetic on Health Care Investing in an Election Year

This year’s presidential election has been billed as a stark choice between two differing visions for America. This may not include health care investing, says Psilos Group Senior Managing Member Albert Waxman.

VCJ reached out to this long time health care investor for his thoughts on how venture strategies will change in the coming years of health care reform.

Perhaps to the surprise of many, Waxman starts from the assumption that the impact of the Obama and Romney health care policies on investing won’t be substantially different, despite Romney’s vow to repeal Obamacare.

For instance, health care exchanges will likely come into being regardless of who wins the November election, Waxman says. More important than trying to gauge the prevailing political winds is focusing on the long-standing challenges facing health care in the United States. This means putting money behind technologies for cost cutting, care management and engagement tools to reduce customer turnover, says Waxman.

What follows is an edited transcript of VCJ’s interview.

Q: What differences in health care investment opportunities do you see between Obama and Romney presidencies?

A: I am making an assumption that it is not going to be that much different between the two of them. Romney, as he says, basically wants to eliminate Obamacare. But he says that he is not just going to repeal it. He is going to replace it.

Q: So you don’t have a different strategy for, say, a Romney presidency?

A: I believe the opportunities are pretty much the same. Lowering costs—or bringing cost trends in line with inflation—is going to be critical. There is going to be huge demand for technology that helps reduce re-hospitalization. I think about tele-monitoring for that.

Also very important are sophisticated integrated care management tools that involve all the parties in health care: the provider; the health plan; and the patient.

Q: And you would say the same thing for an Obama victory?

A: I believe health plans are going to be under stress for profits probably more so under an Obama administration than a Romney administration. This is because of the rule in the health care reform bill that you have to spend 80% to 85% of premiums on care.

You have to find a way to make profits out of the other 15% to 20 percent. Well, the other 15% to 20% is marketing and administration. Tools that lower administrative costs are desperately needed. So are health care engagement products, which result in members staying with their plans so that turnover is significantly reduced.

Q: Under the current health care reform plan, consumers have to play a more active role in care choices. Does this suggest changing opportunities?

A: If consumers are going to play a more important role, they are going to want to understand quality. Consumers really don’t understand quality. They ask their friend who is a good doctor. They really don’t have a means to understand quality. That’s going to be an important area: a real way to measure quality.

Q: You’ve spoken about accountable care organizations and the idea of tying provider reimbursements to quality health care. Any interest here?

A: The business of accountable care organizations is very good. Most of them are going to be [created] around hospitals or not-for-profit physician groups. The tools that go around them to make these programs succeed are great opportunities for venture capitalists.

Q: Are there other timely areas of investing that come to mind?

A: There is going to be a fair amount of money invested in wellness. There is today. But there must be better models than there are today. Here you can make good use of technology.

For instance, there is going to have to be wellness with real high-quality coaching tools that make use of mobile technology. You have to bring rewards into it. You have to coach people, or remind them fairly regularly, of what they need to do.

Q: Have the health care initiatives and investments of the past several years—controlling costs, eliminating unnecessary procedures and digitalizing records—had much impact on the health care system?

A: They haven’t. A lot of these efforts have not really become widespread. You really had until recently a reluctance of hospitals to invest in them. You needed the Affordable Care Act to stimulate that and provide capital for it. Most hospitals were not willing to spend the money.