Robert Mittendorff, MD, MBA
Current Co-Chair of the Digital Healthcare Innovation Summit
Robert Mittendorff brings to Norwest Venture Partners more than a decade of operational and medical experience. Based in Norwest’s Palo Alto office, Robert focuses on investing capital in venture and growth opportunities in the healthcare sector, including digital health and healthcare IT, technology enabled healthcare services, medical devices, diagnostics, and specialty pharma.
Steve Krupa: Welcome to the Breaking Health Podcast. For the second time, our first two-time guest, please welcome Robert Mittendorf, the co-chair of the Digital Healthcare Innovation Summit. Welcome to the Podcast, Robert.
Robert Mittendorf: Thank you, Steve.
SK: So last time, which was really I guess last year, we spent a fair amount of time talking about your life as a doctor and an investor, and I’d welcome people to listen back on that. It’s an interesting discussion. And then we talked a lot about the agenda of the Summit, which we covered with Bill Geary a couple weeks back. And I thought maybe you and I could take a bigger picture of digital health and health innovation in general, and start to talk about where things are heading, if that’s OK with you.
SK: So when we talk to our limited partners and our investors, and we explain to them why we’re doing this for a living, we’ve got a thesis as to why this is an interesting place, and maybe an extraordinary place to invest. Give me a sense from your perspective and at a high level why digital health is a cool place to be looking at high investment returns.
RM: Yeah. I think that’s where we are now in the industry. I think – and I’m very proud of the work that our whole advisory board and Bill and myself have been able to achieve this year with some amazing individuals who are taking part in the program and the conference. The conference also continues to grow each year in terms of speed of people registering, and in terms of kind of the value that we believe people get out of it. But I think it also is a reflection of how the space is maturing. Just a couple of short years ago, we had a lot of investment in this space of digital health, technology enabled healthcare services, healthcare IT, consumer health. All of these names or buzzwords flying around, really the combination of software and clinical and financial and operational understanding to transform the almost 3 trillion or so in healthcare spending in the US and in other countries as well. And I think not only have we seen exits, but I think we’re now seeing proof points. We’re seeing the drivers that we thought would affect these markets actually affecting the markets that healthcare carries under its umbrella. And we’re seeing the application of technology to solve problems in healthcare that we were only dreaming about a couple years ago. So what I would summarize in saying is that I think we are definitely seeing legitimacy in this space, not only from a proof and driver perspective, but also with exits. Even one of our own companies just listed or just filed their non-confidential S1 to go public, and I think – you know, they’re a digital health company. So I think we’re seeing more and more legitimacy in this space. And with that, legitimacy also of financial returns that make sense for continued smart investment in this space.
SK: Yeah. So if I think about the points, drivers in the space, technology coming of age, proof that it’s working. So let’s start with drivers. What do you think is driving the need for investment in this area? Because investment’s going great, right? I think we’re going to be, at least in the venture side for digital health, over 4 billion again for this year. At least the numbers look they’ll turn out that way. What are the drivers that are creating that interest?
RM: Yeah. I think we definitely see the investment dollars, and we’re also seeing the exits and the cash on cash returns that we’ve spoken about before with companies like Phytal, Humedica, etc., where – Evolent – where those returns are good for investors. I think on the driver end, a large percentage of this has been driven by government regulation, but also technology. But if we look at the government regulation side, we’re finally seeing the cascade of effects from the PPACA that has reframed how payment works and how people will get graded, and providers and payers. And those changes are occurring where now we have new business models that are becoming successful. So if I just break it down in the kind of 4 payers, if you will, employers, commercial insurance, and then the two government payers, Medicaid and Medicare, where Medicaid is at the state level, I think what we thought would happen – and I’ll just give you a couple of bullets in each area. What we thought would happen is happening. So employers, for example, are more mindful of their spending. They have obviously adopted, with the notion of the Cadillac tax, higher deductible plans, and with premiums that are still high. But they’re throwing their employees new opportunities to cut their costs with narrow networks and steerage. And some examples there are even from 2013, Wal-Mart and Lowe’s with their bundles for certain types of procedures with Hopkins, Kaiser, Mercy, Seattle and Cleveland Clinic. If you ask those employers how they’re doing, those have been – and the provider since have been, I think, useful additions, although it is still growing –
RM: – dramatically. So I think the employer has said, We are complying with the PPACA. We understand deductibles go up, but hey, there’s no charge for your spine operation if you go to where we think the highest quality, lowest cost care is. So that’s happened. And that enables a lot of opportunity for IT solutions in that space.
RM: I think the other part in the commercial area with those high deductibles is that with consumers on the hook, providers now have to deal with cash pay. Effectively, a higher deductible means that I’m paying the provider directly. And consumers are also looking for alternative care models, not only for convenience, but also for cost. So what we thought would happen with virtual visits and telemedicine is happening. Kaiser has recently said that half their visits are virtual. Whether that’s in the case where I’ve been involved as an emergency physician with tele-neurology consults during an acute stroke episode to follow up for a patient that has a chronic disease, that is coming of age. And it’s being led by providers, but also by companies that are building their own effectively virtual practices.
SK: It’s a great consumer product, right? I mean I love it. I’ve used it a couple of times. I think it’s fantastic.
RM: Big consumer product. And I think you’ve made this observation recently in a publication you had. In the area where physical exam matters less, in for example, behavioral health, we’re seeing even faster pickup than one might expect, where people are going online to receive care in an either synchronous or asynchronous way. And I think tele-behavioral health is a big opportunity, but it’s already being realized. We’re also seeing, in terms of alternative care models, we’re seeing employers take the bull by its horns and provide healthcare providers on site or in near-site settings, with kind of more close primary care networks. And we’re seeing subscription models for concierge care take off. And we’re seeing pharmacies become healthcare providers at a faster rate than probably I expected. So I’m continually amazed by the utilization numbers I see coming out of CVS and Walgreen’s for their app. But as you probably know, Walgreen’s now enables you to talk to a clinician via their partnership with MD Live through their app. You can have prescriptions delivered to your home if you want. You get points if you link your health kit up that can be redeemed in the store. And so if you look at the footprint of a Walgreen’s, with I forget how many sites – I think it’s north of 10,000 in the US – they have a massive footprint by which they can deliver basic healthcare. And so I think we’re seeing that happen. And then I think the two government payers, there’s been a large kind of discussion around our exchanges failing, with some of the nationals pulling out of exchanges. And that is true and it is hard to operate profitably with some of the constraints in the PPACA, especially if you’re limited to one state, and you can’t diversify your risk across multiple states. But the corollary to that is that there has been a huge growth rate in the Medicaid business. And if you think about the dynamics, the people that are not insured today that are going on an exchange typically are people that are sole proprietors or not insured, obviously not in a big company, or not insured repeatedly for their part-time employees. And these are typically people that may have – either are very healthy and don’t want insurance, or may not be so healthy, but aren’t in a company or can’t afford it. And so as many states have done, I would imagine there’s going to be more overlap with the Medicaid requirements in a state. So for example, some states now have the requirement for Medicaid as high as 400 times the Federal poverty level. Sorry, 400%, you know, 4X times the Federal poverty level. That opens up a huge swath of people that can now get into a Medicaid plan, where they don’t have to pay anything, if you remember, and become, since most of Medicaid is managed, become part of a managed Medicaid plan. So I think although the commercial market – sorry, although the market for individual insurance under Obamacare has had its challenges, I think largely driven by the fact that insurance companies have some significant financial structures to deal with as well as the fact that they can’t use the same product across state lines, the corollaries that the Medicaid business, especially as states elect to take Federal dollars and expand eligibility, will become and continue to be a growth area. So I think that is a mechanism for more coverage. Which means that hospitals who work in those markets will get paid for the care they already probably provide. And then finally, in the Medicare market, Steve, we have seen bundled payments and especially CGR rapidly drive providers to understand how they think about how they construct bundles, which will help both with employers, but also with Medicare, and how they create this kind of at-risk warrantied procedure. And of course ACOs are still working, I think, albeit slower than many of us thought.
RM: But those are the drivers on the payment side that are really generating the need for new IT and services.
SK: Yeah. And I think the drivers are also the reality that those products keep going up in price at unsustainable levels, right? I mean corporations are using the bundles, and what I’m seeing is everything that comes out of CMS, bundled payments, scoring physicians, specialized high performance networks and all those things, the large employers are like, Well, I’d like to have that too. So because I’m still seeing 10% increases every year. And my profits aren’t going up by that much. Unless you’re Google, right, somebody like that. So what tools are at our disposal in terms of technology to start to help the situation? Because to me it feels like it’s a market where there’s a lot of stress on the payers to get the costs under control. And there’s a lot of stress on the providers because the life that they had been leading is changing into a new life that they’re unfamiliar with. So where does technology – this is obviously where digital health plays its role. What type of technologies fill the gaps here for these constituents?
RM: Yeah. I would say let’s start with the payers for a second. I think payers are looking for – we talk about engagement for a number of years. But ideally what payers would like to have is a knowledge base around the people that they’re insuring, such that they can weigh the risks and benefits of networks and coverage and prior authorization, formulary decisions so they can retain that – those people over time so that as they make investment, say by providing access to a drug, they receive the benefits in downstream health savings. And I think what we’re seeing there is payers are investing in more analytics solutions. They’re surprisingly more behind than I thought in the ways in which they can analyze not only their claims data, but even some clinical data they’re starting to get access to. And they’re also investing in technology platforms to engage with members. And that could be through third parties. You know, insurance companies traditionally are not a very trusted brand. If you look at net promoter scores for insurance companies, they’re some of the lowest out there. But using third parties, whether we call those steerage or patient navigators, they can help to provide more value in the conundrum that patients have in terms of deciding whether they need care, where they should go, and doing that in a convenient, cost effective way, and thereby hoping to keep that patient as part of their network. Kaiser – you know, I’m affiliated clinically – they do a great job at keeping patients happy so that they continue to elect to remain a Kaiser patient year after year. And that’s a complex set of activities that does require analytics on the back end, and then front end IT to engage patients. I think on the provider side, they’re looking at – I’ll focus on a couple of areas here, but I think we finally have digital information on patients.
RM: And once you have – that’s a big hurdle. And I’m really glad that as a country we paid to enable that through the High Tech Act.
RM: Now that we have it, we’ve seen a whole cadre of what I call retrospective analytics solutions, which is Health Catalyst, the winner of the Innovation Award this year at the Conference, is a great example of that. And they tell you in general how you’re doing with all that information. And they often can tell you how you could – it’s all in kind of the rear view mirror for the most part, but how you would want to change your practice or your care pathway for your financial management of patients. I think that era is here. We’ve seen lots of hospital systems adopt that kind of analytic solution. I think what we’re going to see next, and where I think now the huge opportunity is for provider systems is, is the following. We can count everything now. We can look in the rear view mirror and figure out what we would like to have happened, and what did happen. And then we can say, Well, we wish tomorrow we could do X. I think now we also have the opportunity with sophisticated, real time analytics solutions to find what’s going on in real time, whether it’s clinical, financial or operational.
RM: And use machine learning, which can be considered a black box with more branching logic type approaches that are well validated to in real time offer guidance to an operational professional or financial or a clinical, in clinical decision support, a clinical professional to change the trajectory right now. And I think that’s the next step, the kind of semi-autopilot here, to improving quality and improving efficiency, which effectively will lower cost some. I think the next step after that, and I want to use machine learning as an example of this, is – and iRhythm is an example of this as well – is there are a number of activities in healthcare where labor is the major cost.
RM: Where we should be automating lower level tasks or tasks suited for a computer. In the case of iRhythm, iRhythm is a patch that collects 2 weeks of ECG data from a patient. It’s a Band-Aid like patch. And in the cloud, algorithms that are supervised by a clinical person help to decipher whether there are arrhythmias and what types are there. That automation brings huge scalability to those clinicians.
RM: We need that because the number of patients we have to serve in the next 20 years will outstrip the human provider capacity we have today; the way we deliver care today. So we have to automate some tasks. And the tasks we will need to automate are lower level ones. So this is where I see huge opportunities here today, but coming, which is automation of lower level tasks being done clinically, and in the payer world as well. For example, pre-auth, prior auth cannot be automated using rules rather than people on the phone. That kind of work will help us to first, capture margin in the companies that do it, and then lower cost over time.
RM: And then the third, just to underline, is high throughput computing. So cloud based computing is becoming high throughput. We’re seeing lots of new computational architectures come out, so Microsoft announced this. Intel purchased a company that has field programmable gate arrays of PGAs in 2015. We’re going to see the general CPU architecture we’ve seen couple with specialized processing architectures for things like machine learning, which is going to take us 10 to 100X speed improvement on processing for all kinds of things, from image processing, which is where a huge amount of automation will occur in the next 5 years in terms of clinical decision support. Radiologists will see a potentially 5X increase in throughput because target recognition will be done before they read a CT on CT data using image processing probably running in the cloud, because of these kinds of technologies. So that’s probably the third technology theme I’d point to.
SK: Very cool. You know, I think it was about maybe 6 or 7 episodes back we had on Deborah Kilpatrick from Evidation, who is sort of building a business around demonstrating that the outcomes of certain digital health applications or digital health programs or IT systems significantly justify the investment in deploying them. And I guess when you and I talk about this, we talk about the fact that these are all great ideas, but at the end of the day, the way that the customers are going to begin to deploy them at scale is when they realize that they outstrip the inertia of the current business that they’re running in terms of return on investment. And also in terms of the ability to create better outcomes and a better consumer experience, and potentially a better provider experience. So what type of proof are we seeing from your end in the marketplace that these investments are paying off along those vectors?
RM: I think it’s a great point you bring up because investment in a field is a modest proxy for some sort of success. But the next proxy is proof of customer value, which we can call ROI, which we can call efficiency, safety, throughput or other improvement. And then coming from that is proof that a business model to sell, implement, deploy that valuable product or service is something that’s scalable to a point where it’s an investment that’s worth something. And I think on that step of proof, we now have proof that this field is mature. We have proof that has been led by digital companies, digital health companies, healthcare IT companies, in prospective – if not randomized – prospective studies, which is the way in which this field digests its information, that shows that, for example, you can prevent a portion of diabetes, that you can reduce the number of exacerbations of a chronic condition using remote monitoring, that you can take of 100 patients that show up in an ED, 50 of them that could be treated virtually and put them in a virtual lower cost setting without reducing quality. That you can actually improve quality in the case I gave before with tele-neurology consults for stroke because you don’t have to have a neurologist drive in, where every minute before the delivery of TPA, the clot busting drug, affects that patient’s outcome. So I think we’re seeing that on the clinical side. We’re seeing safety improve by early warning in patients, where they don’t have to come in with a symptom. We see a leading signal, a biometric signal that something is going wrong, where we can proactively reach out. We’re seeing this in the respiratory space, for example. And then I think in the two other areas, throughput and financial performance, patients flow and throughput – we’re seeing this in two of our investments – that technology platforms can improve throughput, also improve safety, but improve throughput in a way that you can measure at even 3 months by making sure people know what’s going on at the point they need to know. And then I think on financial performance, which all of those plan to, we see that hospitals are employing new technologies, for example, to collect the larger and larger cash pay portion of their billings.
RM: So I think we’re seeing, and I can quote you some evidence there, but suffice it to say as investor, I look for this evidence. And three years ago, it was scant. Now it’s becoming more robust, and it’s becoming almost a requirement for a certain stage of investment.
RM: That legitimacy that you’re creating value is the precursor to saying a business model will work. If you can create value that is in one of those areas, and you can quantify it, then you have the potential to sell a solution to someone where your cost to sell that solution is far less than the value you capture. And then you have a business model that’s financeable. So I think we’re seeing all of that. All of the businesses that we fund have those kinds of proof points. But I think you’re seeing that, and I think that is what’s going to lead to even greater returns in the future from a financial perspective.
SK: Yeah. I think you and I were talking at Kaiser, where you practice. You had mentioned to me that a very high percentage of their physician visits are going virtual. And that of course is a wonderful – it’s gotta be more cost effective than a person to person visit, just as one of those proof points. Is there other data that comes to mind on this evidence side as we wrap up this one last topic here?
RM: Yeah. I would highlight – I’ll give you some examples, and I won’t quote the literature perfectly, but if you look at the 2-year data from Omada, they were able to show a reduction in weight that’s highly correlated with reduced conversion to diabetes. If you look at iRhythm, they capture more than two times the quantity of arrhythmias than a typical halter event, which means that they’re more sensitive, and that’s the kind of test they are, than our state of the art halter monitors. If you look at one of my more recent investments, they’re able to reduce the left-without-being-seen rate in the ER by identifying bottlenecks in patient flow, and messaging in real time to people responsible for those bottlenecks to lower them such that if you are in the waiting room waiting to get into the ER, you don’t have to wait 45 minutes. You wait 20, and that’s because they more efficiently manage the resources they already have. I think financially, Health Catalyst has shown this in a number of ways, that by looking at the physician practices at the physician level, you can identify, for example, which physicians are spending things, time in the OR, on equipment that may not lead to the outcomes that you’re also measuring, and help to coach them to change their practice to lower those costs and pay for the system. So I would point to the literature in all of those companies that I’m more familiar with. If you look in the behavioral health space, a company like TalkSpace, you know, they’ve been using tele-behavioral health to reach clinical outcomes that you would technically use to see in face to face interactions. So they’re showing that people are less depressed on their platform in a much lower cost, more convenient way. So I think it’s there. And I think we’re seeing more of it. And I think we’ve seen an acceptance by the entrepreneurs in the field to prove what they claim, which is where things need to go.
SK: Very good. And of course we’ll be talking about all of these things, right, in Boston at the Digital Healthcare Innovation Summit, where you’re the co-chair. You want to give us just a quick roundup on that event as we close up here? What should we expect at that event? I know you had a lot of input into the agenda.
RM: Yeah. I would say I’ll highlight some key things. So what’s going to be interesting about this event this year, and we try to include this is it’s a week before the election.
RM: And although we’re not going to get too political, we have keynotes that I think will touch on – we have keynote speakers that will touch on the complex interplay between policy makers and our industry, healthcare. So just to underline Dr. David Blumenthal, the President of the Commonwealth Fund, who used to work for the US government in a healthcare IT capacity, and now runs a very large nonprofit focused on this exact intersection, policy and healthcare, he’s written an amazing book which I would encourage people to read, which really goes through the entire odyssey of healthcare policy in the US. So we’re going to hear his comments, which will probably frame this. We also have in the afternoon we have one of the key, if not architects, influencers on the PPACA, Jonathan Gruber from MIT’s department of economics, who will have a lot to say around, I think, around what the intentions of the ACA were and how far they were able to get practically.
RM: And then we’ve got the afternoon with Dr. Gary Gottlieb, CEO of Partners, who’s just been a leader for so many years in this space, dealing with the complexity of being a provider, academic center and payer. And then we’ve got Charles Koontz, the CEO of Jude’s Healthcare IT business who I think will – I’ll be interviewing him – will be giving us core commercial perspective of where the market is. Add to that a number of panels we have which are just filled with high growth entrepreneurs, leaders in hospital systems, and opinion leaders in the space. And I think you’ll have a great time at the event. We did make sure this year to include a session that will both give attendees an understanding of where the public markets think things are going, with George Hill from Deutsche Bank, and then where the private funding landscape is with Katya Hancock, who’s also on my advisory board from Startup Health. So very excited about it. Of course, as usual, we’ll have lots of time to network there with 350 or so people that will attend. And hopefully it’ll be an even bigger success than last year.
SK: Very good, Robert. Robert Mittendorf from Norwest Ventures. Dr. Robert Mittendorf, so physician and VC, and co-chair of the Digital Healthcare Innovation Summit. And that takes place on November second in Boston. I’ll be there along with the rest of the advisory board, and it’s going to be a pretty awesome event. And Robert, thank you for joining me today on the Podcast.
RM: Thank you, Steve, and thank you for all the work that you’ve done in this Podcast series. You’ve done an amazing job at curating the perspectives of leaders in this space.
SK: Thank you very much. I’ll see you soon.
RM: Take care.