23 – A Poignant Insider’s View of Healthcare’s Importance to Patients and Their Families

Vic: [00:00:00] How you doing man? Good. I wasn’t even, I was still kind of warming up. I’m good. It’s a rainy day here in Nashville. No, I don’t know. All the news is a challenge, but it’s our It’s our privilege to get to talk about it.

Marcus: It is. Um, well, we’re not, we’re not in the studio. I’m, uh, I’m out. I am, uh, having a lot of very, very, um, close experiences with the health care system right now.

Um, someone, uh, very close to me is, um, I don’t even really know the right words for it. Uh, but I am. I’ve been experiencing a lot of health care in the last, uh, three or four days. [00:01:00] Um, so it’s been, I think, really, really powerful to have this experience. Um, it’s, uh, it’s been draining, uh, and, um, but it certainly has added a lot more meaning to, I think the work that we do and, um, has given me I think a better understanding of, you know, just how challenging this, uh, this space is.

And, um, you know, it’s not, it’s not anything that all of us won’t, I think, experience at some point, but, um, I don’t think it makes it much easier. Um, but I’m really happy that I’m working in this, in this industry, because it is, it’s really meaningful work. And, you know, sometimes we can get really focused on, uh, The regulatory environment and, uh, the innovation and, and all these kinds of things.

And I know [00:02:00] we, we, we mean well by it. Um, but eventually we’ll all be, I think. Very much reminded of just why this industry is fundamentally different. And, um, you know, it just draws on a level of emotion that I don’t think. Most other industries tap into. So, um. I don’t want to say much more than that, but

Vic: well, let’s not talk about the specific details, but I do want to touch on just the idea that you and I talk about, I might yell about the need for innovation, talk about how much waste there is, or some hospital maybe is going to shut down.

But events like this week, just, I mean, you’re in the middle of it. I’m sort [00:03:00] of experiencing it only secondarily through you, but. There’s, there’s people in the systems at really critically important and highly emotional. Like the most important times in their lives are in the health care system and it’s the end of your life.

It’s the birth of a new human. It’s recovering something so you can have another 20 years. It’s the most important, one of the most important things our society does. I can tend to get almost like superficial about it or like, not that I don’t understand there’s people, but like I glossed over that cause I’m so focused on trying to fix something and it just.

It’s just a reminder that we have to fix this system, but there’s people in it right now. [00:04:00] And so we need to be mindful of that. Well, we’re trying to make it better.

Marcus: Yeah. Yeah, that’s right. And, and also I would, I would say that, um, you know, in this industry, there are miracles and sacred moments happening every single day, every single day, you know?

Um,

Vic: And the caregivers have to try to do the best they can. And every day it’s incredibly sad and emotional for the people they’re caring for. And even the best people are under a lot of pressure. And it’s, it’s, it’s It’s hard to be the service provider in that, in that environment.

Marcus: It’s almost impossible.

Um, [00:05:00] honestly, I, I, I mean, I, I’ve been sitting back and watching these nurses and, um, you know, nurses run healthcare and it, you know, it’s, it’s, it’s one thing to sort of just say that as, you know, an intellectual statement, um, but I’ve been living it for 72 hours now. And nurses run healthcare and, uh, it’s a really big deal that we are in a nursing crisis.

That’s a really, really big deal. Um, yeah. So, okay, let’s, let’s get into the show because I do need to end this on time and, and, uh, kind of get back to, uh, get back to get back to family. Um, all right. So let’s, let’s dig in.[00:06:00]

Vic: So we, so we ended the last show with. Our concerns about a government shutdown, like, very imminently and Kevin McCarthy really to his credit. Acted like an adult, of course, he’s paid to represent us. But, but not everyone is acting like adults and and Saturday night, late Saturday night. He can, he.

Compromised and there wasn’t any major thing, but he, he kicked the can down the road for six weeks till November 15th. Um, and I think that should be, that should be maybe not celebrated, but recognized that he did the right thing. Not that it, maybe he shouldn’t have waited until the last second, but, but leave that aside, he did the right thing at the 11th hour.

I did not have any [00:07:00] confidence that he would do that. And then. Sort of in the no good day goes unpunished category that is against that. He said it gets Matt gets, um, utilized the clause that he negotiated for. Whatever it was, 11 months ago, when McCarthy got elected a speaker that any single member can set a motion to else the speaker that had never been in existence before.

And that played it out on Sunday. And then by now McCarthy is out. And so, I guess, I guess it’s better the government didn’t shut down. But now we have all this other uncertainty that the Republicans have no, they have no leadership. There is no one to negotiate with on that side.

Marcus: Yes. [00:08:00] Um, it, it, it is, uh, It’s truly unprecedented.

This has never happened before. And, um, you know, when, when the foundation of how healthcare works, um, in America is, you know, somewhat split between the legislative body and the, the executive, uh, body, you know, insofar as the, the power that it’s, it’s agencies are endowed with. Um, when one of those bodies is crippled, uh, As, uh, the, the, the house is right now, um, it certainly feels like we cannot depend on progress coming from that body.

So, uh, I’m not sure what more there is to say, uh, you know, the, the, the New York Times article tried to frame up, you know, what, what happens, uh, you know, as a result of gets moving. McCarthy out, uh, there’s a Wall Street Journal [00:09:00] article that came out yesterday that framed up who the Republicans are, who’ve jumped in, uh, to the race.

Um, they’re all more conservative than, than McCarthy. I mean, you know, McCarthy was not quite a lame duck, but he was always a wounded, um, duck. And, uh, Now we have, I think, you know, more conservative competitive competition moving into the, the, the race for speakership. But, but I think fundamentally what underlies all of it is just that the, the GOP, uh, does not have alignment and does not know how to govern itself right now.

And so, um, until they work out their internal, um, Issues, you know, we’re even if they have a majority in the house, it’s a dysfunctional body. And so the house is broken, right? Um, you know, we typically you have a majority that maturity is, is aligned enough to kind of move an agenda through during, uh, the term of their [00:10:00] majority and, um, That does not appear to be the case here.

So, uh, it feels like we’re going to have status quo, uh, from a lawmaking perspective, and we’re largely going to have to look to some combination of the agencies and the, the, um, the free market to advance, uh, issues in healthcare.

Vic: Yeah. I mean, that’s, that may be the reality. And I think that there’s, there’s going to be a need for some kind of continuing resolution after November 15th.

And I have no idea how that’s going to come together, but that seems like a long time away because people wait now until the 11th hour anyway. Um, so I don’t think we need to spend a lot of time because there’ll be several shows before the 15th. Um, but, but I’m not, I don’t know if there is one Republican party today.

So we claim we have a two party system, but, but the Republicans at least, and maybe even the Democrats to some extent, there’s all kinds of [00:11:00] sub fractions in the party. And yet they try to pretend like it’s all one Republican. And I wonder if we’re going to more than a two party system over the next several years, just because I don’t see how the Republicans can govern together.

They don’t, they don’t agree on a lot of stuff.

Marcus: That’s that’s right. Yeah, no, it’s, it’s, it’s going to be pretty interesting. I mean, um, w we, we certainly have far extremes on both parties, um, that are, You know, driven by, by some narratives that I think are going to be hard to stomach. Um, as you get closer to the center in either party, um, I think on the, I think on the right, you know, when I think on the right, uh, some of those narratives have gotten so conspiratorial in nature, um, that they [00:12:00] are, they have a, an anarchy.

Like edge to them where they’re totally comfortable sort of burning everything down because you know, at the base of the narrative, things are so corrupt that, you know, they have to be sort of burned down before we can actually make any real progress. And, um, you know, look, it’s really, really hard to actually build anything.

It’s so easy to burn stuff down, you know, and, um, I, I think that is a really worrisome thing for the Republican party. It’s like, how do they deal with, uh, A very popular segment of their party where the fundamental premise is that the entire system is corrupt. You know what I mean? Like, and, and, and, and they’re burning it down is actually a good thing.

Um, that’s, that’s, that’s a, that’s tough. That’s tough.

Vic: Yeah, we, we both [00:13:00] have sons. I was talking, my, my son came home from college for his fall break yesterday. And so we were. Late last night, I had to go to bed because I’m old, but we were talking about all these topics and they’re, they’re young, you know, they’re, they’re 17 and 19 and they’re upset about this.

Just like I’m upset about this and the thing that I think makes a difference, I mean, what we’re doing on this podcast. The Republicans and the Democrats, they don’t really listen to each other at all. They, they sort of go back to their gerrymandered, um, constituents and they have all of one. They’ve all, you know, pretty much all Republicans that they are answering to and all the donors are the same.

And then there’s plenty of Democratic, um, districts that are, that are oriented where they’re highly, highly Democrat too. And so I just don’t think there’s a lot [00:14:00] of understanding. And almost no empathy for the views of the other side. And without that, you almost, it’s hard to imagine a compromise because, because they don’t understand what’s, what’s being discussed on the other side.

Marcus: Well, again, the fundamental narratives are, you know, I see some, you know, when I look at the opinion pieces and, and, you know, you can see this on both sides, but the fundamental, you know, opinions are really that the other side is evil, you know, and that’s just. If that’s your starting point,

Vic: yeah, it’s, it is nowhere.

There’s nowhere to really go. That’s right. Nowhere to go from there. Right. If,

Marcus: if the, you know, that, that cannot be the starting point for anything productive that the other side is evil. Right. Um, so look, I don’t want to spend too much time talking about this because I mean, look,

Vic: we, we’re not [00:15:00] going to solve it.

And the Republicans in the house are in chaos and they’re going to be in chaos for several weeks. So, um, but I mean, I think it would be nice for us to remember that we are all Americans. And try to figure out how to govern this country, basically for the benefit of all, you might have differences of opinion of different sides, but, but I don’t see anyone actually doing that.

Marcus: No, agreed. Um, okay. So let’s go into some stories about the. The small business and startup economy. So, uh, this story came out on wall street journal talking about small business bankruptcies rising at worst pace since the pandemic, this is a little bit of a throwback. I think for us, we were on this path.

I don’t know, man, it feels like maybe even 10 shows ago. Uh, it’s been a while since we talked about the rate of bankruptcies and how that was increasing. Right. Um, but. But, you know, here is, [00:16:00] here is a story here in October, I think, confirming what we were seeing, uh, that data that was published by the Fed, right?

Vic: Yeah, that’s right. I think there was this, um, I don’t know, almost like a meme or a theme in the news cycles. Love it, which is, uh, in July and August, we’ll have a soft landing and the stock market kind of started doing well again. And people were much happier. And then as the fall has come back and student loans have to be paid now, and it hasn’t really gotten much better.

That theme has gone away. And so stories like this are coming back, back to the front. I agree with you. It’s really no change. We, we have been talking about this and I, unfortunately I see it in the venture markets I seen in small business. I see it now the stock market is down again and it’s, I don’t think it’s getting better anytime soon.[00:17:00]

Marcus: No, no. So a quote from this article in the wall street journal, again, the headline is small business bankruptcies rising at worst pace since the pandemic. Uh, and, and a quote from here nearly. 1500 small businesses filed for subchapter five bankruptcy this year through September 28th, nearly as many as in all of 2022, according to the American bankruptcy, uh, institute.

And then there was a post that I sent you from, um, from Peter Walker, who’s the head of insights at Carta. Uh, that was talking about startups. So Carta is a platform, uh, that both venture capital firms and, uh, startups use to manage their, um, their transactions to manage their, their cap tables, to manage their equity, uh, to manage their relationships with their investors.

Um, and, uh,

Vic: yeah, Carta has a pretty, they have a pretty good view of the overall. Private company landscape, I

Marcus: think. Yeah, I was about to say, I mean, I think they really have emerged at this point, you know, probably them and angel list are, you [00:18:00] know, depending on what part of the VC market you’re focused on, they’re probably one in two and you could probably swap them out depending on what part of the VC market you’re focused on.

Um, so, so their statistics are, I would say statistically representative of the industry as a whole. Um, and Peter’s post on LinkedIn starts with, uh, 543 Carter startups have shut down so far in 2020. In 2023, that’s more than the 467 that shut down all of last year. Not great. And so, uh, again, a very similar picture to what’s happening in small business bankruptcies, but startups are more fragile than the average small business, quite frankly, most of them not being profitable.

Um, and so this is even, you know, uh, I think, uh, a bigger, uh, story in terms of the innovation, uh, industry in terms of the venture capital industry. Uh, I think so many people are really realizing that. The venture capital industry is, um, you know, not immune and it’s not just about what’s happening to startups, right?

It’s, it’s a lot of what’s happening [00:19:00] to, to the investors of these startups. I mean, if these startups are failing, that also reflects how these funds are performing. And, um, again, not something new. We’ve been talking about this for a very, very long time. Uh, and I just want to read a couple more things and then Vic, want to get your, your,

Vic: Yeah, and then, and then let’s show the graphic too.

So read a couple of the things and then let’s show there

Marcus: for sure. Yeah. So, so I love this. A few low lights. Those are Peter’s words. Um, about half of the startups that closed shop did. So without raising any VC rounds, the other half had at least one priced around in their history. Within the cohort that had raised from VCs, 90 percent of the shutdowns were either seed or series a startups.

And so we talked a lot about how the valuations in the later stage companies had really come down, but the seed companies had held well, they they’re holding because they’re just going out of business, right? I mean, you know, they’re not taking down rounds because they’re not getting any more capital. So they’re not continuing.

They’re just going out of business. Um, you know, 34 startups that raised series [00:20:00] B or later have shut down so far this year. That’s higher than the Then the total 25 and 22. So, you know, just for listeners who don’t understand series B rounds are usually fairly large rounds. We’re talking in the 20 million plus range.

And so, you know, for 34 startups that have raised series B to shut down, that’s a lot of capital just vanishing, uh, from the market, um, 87 startups that raised at least 10 million have shut down this year. That’s nearly two X, the total from last year. So. There’s a lot of value destruction going on here, a lot of value destruction.

And then there’s a very, um, you know, helpful chart here that is just, it’s, it’s, you can’t like get it wrong when you look at this chart and you see how many more companies have shut down, uh, this year than last year and how it is rising quarter over quarter, the first quarter of this year, 161, the second quarter of this year, one 70, the third quarter of this year, 212.

Vic: Yeah. It’s, uh, I [00:21:00] mean, it’s sad, but it. Harkens me back to how we started this podcast, which is, this is, these are accurate. And I think the fourth quarter and early next year is going to be more, more, more shutdowns. I don’t think we have hit the bottom point yet. That could be wrong, but that’s my personal opinion.

And it’s at all levels, right? We had the Wall Street Journal story with small business, um, really not venture back to a restaurant or a dry cleaner, you know, like kind of, which is a huge part of the economy. And then we’re, we’re focusing on venture here. Um, and I think we’ve talked about it previously.

We’ll keep talking about it. Private equity backed and public companies all are having difficulties. And so I think that’s, that’s kind of the top level view, but, but the sad part is that every one of these shutdowns, [00:22:00] there are one, two, three founders. There’s five or six employees. There’s customers that like the product.

And I mean, I’m a VC and I feel for the VCs, but, but it’s, it’s our job to invest in companies. And we know there’s going to be hard times and there’ll be losses. And it’s, it’s our profession for the startups and the teams of people putting their heart and soul and working a hundred hours a week, trying to make something better, whether it’s in healthcare or in something else.

It’s sad to see those dreams get shattered. And now there’s always some level you can see there’s always some level of failure, but there’s way too many. It’s way too many now. And it’s not that I think that’s going to stop, but I just wanted to say it’s, it’s just sad because there’s real people in all of these companies.

Marcus: No, look, I mean, I, I [00:23:00] mean, look, this is, this is our live livelihood and we work with these founders and. We I’ve been, I’ve been trying my best to have these conversations and companies that I invest in. And, you know, in companies that I don’t invest in where I’ve got good relationships with the founders, just trying to get the point across that, like the capital markets have changed and they’ve just changed so quickly that it’s hard for these founders to really wrap their head around it and to believe it.

You know, they, they are still talking about, um, the opportunity cost of like some other player in the market. You know, beating them. And I’m like, there are no other players in the market. Everyone’s dying. Like, you know, and how can you explain this to somebody? You know, when for 10 plus years, that’s been the narrative, the narrative has been go grow, compete, don’t get out hustled, you know, all this other kind of stuff.

And now it’s like, conserve, conserve, you know? [00:24:00] Um, so yeah, I just think that it’s, um,

Vic: Yeah, there’s a, there’s a time to, um, I dunno, like shrink back, be conservative and it’s survival. I mean, it’s, it’s surviving until something gets better. The sun comes out again or everyone, and then there’s no one, there’ll be very few competitors in existence.

And that’s when you can grow and there’ll be all kinds of really talented people out of work and there’ll be customers that want to engage, but that is not in the 4th quarter. And unfortunately, I don’t think it is in the early part of next year either. It’s, it’s about survival and that’s hard enough. I mean, that’s, that’s the chance.

That’s a challenging thing.

Marcus: I agree. No, there’s no indication that this is going to stop anytime soon. And I think we’ve, we’ve been saying that for a while and that just continues to be the case. [00:25:00] Uh, final story in this thread, uh, general catalyst announced that they are merging two companies, uh, come your, which is a company that we knew a little bit about because, uh, HCA was, was a big part in, in growing this company.

And, uh, I don’t know that I’m pronouncing it correctly, but, uh, at the list or, or Atlas. Um, and so these two companies are, uh, one is. 1 is a clinical workflow company. That’s come here. And, uh, Atlas is a revenue cycle. Um, sort of a company. Now, what I think is really interesting about this is 1st of all, it’s a, it’s a merger.

And the way that they frame it is that that general catalyst is on a mission to build sort of the health care platform. Platform. And I don’t think that that, you know, when we, when we look at what’s going on in the market today, I don’t think that that is a bad model, uh, to build sort of a unified, well integrated, uh, platform that can overall lower the cost and create a bridge towards value based care.

So if you’ve got the capital to [00:26:00] do it and you can pull that together, you know, more power to you. Um, it’s not entirely clear to me that the industry is organized in such a way where, where this kind of platform. Can, uh, can get traction. That’s just not obvious to me, but I would say the initiative is certainly, you know, Honorable.

Uh, but what I think is interesting is that, uh, Atlas, like, is it olive? Because what the, because, I mean, the color is purple, the, the, yeah, it’s got an O and, and revenue cycle that that was revenue cycle with AI. That was all of, and general catalyst was a massive investor in all of. So like, what happened here?

And we have to talk about it because all of raised a billion dollars in 2021. So like, what happened here?

Vic: Yeah, so there’s kind of two sides to this. It’s a, it’s a great, um, [00:27:00] PR announcement. Very well done. General, General Catalyst is a very strong VC in healthcare and I respect them. They’re, they’re, they’re good.

They have a lot of really good connections. As you said, Kim Yor was, um, I think HCA is working with them and clinical workflows need to be improved and putting it in the cloud makes sense. And it doesn’t mean they’re not great products, so they can’t be great products, but they also are smart enough to know that as we just talked about, this is a time to sort of look at your portfolio and like sort of batten down the hatches and make sure you’re living to, to sort of really succeed over the next several years.

And I think this is sort of a good combination to conserve cost and help the, the best aspects of both companies. [00:28:00] Um, kind of make it through the next couple of years and yes, they were in all of, I think, a the list, whatever it’s called is very similar to all of, and I don’t know if the time is right for AI to take over everything and revenue cycle, but I’m actually happy that someone might help the health systems.

Because I think the payers are going to be using AI in their side of revenue cycle. And so it’s, someone needs to help. Um, so I don’t know. It’s kind of both.

Marcus: Well, one thing I could just tell you that I’ve learned from, from my Uh, time so far as a board member, uh, of, of HFMA, the Healthcare Finance Management Association, is that revenue cycle management is massive.

Okay. It is, it is, it is a massive, massive concern. Uh, and, and it’s a really competitive space, uh, because it’s such [00:29:00] an important, uh, Place for health systems to extract value, both in terms of like lowering costs and also, you know, generating, uh, predictable revenue, uh, you know, in a timely manner. Right. Uh, and, and, and also giving them insights into areas where they’re struggling to generate that revenue from a reimbursement perspective.

So it’s a massive concern. But again, it’s really competitive. There’s a lot of great companies out there that are tackling this space. And, you know, a lot of these great companies have great existing relationships with, um, with health systems and help. Many health systems have been invested in some of these different solutions.

And so I think that’s the, that’s the thing that sort of concerns me about this multidisciplinary platform is that would be, that would be, you know, That would work in a world where health systems haven’t already, um, made self interested bets on, on some of these things and look, general [00:30:00] catalysts that, you know, they, it, it, it also needs to be said, they have a network of health systems that are, you know, their innovation partners.

Um, I think they have 10 of them that are innovation partners alongside them. So it could be that, you know, those 10 or, or I don’t remember the exact number, but it could be that their network are sort of going to be the key. You know, anchor clients of this building platform and that, and that could be enough, right?

I mean, that, that could end up being enough to, to really, you know, make some very, very successful companies for sure, that there’s a possibility of that. Um, but I, I don’t know. I just think that at the end of the day, the way that healthcare works, it is still principally shifting to the. The payvider model, I still really believe that.

I think that there’s data you have access to on the payvider side that you don’t have access to in the pure play health system side. Um, and I think this is likely a cost cutting, you know, strategy to, you know, to take two good [00:31:00] assets, right. And ensure that these two good assets have an opportunity. To generate a return, um, you know, quite frankly, and also, you know, make an impact in the market.

I don’t want to be totally cynical here. Uh, but to me, this is, this is reflective of the, the difficult place we find ourselves in as VCs right now.

Vic: Yeah. And then I, I think it’s interesting to sort of just talk about the AI being the, a lot of this, this press release was talking about how great, uh, a C list is in, in AI and how important that is.

And, you know, I’m old enough to recall the Internet days. You are too. And in the nineties, you said it went through this period where there were Internet companies. That were doing something in healthcare or anything, and they were Internet only. And then a couple of years later, you have to actually just be in the business, right?

So I think all of those revenue [00:32:00] cycle businesses. They have really smart technologists already. They’re all using AI. It’s just going to be revenue cycle. Of course we use artificial intelligence. We use all of the tools that we can find and sort of standing on. That’s where it is similar to all of and not going to work.

Like it’s not enough to be like, we’re the AI expert. You have to be a revenue cycle expert and they use all the tools. And AI is. Really powerful. And it’s also, um, it’s hard to build a defensive position unless you’re open AI and you have whatever, a hundred billion dollars in value. It’s just, it’s just not, it’s not that defensible.

So I think that’s the part of the press release that I thought was just not right. And that’s what I think all have failed on.

Marcus: Look, say it with me. AI is not a differentiator.

Vic: Yes, [00:33:00]

Marcus: it’s a tool, it’s a tool, it’s a tool, it’s a tool, it’s a tool, it’s a capability and everyone is getting, you know, all the big tech players are doing their arms race best to sort of get their own platform in place.

Uh, you know, Amazon, uh, you know, ended up racing towards, uh, anthropic, you know, last week. And, and so, you know, open AI with their 90 billion, uh, valuation. I mean, unless you’re one of the.

Vic: Three cloud companies. Yes. You don’t have the scale. And that’s nothing against these companies or anyone else. It just, there’s very few players that have the scale needed.

To have that as a differentiator

Marcus: in healthcare, Epic has the scale, right? I mean, you know, like, you know, if Epic says they’re going to roll out AI, then I take it seriously. Cause you know, it’s Epic.

Vic: Yeah, they have just, yeah, they have scale and distribution, so they can, [00:34:00] that’s their advantage. And then the AI will be.

Good enough. Right. So the distribution and the install base is how Epic could be really impactful if they decided to pay attention to that. I’m not sure that they have. Um, anyway, so I think that’s, that’s what I take from this story.

Marcus: All right. Uh, we’re going to take a break. Let Doug share a little bit about jumpstart foundry.

And when we come back, we will finish up the show talking about what’s happening to health systems.

Doug Edwards: Thanks guys for the opportunity to talk about our pre seed fund, Jumpstart Foundry. My name is Doug Edwards, CEO of Jumpstart Health Investors, the parent company of Jumpstart Foundry. We’re so excited to be able to talk about, uh, early stage venture investing, certainly the need for us to change the crazy world of healthcare in the United States.

We are spending 20 percent of our GDP, north of 4 trillion a year on healthcare with suboptimal outcomes. Jumpstart Foundry exists to [00:35:00] help us find and identify and invest in innovative companies that are going to make a difference in healthcare in our country. Every year, Jumpstart Foundry invests a fund, raises a fund, and deploys that across 30, 40, 50 assets every year, allowing ease of access for our limited partners.

to invest to help us make something better in health care. Some of the benefits of Jumpstart Foundry is there’s no management fees. We deploy all the capital that’s raised every year in the fund. We find the best and brightest typically around single digit percentage of companies that apply for funding from Jumpstart.

And we invest in the most incredible, robust. Innovative solutions and founders in the United States. Over the last nine years, Jumpstart Foundry has invested in nearly 200 early stage, preceded stage companies in the country. Through those most innovative solutions that Jumpstart Foundry invests in, we also provide great returns and a great experience for our limited partners.

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Thank you guys. Now back to the show.

Marcus: All right, we’re back. And, uh, we’ve been tracking this Kaiser Permanente story and, uh, we, we know that. We knew that the, the, the strike was happening. I mean, can we just talk about how 2023 is like hot union summer? My God. I mean, they, they have just been, uh, across all the industries unions are, are, are just moving and they all obviously talk to each other so that they know they have momentum to sort of.

They have momentum and they have the media’s attention, right? So the media is, is very enamored with this, this sort of union rally that we’re going through right now. But the Kaiser Permanente union union workers, uh, have [00:37:00] created the largest us healthcare walkout on record. And I, I gotta say, man, um, I gotta say, after what I have experienced over the last 72 hours, this is terrifying to me.

I mean, um, I can’t imagine what our, what I would be going through right now. If, um, the facility that we are, I’m currently at.

Vic: Just not in, not a Kaiser facility, not near a Kaiser location.

Marcus: Yeah, it happens to not be a Kaiser facility, but I’m just thinking about what would happen if it, if, if it was on strike and like, what would happen?

I just, I cannot wrap my head around that Vic, you know, this is, um, this is definitely, definitely not like the writer strike, this is definitely not like the auto worker strike. I mean, and I’m not trying to say [00:38:00] those things don’t matter. But my God, dude, uh, the, the health systems run on people. That’s it.

You walk in the door from the minute you walk in the door to you walk out the door. You’re not dealing with technology. You’re dealing with people, people run these systems and, uh, man. So let’s, let’s, let’s get to the economics of the story. Uh, Kaiser actually, uh, performed quite well. And so that was a, that was a new data point for me, uh, in terms of.

Their, their revenue situation from last year. And ultimately I think they were a part on, on the, the, the, the hike for payers for, for their employees by about 12 percentage points. Is that right?

Vic: Yeah, I think they proposed. Um, there’s a range, but 12 to 16 percent over four years. [00:39:00] And the union wants, uh, not quite double that they want, uh, in the low twenties.

Marcus: Well, well, well, 24 point over four years. Yeah. Yeah. 24. 5. So it’s, it’s, it’s, it’s double, it’s double the low end.

Vic: Double the low end. Right. And, uh, and you know, well, 24. 5 sounds like a big number over four years with the inflation where it is now. And, and honestly, just the, I mean, kind of what you’re saying, I’m not in the middle of it like you are, but it’s a hard job being a nurse or, or any, anything in these support roles in health systems.

And we have to find a way to pay them enough that it’s, that it’s a good living and they can raise a family and, and be okay. And whether it’s 24. 5 or 22 or whatever, I don’t know, but we have to find a way to [00:40:00] try to try to do it now. Unfortunately, as we talked about last show or 2 shows ago, Kaiser is, um, 1 of the best health systems.

They might be the best. They’re definitely 1 of the best run and strongest financially positioned health systems, um, that employs unionized workers. I mean, there are maybe some stronger health systems that just don’t go to areas where there are unions. Um, and so I, I’m torn, like, like, they deserve better pay.

And they’re, they’re kind of attacking the, one of the best health systems. And so they’re, I don’t know, like, I, I wish we could come to some compromise. But I, I think that we have to take care of the nurses, I mean, the empathy and the effort involved in caring for 3, 4, [00:41:00] 5 patients every day, all day, 12 hour shifts, while you’re on your feet, it’s, it’s exhausting.

I was at an event last night for a couple hours. And standing up and walking around and talking to people, but it was not physically hard and I was exhausted and nurses do that every day, all day. And as you mentioned, the people they’re serving are going through the most stressful, most emotionally charge most important point in their life.

And there’s all this stress. And that’s just Tuesday. Like that’s every day. And so I don’t know, I have a lot, I have a sympathy for anyone that does a hard, you know, job in a union, but, but for some reason, I think committee, cause I’m close to it, nurses and health systems. It just, it just seems like it’s [00:42:00] more.

Marcus: So, so Kaiser’s finances rebounded from an industry wide drop scene in 2022 from the tight labor market and inflation Kaiser reported net income. 3. 3 billion on 50. 4 billion in revenue during the first half of this year. So that tells me that the union is likely to win here. That, that along with the reality of how health systems really cannot run.

Without this workforce and 75, 000 workers. I mean, I don’t know how you magically replace 75, 000 workers across disciplines.

Vic: There aren’t 75, 000 temporary staff in the country. They can’t replace it.

Marcus: I, I, I, I. Do not see very different from the, from the writer’s strike, where I basically didn’t think they were going to get much out of it.

And I think when you look at the concessions, they did not get much out of it, especially when you consider all the lost wages that happened during the point of the strike. Um, in this case, [00:43:00] I would be really surprised if the union was not able to achieve. The, the, the wage increases also, you know, a lot of this is happening in California.

Obviously the cost of living in California is among the highest, uh, states in the country. So I would be really, really surprised again, the pressure that this puts, um, you know, the pressure that this puts health systems. Under to not have this workforce. I just don’t think, uh, this, this was from a strategy perspective, uh, a well orchestrated strike, I believe.

Vic: Oh, there’s no question. And then, I mean, you talked about the, the writers, I’m going to go to the, the auto workers. Um, unlike the automotive manufacturing, we cannot move these health systems to another part of the country or another part of the world where there’s. Cheaper cost of living and therefore workers are willing to build cars for [00:44:00] lower pay you, you can build GM and Ford and Chrysler cars.

In other locations now, it would be disruptive. I don’t want to do it, but but the, the bargaining chips that management has in Kaiser. I mean, there are patients in that location and they have to deliver care in that location. They don’t have the same optionality. So I just think it’s, it’s a different strategic kind of landscape.

And you’re absolutely right. The union is. Yes. They also, uh, I think were brilliant in, you know, waiting to kind of see how these other strikes evolved. And it has been, it was a misstep, I think, for the automotive workers to ask for a four day work week. Just because, you know, shit, I don’t work four days.

And then it’s an easy, you know, it’s, it’s just, it’s just a stupid talking point that shouldn’t have [00:45:00] done. And so the, the nurse union was smart to watch that. And then of course they have designed it in a much better way.

Marcus: Yeah. I look again, uh, it would be terrifying if that was happening in a facility. Uh, That I’m, you know,

Vic: yeah,

Marcus: uh, experiencing right now.

All right. Last, last story. Um, we, we, we’ve been talking a little bit about how employers, you know, need to roll up their sleeves and get more engaged. And finally, we’ve got a story that I think confirms that trend. Uh, we’ve, we’ve already said that next year’s healthcare costs are projected to go up 6. 5%.

Um, obviously. You know, businesses, we’ve talked about small businesses struggling, but I think all businesses right now in this economy in this, in this Powell, you know, elevated interest rate economy are struggling. So the healthcare costs, I think, are much more of an issue than they’ve ever been. And here’s a story in the wall street journal.

The [00:46:00] headline is these employers took on healthcare costs and the fight got nasty. And it’s a story about, um, a group of Indiana employer employers who have basically just said enough and they are, you know. Getting ready to get into some hard line negotiations with the health systems, uh, that they have, you know, um, relationships with,

Vic: yeah, they are trying to manage their, their second biggest cost in their, in their own business.

And they’re not able to get the information. They have no visibility and they’re, I think they’re kind of getting mad and grouping up and forming coalitions. And there already are rough coalitions, but they’re much more activated now and much more engaged. And it’s probably on balance good, but it’s going to be again, difficult for the health [00:47:00] systems.

Um, I. Fear and care is going to move to lower cost environments and more tech enabled. And that will be good in the long view. And it will be challenging for the existing like incumbent systems.

Marcus: Correct. Yes. I mean, you know, if health systems have in fact create, you know, I kind of think about it, like. You know, when you go to a, uh, you know, you go to a, to a resort and if it happens to be on the water, they charge you a resort fee, you know, you’re like a resort fee, that’s nice. Uh, you know, why wasn’t that just like bundled into the actual cost, buddy?

Vic: Yeah. Like the room should cost should be a different amount. It’s a resort, but why do I pay an extra fee? I

Marcus: agree. Right. So, so, so like one of the paragraphs in this article, it talks about how employers also wanted to limit where hospitals could, could levy charges known as facility fees, which are often added on [00:48:00] top of the price of a medical service, partly to cover hospitals overhead.

Right. So, I mean, you know, there, there’s just sort of these fees that they’ve been sort of stacking in there. And I tell you what, if, you know, if these things get removed, I mean, again, It’s more and more proof that we are moving away from the health system model. I, I, I don’t know how you can see this any other way.

It’s just obvious we’re moving away from the health system model.

Vic: Yeah. And, and we’re going to have to be honest about what parts of an acute care health system must we have. Okay. So let’s, let’s take life flight or the burn center or the emergency room or ICU. There, there are some areas that you can’t deliver that care.

In any other way, there’s not a less expensive way to deliver that care and I want it if if some member of my family or my company or my community [00:49:00] has a need for that service. I want it to exist, and I think for decades, we have subsidized those very expensive line items with these other. Things like a facilities fee, and then they don’t account for it correctly.

So everyone gets mad and it’s going to have to be unbundled because payviders and venture capital B, other people are sort of doing sort of single focus factory. I’ll just do this one thing in a neighborhood and it’s more convenient. It’s less expensive. Everything is better about it. And I don’t have to do the ICU.

I’m not, I don’t have a helicopter. Lanyard pad. But if I get in a car accident, I want the helicopter to come get me because it’s really valuable. So that, that, um, I don’t know that that discussion at a, at a society [00:50:00] level has to happen because the health systems are getting just sort of like, we’re pulling away all these ways that they, they make enough money to.

Keep going now. They also are. Of course, they have too much too many levels of management, too much overhead. They’re not well run, but they also have these pieces that are really important that we have to protect somehow.

Marcus: Yeah. And they’re what we have today. Like, that’s I think that’s that’s my big question, right?

Is. We’re attacking this thing and I get it. We’re attacking this thing, but we don’t have a replacement for it yet, Vic. Like, you know, again, I I’m just sort of drawing from my experience this week. There’s not an alternative to like the experience that I’ve had this week. It had to happen in a health system.

That’s like, that’s what we got. You know what I mean? In order to like transition a person through the different stages that my loved one had to be transitioned through. The only thing that’s, that’s [00:51:00] set up to do that as a health system. So that’s, I think that is the, that’s the big hangup that I have where I see where this is all going.

I get it. It’s very clear that, you know, the current economical. Variables do not create a value network that will sustain the health system model generally. And HCA in the right markets with the right payer mix. Sure. Right. You know what I mean? Like certain health systems. Yes. And when I say it, I don’t mean wholesale, but I mean, many who have suboptimal payer mixes that are not in, you know, the.

The best economically viable markets and all these other kinds of things don’t have the scale, don’t have the technology in place, you know, and that’s, that’s a lot of health systems today. Right? And that’s a lot of communities are caring for. It’s a lot of people that are relying on those institutions.

There’s no replacement for that. There’s no viable. Functional [00:52:00] replacement for how we’re going to take care of people in the absence of those things. And I’m sorry, but like your tech enabled, value based care thing, it ain’t ready yet. I mean, I I’m into that. I’m into building those platforms. You know what I mean?

I want to invest in those platforms, but I know the truth. They’re not ready yet.

Vic: Yeah, it was we’re getting into it. We’re heading into a place where there’s so much pain and challenge in the health systems and then they have been fighting, uh, transparency forever. And I think it’s getting to the point where they should embrace transparency and say, listen, it costs.

X amount of dollars to keep this burn unit, and this story is from Indiana, we have to have a burn unit within a four hour flight of any of our patients, and we only need one in this region, but we need one, and this is what it costs. And we [00:53:00] have, we have ICU and we have to have, I mean, there’s a set of things that they need and let’s be fully transparent.

It costs us much to run it. And it doesn’t really matter how we as a country pay for it. We can do it through charging more for inpatient knees. Then we charge at an outpatient facility, but then people get upset if they’re having a knee replacement. Because it’s a pain in the ass and it’s more expensive.

And I’d rather go to the inventory surgery center. Um, or we can be honest and say like, well, it just costs this much and we have to do some kind of new way to pay for that, but I think I want those facilities, like when your loved one is going through what she’s going through. I want that to exist. Like.

And indiana in this story, they have to have a certain amount [00:54:00] of health care infrastructure and you’re exactly right. I love the digital 1st and value based care and we’ll take on risk in a very narrow population and manage those people. Well, and that can be a really efficient model, but it’s going to be 10 to 15 years before it can do the whole thing.

And we need to, we need a bridge. There’s, there’s people that have to be cared for. And there’s, there’s people working in these places that have to be paid.

Marcus: Yeah. And by the way, just so we’re clear, we are those people.

Vic: Yes. Yes. It’s everyone. I mean,

Marcus: yeah, we are those people. Yeah. Those, those people are not some magical other people.

Those people are you and me and the listener to this podcast right now. And our families, it’s literally us, man. Like no one will escape this. You know what I mean? No one escapes this. So, um,

Vic: if you’re human, you will be a patient and a [00:55:00] caregiver in your life. Usually often in your life. That’s just how it is to be human,

Marcus: buddy.

I got to get out of here, man.

Vic: I

Marcus: got to get,

Vic: okay. Get back, get back to the family. Thanks for dropping in and doing this. Um, and we will, um, continue to follow this stuff. Hopefully there’ll be better news coming up.

Marcus: Yeah.

Vic: All right. Have a great one, man. Okay.

Bye.