Jun 1, 2024

65 – Medicaid Rates Jump Higher | Cancer’s Impact | Google’s Healthcare AI in EMEA

Featuring: Vic Gatto, Marcus Whitney & Doug Edwards

Episode Notes

In this episode, we cover a wide, including recent changes in Medicaid policy, economic trends affecting the healthcare sector, cybersecurity issues, developments in AI technology, IVF funding, range of topics and MedTech deals, the landscape of physician groups, recent news involving high-profile court cases, and innovative market strategies.

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Episode Transcript

Marcus: [00:00:00] If you enjoy this content, please take a moment to rate and review it. Your feedback will greatly impact our ability to reach more people. Thank you. All right, Vic. How are you, man?

Vic: I’m okay. Hard week, personally. Um, we lost, we lost our dog a couple hours ago, which is pretty sad. You know, it’s, it’s only a pet and it’s a pet that, you know, I’ve had as a member of the family for 10 years.

Vic: So it’s, uh, I know a lot of people in healthcare that are treating humans, which of course is more important, but it’s still sad. Um, I dunno, a little down, but, but excited to talk about the show. We got, we got a lot of, a lot of stuff to dig through. Uh, I’m excited tomorrow and have our portfolio companies.

Vic: All collaborating together on some, some shared AI tool that they can build for each other. So that’ll be fun to. Play with the portfolio companies, see what they come up with.

Marcus: That’s awesome. That’s awesome. Um, well, I don’t want to, [00:01:00] uh, run past it too quickly. You know, definitely sorry for your family’s loss.

Marcus: I know you, you and your family, um, are great dog owners and you guys really create a great environment for those dogs and, and, and, um, take care of them. Take good care of them. So, you know,

Vic: it’s, I mean, the thing about being a dog owner. And I love owning dogs, and they add a lot of joy to my life, and dogs only live for 10 years.

Vic: Yeah. 10, 12 years, and so, you know, I’m 53, I’ve probably had to, had to put several dogs to sleep, cause, cause I’ve, I’ve owned, I don’t know, 8 dogs, or 10 dogs, or something, so. Yeah. It’s just part of, I was telling my son last night, it’s just part of owning a dog, that’s, they don’t tell you when you get a puppy, but, but it’s part of the process.

Vic: Process.

Marcus: So always the hard part of it. All right, man. We’ll look, uh, I am excited about the AI hackathon that the [00:02:00] portfolio is doing. That’s really great. Um, and you’re right. We have a, uh, we have a show to dig into, so let’s do that. Let’s dig in.

Marcus: All right. First. We had a whole show lined up and we were sitting down having our meeting with Aaron. Yeah. And then boom, we start getting texts.

Vic: Yeah. The news

Marcus: out of New York City. Yeah. Breaking news out of New York City. Donald Trump found guilty on all charges. 34 felony counts found guilty by a jury of his peers.

Marcus: Gosh. What what is there to even say about this? We we talked about it before we went on. Um, how now we get the privilege of sitting in the uncertainty of what the Lies ahead what lies ahead for the election what lies ahead for? the ability for [00:03:00] america to Come together. I mean, I think you know trump is such a um Magnanimous character that there’s no way that The American public is not going to have very strong, diametrically opposed feelings about this case in every way, right?

Marcus: How it came about, why it is happening, why he was found guilty. Um, you’re going to be able to ask different people and get. You know, it’s almost like they’re coming from different planets, the responses you get on that.

Vic: Yeah, your source of how the news is filtered and interpreted and how you internalize it, I think is a hundred percent or highly correlated to what you thought yesterday and where you Donate money to which side of the other or where you get your whether you listen to Fox or CNN or I don’t listen to either or how [00:04:00] your algorithm is tuned.

Vic: Uh, yes, yes, probably more importantly than the Fox

Marcus: MSNBC bit, right? It’s more like what is your algorithm tuned for, right?

Vic: Yeah, so I mean, yeah, it’s interesting that that this is gonna be off topic. Netflix was just talking about how uh, Their ads are gonna be Better suited to what the viewers want to see as, as if that’s a good thing.

Vic: Right. And I interpreted the exact opposite. I’m like, I don’t know if I want ads that are just like, just like what I see on social media on my TV, but all that’s coming.

Marcus: Yeah. I mean, it’s, it’s a, it’s an interesting conundrum. I think when I think about Instagram ads, they are highly effective in getting me to buy.

Marcus: Yeah. Right. Because I mostly follow on Instagram. Fitness, health, and jiu jitsu stuff. Okay,

Vic: and

Marcus: so

Vic: And then if you, if you pause over something, it knows. Oh, it knows everything I’m doing. It gives you more of those things. It knows everything I’m doing, right?

Marcus: So, [00:05:00] just the way that they are able to, um, serve up, Hey, here’s clothing for athletic people.

Marcus: You know build bodies because we know you guys have problems, you know shopping at men’s warehouse or whatever, right? You know how macy’s

Vic: yeah, and and it’s it’s correct. It’s correct. It’s correct. It’s really

Marcus: helpful So, you know on one hand, yes, and on the other hand, it’s like gosh, man Um, it’s just kind of creepy right?

Marcus: You know what i’m getting my own sort of custom ad feed Uh that that is not something anyone else sees. So yeah,

Vic: look Yeah, so this news all the political news, but certainly the trump You Verdict will be filtered through all those algorithms. Yeah, and I mean, to me, he, he, he, he took these actually did that he did the thing and I think it is, I think it’s probably correct that a jury of his peers.

Vic: agreed that he, [00:06:00] he did commit these acts. Now there’ll be lots of people yelling at their iPhone at me right now saying that he shouldn’t have been brought up on charges or whatever, but it’s politically

Marcus: motivated. This is a banana Republic. All

Vic: of those things are also true. I think the most dominant feeling I have right now is, is sadness and fear.

Vic: I’m sad that, that we are talking about this. I’m sad. The whole country’s going to talk about this. It’s the first time ever. Yes,

Marcus: it’s

Vic: the first

Marcus: time ever. It’s certainly not the first time that a United States President committed a felony. Okay, like I don’t think it’s the first time that’s ever happened, but it is the first time that one’s been convicted

Vic: Yes, that’s right.

Marcus: So

Vic: yeah, and I’m I think I’m fearful because of the algorithms because I think it’s gonna drive The extremes just have more power, more influence. [00:07:00] And I’m scared about that. That’s not, that’s not a good thing in my mind.

Marcus: Yeah. Well, we had to talk about it. And at the same time, there’s just not that much to say because.

Marcus: He’s guilty. That’s what it is.

Vic: Um, but he’s going to appeal and so he won’t be in jail. He’s going to still be in the, he’ll be on the ballot. Oh, he’s going to do the debates. He’s going to, he’s going to do

Marcus: everything. I mean, he, yeah, this doesn’t stop him from running. Right. Um, and, and anyone who claims to know how this is going to actually impact the election is Lying.

Marcus: Yeah, no one knows how this is actually going to impact it. You can, you can have a theory that you think people are going to look at this and say, Oh, you know, clearly we can’t have a convicted felon as a, but look, I’ve already started to say there’s a world in which this actually riles up his base even more, right?

Marcus: Um, Oh,

Vic: there’s no question. [00:08:00] It’ll rile up his base and it’ll make Biden’s base more certain that That he can’t be president, but those two bases aren’t changing. And the question is, is there any. I don’t know what the effect will be on any of the independent or, like, undecided voters. I don’t know how many there are, but hopefully there are still some.

Marcus: Yeah, none of this changes the fact that the majority of Americans feel we have no good options. Yes. Right? I mean, it reinforces it. Right. It reinforces that fact, but it doesn’t change that fact, right? That our, you know, our two leading candidates are, you know, certainly in the United States of America, we could have done better.

Marcus: You know what I mean? Certainly we could have done better. Yeah, I’ve said several times

Vic: that the only thing I’m certain of is that we’re going to have an election in November. Either Biden or Trump will win and about half the country will be really pissed [00:09:00] off. And the other half will be very like feeling entitled and wanting to exert sort of a revenge over the other side.

Vic: And all that is. Makes me sad and afraid.

Marcus: All right. We had to include it because it happened right before we went online. Um, but, uh, moving to the economy. So this is a funny story because my wife was talking to me about. You know some bonds that she invested in that were kind of upside down. I think it was probably because they were long dated um But yeah, I mean seeing a story that says that rising bond yields weighs on stocks I mean this this feels just like flavor of the week and and not not that big a deal Uh wall street journal basically explaining the s& p 500 closed lower because of you know rising bond yields

Vic: Yeah, well, I mean, I

Marcus: think

Vic: that the Overall market’s very, um, bipolar.

Vic: It’s, it’s either like. Everything is going great and [00:10:00] buy stocks kind of risk on. And then, I mean, I think what happened is the treasury issued, uh, maybe a five year and a seven year bond. And instead of it being massively oversubscribed, It sold, but it wasn’t as oversubscribed as people that are watching it were hoping it to be.

Vic: And that all of a sudden that made the bar market worried and everyone pulled risk off, like all at once. If you’re trading day to day, which I’m not, and you shouldn’t, if you’re listening to this, you shouldn’t be doing that. It’s not good for your health. Um, but yes, the entire stock market was down.

Vic: Because, because of that,

Marcus: it’s, it’s a good reason to just put the ticker away. Yes. You know, just don’t just don’t check, check, check it maybe once a quarter. Certainly check it every year. Uh, but day to day, it [00:11:00] just, just makes no sense. Uh, okay. I thought this was a good story. Wall Street Journal talking about, uh, store brands and how they are gaining share, um, in the consumer’s cart over, um, sort of your, your, your premium brands.

Marcus: And I think, I think. The first thing that I thought about when I read this article was how premium selection at Kroger, for example, you know, um, to me now, I’ve seen it so much for so many years, it’s a real brand. Now it’s not like when they first introduced like simple truth, you know, and it was like, oh, this is new.

Marcus: That’s interesting. What is that? Like the discount thing it’s been with us for years now. I mean, I don’t know. It feels like certainly more than a decade. You know, we’ve had those brands around. And it’s like, they’re brands, and now not only are they brands, they’re trusted brands, and they’re less expensive, always, right, or there’s going to be some Kroger coupon, you know, attached to like buying from that particular brand.

Marcus: So it’s no surprise that as consumers are feeling the [00:12:00] pinch, they’re not having a problem, they don’t have a trust problem moving to the store brands.

Vic: I think that’s right. And unless there is some kind of emotional tie, like I think soft drinks. For instance, people have a much more emotional tie to, and the brands have done a better job of creating like a, I don’t know, a lifestyle around the Coke brand or Pepsi brand or whatever.

Vic: That’s right. Um, but bread and Coke. Ketchup and eggs the the the premium brands such as they are are not that strong They haven’t really invested. My identity is not tied up in the type of ketchup I use. That’s right Um, so I don’t know. I I think it is partially an Economy thing and partially, you know, the brands themselves.

Vic: Maybe they haven’t delivered value over [00:13:00]

Marcus: Well, I mean, they haven’t delivered value. Let’s, let’s just look down here a little bit. So, uh, Treehouse Foods, they are publicly traded company that makes a lot of these store brands for Kroger and Walmart, et cetera. Um, and, uh, showing their, their dollar share, right?

Marcus: Um, that, that store brands have over, um, over, uh, The period of time from 2006 to 23, 2023, it’s gone up from 18. 4 percent to 21. 8%. I mean, that’s, that’s material growth, uh, in terms of, you know, clawing away the value from a premium brand. And at the end of the day, it’s like, The retailer as the ultimate endpoint with the consumer, you know, now, now everybody’s got apps.

Marcus: Everyone’s got their, their loyalty cards with these different folks, you’re getting your coupons either in the mail or via email or even, you know, via the digital app that you have. I mean, I see this trend only [00:14:00] increasing, you know, because the retailers now have a brand A branded relationship with the consumer, you know, in a way that I feel like stores didn’t before, you know, stores used to be used to just be a location that you went to, to go buy all the stuff you actually cared about.

Marcus: And now that you actually have a relationship with the store, um, and so more and more, I think this is going to eat into premium brands.

Vic: I think that’s right. And it also is, uh, I mean, My wife will go to several stores because she wants particular products and one store has a type of bread she wants and somewhere else has a piece of produce that she really likes.

Vic: But that takes a lot of time and attention and then those products. You know, the stores know that those are brands that are pulling them in, so they’re not the bargain basement ones. A lot of people are, are too busy to do that, and, and they also just are looking to, Okay, I need, I [00:15:00] need ketchup, but it doesn’t matter what brand of ketchup.

Vic: I just have to sort of check the box for ketchup.

Marcus: Right. All right. I love this chart. Um, so this is a story on the U. S. Treasury’s in the yield curve, and it took me like three times to like review it to really sort of.

Vic: And we’re going to try to talk through it, but this is an example where it really is better to be able to watch.

Vic: So it may be a time that you could go back and watch it on YouTube. Yeah. But I’ve been trying to understand the yield curve for 15 years. And as soon as I think I understand it, then there’s another aspect of the slant or some aspect of it. Right. And this is a good summary, uh, to sort of catch people up.

Marcus: Yeah. So we’re going to try to articulate this chart, but again, and also of course, the link will be in the show notes. So you can go check it out. It’s an, it’s in the wall street journal, but you, you also could just click on our YouTube video and you could like watch it as we’re going through it. So anyway, um, Basically the first view of this chart, it’s the yield curve.

Marcus: Um, and [00:16:00] it’s showing from three different time series, you know, it starts with June 30th, 2021, and it shows that the, you know, the initial curve back then, uh, was 0%. Okay. And then it sort of went up over time as you would expect it to. And as you get to like your 30 year bond, then it’s, it’s yielding north of 2%.

Vic: Yeah. So the normal yield curve. Is upward sloping from the what’s called the short end like one year, two year, three year, five year. You don’t make

Marcus: a

Vic: lot Right, you don’t make

Marcus: a lot in the short term.

Vic: Yes, and the u. s government shouldn’t have to pay you as much If you’re only they’re only not going

Marcus: to hold it.

Vic: Yeah,

Marcus: right

Vic: and so and then at longer dated bonds You would normally expect the Holder to demand a higher rate You Because they’re going to keep my money for 10 years or 20 years or 30 years,

Marcus: right?

Vic: So that that’s the [00:17:00] kind of normal state of that’s where the economy is thought to be Healthy.

Marcus: Yeah. I mean, I think what’s so, what’s so funny about this is 2021.

Marcus: It’s post pandemic, right? So, um, it’s not that long ago, but it’s also before all the rate hikes really started going.

Vic: Before the supply chain, crazy inflation. Yeah. And before the rate hikes. Yeah. Before the rate

Marcus: hikes. So then, uh, the next time series, uh, starts you in July of 23. And now the fed rate is north of 5%.

Marcus: At this point. Um, and the curve is inverted. And what that means is that in the short term, so on your one year or even shorter, you know, 30, 60, 90, you know, 180 day bills that you’re, that you’re buying. Um, you’re getting that fed fund rate. Yeah. You know, you’re, you’re getting great returns. The U S [00:18:00] fed controls that rate.

Marcus: So

Vic: they literally moved it up over whatever it was, nine months. They moved it from zero to five, something. Right. Okay.

Marcus: But as you look out into 10 year on that same time series, uh, the, the rate drops more than a point and a half, right? More than a point and a half. So, so you’re, you’re, you’re doing less well for holding the note longer in that era.

Marcus: And, and I think when we think back to sort of the, the, the summer of 23, um, That was when the, when wall street, uh, was really upset about the rate of change in terms of the, the fed rate changes. Um, and I think there were constant sort of jousting between the fed and wall street around how fast cuts would and should come.

Marcus: Right. And so I think that probably plays into some of this yield curve [00:19:00] decreasing as you get sort of further out. There just was a belief that, Hey, there’s no way that this is the right rate. It’s going to lower. If you

Vic: thought this was going to be the reality for a long time. Yes. For instance, you could hold a one year treasury bill and get paid over 5 percent and then do that again for nine more years.

Vic: And then you, the money would be. with the U. S. government for 10 years, but you would make 5 percent and you’d get to compound the interest. Right. As opposed to if you bought a 10 year note all at once. You make under four right that does not make sense Wall Street would arbitrage that away like that The only reason that makes sense is if you don’t expect this state of the world to exist very long

Marcus: Yeah, you believe it’s totally temporary and yeah, so so you have this this inverted curve So and

Vic: then just one other quick thing the Fed controls there now like the near side of the curve, [00:20:00] right?

Vic: right And then the far end, it did go up, so they raised 5%. The far end went up from 2 to 4, basically. Yeah, yeah. The, the Fed doesn’t control that. That’s market rates. Yeah, exactly. And so, that’s the reality. They raised it really high, and the market didn’t follow them all the way up. Right. And everyone is trying to figure out when it’s going to correct.

Vic: The only two ways it corrects is if short dated ones go down below, so. Where the long is, or the other thing happens in the long side goes up much higher.

Marcus: And so then the next time series is today and we have not changed rates. We have not had a rate cut. Right. Right. So the story on the short term dated bills are pretty much identical.

Marcus: Yeah. It’s the same. However, the market has gotten more in line with the Fed. And so now [00:21:00] the 10 year and 30 year bonds. Um, 10 year note and a 30 year bond. We’re, we’re looking at a yield curve that now is, is about a half a point closer to the fed’s current rate.

Vic: Yes. The late, the longer dated bonds. Came up came pretty significantly.

Vic: It’s still inverted. I mean, it’s still below the the current one year Yeah, but it seems like the market is kind of coming around to gosh We might have really high rates for longer

Marcus: and not just gosh. We might have really high rates, but also Really high rates might be okay

Vic: Yeah. Yeah. The stock market seems fine.

Vic: Yeah. No jobs have held

Marcus: in. Exactly. Like, like the economy is just is just fine. And I think that this was the point when it hit me. Oh, yeah, because the 0 percent rate Was always ridiculous. Yes. Right. You know, your, your, your [00:22:00] curve from back in 2021 started at zero. You got nothing in, in, in a short dated, you know, bond.

Marcus: So, uh, uh, T bill. So you got nothing for it. So there was no reason to ever invest in those. And that’s why all the money was crowding into equities. Right. And then it was like, okay, if you hold it for 30 years, we’ll give you 2%, which is still like, there’s no, there’s no reason to do that. Right. I mean, you get more in a.

Marcus: Savings account, then you get in that. But now I think people are realizing, Oh, actually maybe we need to reset. Not the ceiling, but the floor, you know, maybe we need to reset the floor and kind of realize, Hey, okay, maybe it comes down to four and a half, but I don’t know, maybe it doesn’t go down any lower than that.

Marcus: It’s going to be interesting to kind of check this inverted curve because there’s a, there’s a world. I mean, we, we all still believe there’s, that there are cuts coming as the curve goes up, it kind of changes the expectation of how many cuts. ultimately will ever [00:23:00] come, right?

Vic: Yeah. I mean, I think a healthy sign would be to see the, the 30 year or the 20 year continue to get slightly higher.

Vic: And then without a Fed cut, without a Fed cut, and then the Fed might cut one 100 basis point, maybe cut to four, four, four, 25.

Marcus: And so then the minute that happens, If the market doesn’t adjust down, you’re no longer inverted.

Vic: Yeah, if the long end doesn’t adjust down, you would not be inverted. That’s right.

Vic: And so that would be great. That is a much healthier place to be, where the risk free rate is four or three and a half or four and a half. Something that’s not zero. Yeah. But it’s not so high that VCs like us can’t beat it. Right. And then if you, if you want to. Put your money in bonds for a longer period of time.

Vic: You should get six or seven or [00:24:00] something would be a lot healthier and if the um, the other way is How it goes where the the long side comes down too far because the economy doesn’t have much growth. There’s not prospects for long term Productivity growth right and it comes down to where maybe not two But where was sort of before three or two and the fed has to cut way back to zero You That is not as Long term healthy in my opinion.

Marcus: Yeah, I think also embedded in this. Um, there’s certainly the Coming in line with the fed and seeing that. Hey, the economy is actually functioning just fine with a you know, five plus percent uh prime rate, but also You know, when you think about a 30 year note, um, there is some, there is a statement here about the staying power of America, right?

Marcus: [00:25:00] Um, as, as the currency of record for the world, as the dominant economy in the world. And. You know, for whatever you want to say about America, and we just talked about our crazy presidential situation, right, which hopefully this is the last time we have to deal with this, and we get younger, new, fresh, yeah, please, someone run for office.

Marcus: Hopefully this is our last time we have to deal with this nonsense. I mean, really, it’s like if you look at AI, if you look at demography, right, you know, um, especially like China’s birth rates, like just crazy, right? Um, and their aging population. I was listening to a podcast. I was 40 percent of their population is going to be 65 and above 40%, right?

Marcus: So it’s like on the longterm America, even with all the craziness in the world, America is still kind of projected to be the leader. Well into the future. Yeah, like like like we’re gaining momentum in that and that’s it. That’s the cleanest dirty shirt thing Like

Vic: yes, our shirt is dirty, but we’re cleaner than the rest of the guys

Marcus: It’s crazy though, you know because when you ask most people [00:26:00] like how how are things going in America?

Marcus: Oh, you know, yeah We got all these problems. Things are going down, blah, blah, blah, but not compared to the rest of the world. No, no, no. Relatively speaking, we’re in a really dominant, strong position. Yes, that’s right.

Vic: If we, I mean, if we could have anyone under 50. Run for office, I mean, I

Marcus: don’t want to be an ageist, you know what I mean?

Marcus: Like,

Vic: and then try to get something on immigration. Yeah, we want immigration that solves our birth rate problem. Yeah. The rest of it can be easily figured out.

Marcus: Yeah. Agree. Agree out there yet. Um, all right. And then last, uh, economy story, Freddie Mac is looking to increase their position in the credit markets, um, by no longer just securitizing government backed mortgages, but also by now [00:27:00] securitizing home equity loans,

Vic: which hasn’t happened before.

Vic: And it was a very short comment period, 30 days, which. I think is allowed. Normally it’s like a year comment period. Most of the comments were from the banking industry against it, because it’s going to make it much cheaper and easier and it’s crowding out the private for profit market. It’s competition.

Vic: It’s

Marcus: already a pretty competitive market for mortgages and home equity loans already.

Vic: Yeah. And it’s going to subsidize people that have that own their house and have enough equity in their house to get it. And I, I’m one of those people, I’m not opposed to that, but, but I’m not sure that’s the most important place to put subsidies.

Vic: And so it’s kind of a head scratcher. Why all of a sudden this makes sense, but it’s going to be stimulating. It’s going to be stimulating to the economy.

Marcus: Well, [00:28:00] generally speaking, uh, I, I think that Freddie Mac has programs that are more credit friendly to lower income. Um, Populations. And so I think that the idea here is expanding the credit market.

Marcus: Right. And, and, and he locks are really important component of the credit market. Right. I mean, any, anyone who’s in the wealth building game, you’ve got, you’ve got a heel lock sitting there, you’re not using it, but it’s, it’s there. Right. Yeah. Whenever you want to use it, cause it’s better than a damn credit card.

Marcus: You know what I mean? Um, and so.

Vic: And as long as you. stop using the credit cards. It, that’s a, that’s a common strategy to refinance your credit card debt at 20 something percent into a home equity line at 6 percent or whatever it is.

Marcus: And, you know, Freddie Mac knows how to handle, [00:29:00] um, Collections and, you know, just leverage.

Marcus: They know how to leverage a house as collateral. Like that’s, you know, that’s, that’s not, you know, delinquency is charge offs. They know how to handle all that stuff. So a heel lock is, it’s still in the same domain. It’s not like they went to consumer credit. You know what I mean? They didn’t go to some world that they don’t know at all.

Marcus: Um, it is expanding the credit markets in a time where credit card balances are not, I don’t, I don’t know if it’s all time highs, but they are at big time highs, um, and our 90 day delinquency. Rates are very high right now. So expanding credit to, um, lower income populations by definition, because of the way that credit compounds is going to be more risky.

Marcus: And we’re not making judgment calls around. Uh, you know, people’s willingness to pay or their focus on keeping their credit. Good. It’s [00:30:00] simply the truth that if you are lower income in an inflation, you know, period, which we have right now, you start to compound credit on that. Your dollar already isn’t stretching enough for food, clothing, you know, food, clothing, and shelter.

Marcus: And now you’ve got. Interest based credit payments that you need to make. Yeah, that’s it’s, it’s just harder. It’s just harder. So, um, I think that there’s a, it probably warranted a larger than, than 30 day discussion period. Um,

Vic: it just, it just caught my attention because the federal reserve. Is raising rates to slow down the economy

Marcus: and well, they’re not raising rates anymore.

Marcus: They’re holding their costs at what

Vic: I would say is a restrictive rate. They’re holding. Yes, we can debate where I

Marcus: think the line

Vic: is, but I think it’s over what would be over the line, the neutral point. That’s right. Yeah. It’s over the [00:31:00] line. And then Freddie Mac, which is a government entity is expanding credit at the same time.

Vic: Yeah. And I agree with you that home equity lines, whether home equity versus first mortgage is riskier, and then I wasn’t aware that it was lower income, but if, but if the lower income side, um, certainly is, is riskier. And so it’s just an interesting thing for the government to do.

Marcus: I mean, it’s expanding cashflow.

Vic: Yeah. It’s going to be great for Home Depot or I don’t know, whoever is selling to homeowners that want to fix up something or get a new deck or whatever. Home Depot’s stock is probably going to go

Marcus: up as a result of this. That’s exactly right. Yeah. So it’s, I mean, it’s, it’s an interesting thing because it’s got short term and long term benefits.

Marcus: I think in the short term, expanding the credit markets is good. You know, [00:32:00] like I think that is, that’s a good thing. It creates more opportunity and, and, and Helix, you know, by definition, they’re only available to people who are already homeowners. Right. So, so if you’re a homeowner, you’re already. Less risky than, you know, the renting population.

Marcus: So that’s all great. I think that’s fantastic. Um, but it is making an already really difficult banking environment, more difficult. So then the downside is okay. Does this create inviolability for many really actually regional and community banks, right? Um, where a HELOC is probably a pretty meaningful part of their business.

Marcus: So more, you know what I mean? Like, um, I’m not thinking about,

Vic: yeah, I don’t know about that, but yes, definitely is going to be. The bankers are all not in favor of this, because it’s taking away their What

Marcus: do small banks do? Small banks sell CDs, mortgages, and HELOCs. Maybe they do some construction loans and some SBA lending, but I think for the most part, if you think about the consumer part of their business, [00:33:00] it’s like, CDs, money market, mortgages, and HELOC, right?

Vic: Yeah, I don’t know how many helix they hold versus how much they sell off. Yeah, but

Marcus: the origination is what matters and they’re going to be competing now on origination with. With Freddie Mac.

Vic: I don’t know. I’m not sure about that. I think Freddie Mac is going to guarantee it and securitize it and bundle them up.

Vic: But I think it was, I think you can still get the origination piece. You just can’t hold it. Oh, but, and you’re going to originate it, but at a lower rate, lower rate. Okay. So if you want to hold it, it’s not as profitable, but I think the origination fees are probably similar. Maybe they’re tied to the rate a little bit.

Marcus: Yeah. All right. Moving into VC, uh, we’ve got a couple of IVF fertility things, which

Vic: is interesting. Maybe coming back.

Marcus: Yeah. So the first story is the company called Ria. Well, I mean, the, the, the challenges are, are, have not gone anywhere. So, so there’s certainly more, [00:34:00] more need. So 10 million to expand an IVF network.

Marcus: This is a, this is actually in Singapore. Well,

Vic: it is, but they’re coming to

Marcus: the United States. Okay. So, so, uh, Peter Thiel’s, uh, Thiel Capital is, is backing this, uh, focused in Southeast Asia today, but now moving into Houston, Texas. Yeah,

Vic: I think it’s interesting that, um, we as a country found an innovation in Singapore and Peter Thiel’s fund is bringing it here.

Vic: It’s just great. I mean, uh, there’s, there’s innovation all over the place in home here.

Marcus: Gosh, we, we, we need more of that in healthcare. Yeah. Cause the whole world is trying to work on healthcare issues, right? I mean, it’s, it’s, it’s a space where the cultural divide is not as sharp, uh, in terms of like comparing it to like a consumer product or something like that.

Marcus: And then second funding story here, Gametto let’s just call it Gametto raises 33 million in a series B financing to advance development and commercial commercialization of novel fertility treatments. [00:35:00] So 33 million series B that’s, that’s pretty strong.

Vic: This is a, a kind of a, in the, in the. In the middle between biotech and in vitro fertilization, trying to make it better.

Marcus: Yeah. Uh, led by two Sigma partners, RA Capital, um, but including Insight Partners, Future Ventures and, uh, Bold Capital Partners. We’ve co invested with Bold. Um, all right, that’s cool. This is probably, I think the biggest story here. So, uh, Waystar is. talking about going into an IPO, uh, for a billion dollars.

Marcus: Um, Waystar is a claims processing company that I think a lot of people may not have known about prior to Yeah, I didn’t

Vic: know him before a couple weeks ago.

Marcus: Yeah, yeah. So, so Waystar, I think, was a beneficiary of, um, the changed healthcare situation. Yeah. where some providers switched over to Waystar to continue to be able to process claims.

Marcus: Um, and so I think they probably had an incredible first and [00:36:00] second quarter. Uh, and, you know, that probably drove a lot of recognition that the market needs more sort of large scale, um, offerings in that space. And that’s probably what’s And healthy to have

Vic: them get public, use this momentum to get public and then Change Healthcare United are always going to be significant.

Vic: They’ll, they’ll, they’ll, we will all benefit from them having some competition. So Waystar getting larger and going public will allow them to, to grow. And

Marcus: yeah, I mean, you know, right now they’re talking about their They’re, uh, 2022 numbers. So in 2022, uh, then net loss of 51 million and revenue of 704. 9 million, 2023 net loss of 51.

Marcus: 33 million revenue of 791 million. So, you know, not tremendous growth and, you know, the, the losses are pretty consistent. I bet those numbers are changing dramatically this year. And [00:37:00] I think that’s, I think that’s why.

Vic: Yes, and they are, I don’t know if they’re sandbagging, but they’re not showing their entire road show in this press release.

Vic: Exactly. Exactly. Because, because they want to be able to like come out with the, with the exciting story live with the, the by side guys.

Marcus: Yeah. And I bet the S one is going to have the projections for this year, which will blow out what’s going to, you know, what they did last year. Right. So, um, so interesting, you know, I mean, look at this IPO goes, I mean, they’ve, they’ve got JP Morgan Goldman and Barclay’s all underwriting it.

Marcus: I

Vic: think it’s great just to have a.

Marcus: new healthcare IPO. Yeah, exactly. And, um, look, I mean, a billion dollar IPO. That’s, that’s another good company out there in the market that can bring innovation, can partner with VCs, et cetera, et cetera. So this is, this is a good thing. Um, all right. And then PitchBook came out with their Q1 2024 MedTech report.

Marcus: And we looked through it like it was, you know, Somewhat helpful. I would say most of it is, is, you know, you’re [00:38:00] trying to sort of gauge Q1 of 2024 against whole year results from previous years. That’s not entirely helpful, but there was one chart here that, um, does break down quarter over quarter. And it really focuses on deal value as well as deal count.

Marcus: And so I think what’s probably most valuable is that particular graph and looking at the Q1 of 2024. Versus the Q1 of 2023. And when you look at that chart, what you see is that the deal value is up, I would say, you know, meaningfully, it’s up meaningfully and the deal count is down somewhat, uh, but the, but the value is up more than the deal count is down.

Marcus: Um, and so. It just gets into the fact that we’re, we’re doing bigger rounds again, right? Start off the year. We’re doing bigger rounds again.

Vic: Yeah, I think that’s right. So yeah, I agree. The report was, yeah, could have been better designed. I think a lot of work to get these reports. We didn’t do it. So, um, but yeah, I think it’s as expected.[00:39:00]

Vic: Steady as she goes, kind of, maybe slightly fewer deals. Kind of, kind of, yeah,

Marcus: yeah, exactly. Um, all right. So this was a big story about CMS and the final Medicaid managed care rule. That happened back in April. Um, but now a lot of the analysis is starting to come out around, okay, what was really in this rule?

Vic: Yeah.

Marcus: Um, and one of the big findings that several analysts Have been talking about over the last couple of weeks is, um, the modifications on state directed payments and how that is really going to shift the perceived and probably real value of a Medicaid patient, um, in, in many states for both the payers and the providers who are, um, taking care of those patients.

Marcus: So Vic, like give a little background here.

Vic: Yeah, that’s right. So the state directed payments, also some kind called supplemental payments help the states. Fund the health systems for care of [00:40:00] Medicaid patients, and it’s a complicated structure. Like a lot of things in healthcare not clear exactly why it’s complicated, but there’s a lot of complexity to it but in general the federal government is Sending money to the states in order to enable the states to pay health systems Often through a managed care organization MCO So you have all these entities in the mix and they take one or two percent But but the federal government sends it to the sends money to the state The state actually taxes the health systems in order to be able to meet their share of the cost and then they send money through the mcos to manage the state medicaid system And it eventually reimburses care at the health system.

Vic: That’s the system that’s been going on for a long time And it has [00:41:00] it’s gotten somewhat larger after after the affordable care act um and for Forever For 40 years the rule has been that they can they can reimburse up to and equal to the Medicare rate so you could you could supplement the Health systems through the mco so it flows through them, but eventually it goes to the to the reimbursement rate and that could be done up to the to the medicare rate and That put Medicaid in this, um, you know, kind of not that attractive patient population because it was pretty low paying charges.

Vic: Mm hmm. And, and a lot of complexity in billing. Mm hmm. Slower processing. Mm hmm. And [00:42:00] not every health system was super excited about seeing a lot of medic, Medicaid patients. Um, and so they have changed it now. And change the incentive structures so that the level that you’re allowed to supplement up to is now up to commercial rates.

Vic: So they have made Medicaid reimbursement charges through this supplemental payment structure equal to, or at least competitive with, allowed to be equal to the commercial rate book. Yep. And that is a huge change in the way I think about, uh, how the different patient populations are valuable or, or not as valuable from a gross margin point of view or a profitability point of view or where you might, um, acquire a hospital or open a new facility for like the [00:43:00] hospital corporate strategy.

Vic: People have not really been attracted to areas, geographies that have a significant Medicaid or Medicaid and Medicare population. Because they pay less, and now Medicaid has surpassed Medicare, so it is equal to the commercial book, and I’m still getting my head around that, but we wanted to bring it up because it’s going to drive significant change, so, um, Let me just stop there and see if that made sense or if there you have questions or

Marcus: no I think it made a lot of sense It’s a huge change.

Marcus: I mean it really sort of shifts Medicaid to being of the two Medicaid and Medicare It’s just Medicaid to potentially being a much more attractive line of business. Yes the Medicare It’s putting it in line with, with, you know, commercial pay [00:44:00] and, and, and forcing sort of, you know, the MCOs and, and the states, um, to, to really evaluate, you know, sort of these non fee for service opportunities and make sure that there’s, there’s capital there for that.

Marcus: I mean, it feels like CMS has tried to expand Medicaid a variety of different ways. Yeah. They tried with

Vic: trying to force it, trying to. Lobby around it, try to use press, yelling at people to expand. We’re in Tennessee. It’s not expanded still. Yeah. But we certainly have think tanks and lots of, you know, media stories about it, right?

Vic: And now they have switched gears to, to use much more of an incentive structure than a, than a stack structure.

Marcus: You know, with this kind of stuff, I, I never feel comfortable saying this is how this is going to play out. Yeah. Um, because, you know, if there are political grudges around [00:45:00] this and around sort of just the philosophy around Medicaid, um, There could be a counter response that, you know, we don’t expect that holds up sort of this from happening.

Marcus: Um, but it does create a potential future, like you said, where Medicaid now becomes much more viable. And I think the reason why that’s important for us is Medicaid has largely been avoided by venture capital, um, largely been avoided just on the premise of the margins are too small. Thank you. Um, I think we’ve been moving more in the direction of Medicaid, uh, doing more deals with, uh, founders who have deep experience in the Medicaid space and are designing for Medicaid, right?

Marcus: Right. With that, with that Medicaid first understanding. Um, but I think that it’s really a different thing if Medicaid payments. reach parity with commercial payments. It just, that just [00:46:00] fundamentally changes it, especially when you’re talking about, you know, embedding this inside of value based care arrangements or sort of non fee for service, you know, businesses that’s also sort of lined up pretty well with what VC would do.

Vic: And maybe there’ll be a counter counter move. I don’t know, extra money flow into the system that goes through the managed care organizations. So Melina and Centene. I mean, they’re, they’re going to do well,

Marcus: but also, you know, but

Vic: then the health systems, common spirit and all the health systems, well, but, but especially the nonprofits,

Marcus: especially, I mean, we, you know, one of our first, uh, sort of deep dive episodes that we did was on common spirit, you know, we, you, you, uh, you pulled out there at their nonprofit, you know, quarterly report, and we really sort of dug into it and we were just pointing at the pair mix and just like, man, Yeah.

Marcus: Yeah. Yeah. You know, the payer mix is just like a problem, right? What if the payer mix all of a [00:47:00] sudden goes from being a problem to a, to a, to an asset?

Vic: Yeah, it’s actually a win at the back. It’s going to be, it’s going to be, it’s going to game changer for some of that common spirit. Yeah. But also for the, for the small ish facilities where maybe they have four hospitals in one state or two states or ten hospitals.

Vic: There’s a lot of those. And this, this could be a really interesting lifeline. Um, the for profits are not positioned for this, because they have Largely avoided it. Right. Um, but I mean, they’ll be fine. That’s right. They, they will also, I don’t think they’re going to fight it. I mean, more money coming in for our Medicaid book will be a good thing.

Vic: I don’t see who is going to be lobbying against it. Right. Except for the, the taxpayers. And that’s so diffuse. I mean, who’s going to, who’s going to even notice about, uh, the increase in the federal deficit, which is already huge. That’s right. I don’t know. It’s a pretty interesting, I think it’s going to drive consolidation.

Vic: It’s going to make it [00:48:00] easier to operate in some of these, uh, more challenging, uh, payer mix markets, which all seems pretty good. Really? We spend a lot more money in healthcare, which is, you know, good for us. Yeah. So for our

Marcus: listeners, if you happen to know something about these state directed payments, yeah,

Vic: we,

Marcus: we want

Vic: to, or what do you expect?

Vic: Where, you know, What’s going to happen?

Marcus: Exactly. Reach out to us. Send us a link to something. We’re trying to read up on it. The link we’re going to include in the show notes is, is, uh, some analysis from Georgetown University and their school of public policy. So we’re trying to kind of read as much as we can.

Marcus: These rules are really dense. Yeah. And sometimes if you depend on the analyst, they have a certain slant or certain bias. And so we’re trying to gather as much information as we can. But obviously this, this is a, one of those material shifts that only healthcare wonks would understand. Right. So we’re trying to make sure we understand.

Marcus: I want to

Vic: give Emily credit. We heard about this this week from Emily Evans at Hedgeye. She’s been on before. We’ve talked to her all the time. She’s on every quarter. [00:49:00] Yeah. And she has a good analysis here showing the changes in Kind of the Medicaid, Medicaid patients and how just how it’s jumped up so quickly.

Marcus: Unfortunately, we cannot put this link in the show notes because you have to be a paid member of Hedgehog to get access to this. But, um, so again, you should watch it on YouTube. Again, you should watch it on YouTube. So you can at least see this. Particular chart that is showing the rapid rise in, um, and PPI year over year for Medicaid patients and, um, and the decline for, uh, private insurance and Medicare patients.

Marcus: So it feels like the Medicaid patient is on the rise and, uh, becoming a more important part of, of, you know, um, of the, of the payer mix. And I think that’s going to make. Uh, quite frankly, look that more, more capital flowing into this patient population is going to get payers excited too, for sure, for sure.

Marcus: It’s no question. [00:50:00] So, uh, that’s, that’s a big change. So I think with that, we’ll stop here. Let Doug share a little bit about Jumpstart Foundry, come back and, uh, start talking about what’s happening in the cybersecurity world.

Doug Edwards: Thanks guys for the opportunity to talk about our pre seed fund, Jumpstart Foundry.

Doug Edwards: 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 healthcare with suboptimal outcomes.

Doug Edwards: Jumpstart Foundry exists to 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 [00:51:00] to invest to help us make something better in healthcare.

Doug Edwards: 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 Dumpstart, and we invest in the most incredible, robust, Innovative solutions and founders in the United States.

Doug Edwards: 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 invest in. We also provide great returns and a great experience for our limited partners. We partner with AngelList to administer the fund, making that ease of access, not only with low minimums, but the ease of investing in venture much better.

Doug Edwards: We all know that healthcare is broken. Everyone deserves better. Come alongside us with Jumpstart Foundry, invest in making the future of healthcare better and make something better in healthcare. [00:52:00] Thank you guys. Now back to the show.

Marcus: All right. So, uh, continuing with policy, but now shifting to cybersecurity, obviously.

Marcus: You know, we’ve, we’ve had big, big, big, big, big cyber security issues for a long time this year, punctuated by both change health care and now Ascension, um, major, major issues. And so, uh, the industry is now really working together, I think, with the government, because clearly the health care industry is being targeted as a proxy of the government.

Marcus: Um, so it’s good to see that everyone’s working together and, uh, you know, Everyone is sort of realizing that centralization is part of the challenge, right? Like when, when you, and I actually think the Ascension story represents it a little better than the change healthcare story. Um, just because when you look at the diversity of locations that Ascension hospitals represent across [00:53:00] America, And you think about a single.

Marcus: EMR provider being, you know, compromised, however, that compromise occurred. Um, and how it takes down all of those

Vic: propagates through the whole thing.

Marcus: Yeah. Like, I think that is a great illustration of the centralization, right. Um, and how it impacts a network with change healthcare. It’s, you know, they’re kind of like a clearing house.

Marcus: And so it’s like an intermediary between lots of different parts. And so it’s harder to sort of. You can see the effects of the centralization there. You have to think about it in industry terms. That’s a little bit more macro. But you can, you can easily see one company, large health system network across the country, one vendor attacked, all of those EMRs shut down, right?

Marcus: That’s when you realize, okay, we’re dealing with some serious centralization of vendors here.

Vic: And so HHS is [00:54:00] trying to define the situation and then Eventually make it ameliorate it, make it better. Um, I think it’s going to be, I think it’s, I’m not sure the step of making it better, but, but the first step they’ll probably be pretty good at diagramming it out and understanding it.

Vic: And then hopefully they’ll find some strategies. Yeah, but it’s good that people are working on it and everyone seems to be contributing so yeah This is related to the way start story I mean that is why way start has grown a lot because they’re Not because the government’s telling people to but everyone realized.

Vic: Oh gosh, I need to find an alternative Because I can’t rely on this one that now is down.

Marcus: Yeah, and and look at what may Look, it’s not like Waystar is exempt from, you know, this happening to them. I, I think you may find us in a situation where people just like, are built in to have fallbacks. Yeah. [00:55:00] You know what I mean?

Marcus: You need to

Vic: have three payment processes. Yeah, it’s my primary. And if

Marcus: that one falls over, I fall back to this one, you know, but you got to have more anti fragility in place. Yeah. You know what I mean? And, and decentralization is a problem. All right. So this story, um, It kind of came out of nowhere because we hadn’t really heard much about physician groups since, uh, I don’t know, American physician partners sort of went under.

Marcus: Um, I think that was the last one, right? Like the vision and then the government has been looking at

Vic: private equity backed roll ups, which we was sort of often physician groups, but, but not always.

Marcus: Yeah. But, but, but not with the whole like, Hey, how financially healthy are these companies? Right. We hadn’t vision go out and then we had APP go out earlier this year.

Marcus: Um, and then you haven’t really heard much about it, but you found this substack. Yeah, one of our

Vic: listeners sent it to me, actually. Oh,

Marcus: nice. Awesome. That’s great. So, uh, thank you, listener, for sending in this substack. Uh, Financial Instability of Emergency Medicines Bigs. And it’s basically a credit [00:56:00] breakdown of the big, um, emergency room physician groups.

Marcus: Yeah, many of them are private.

Vic: Meaning they don’t, they’re not publicly traded on the equity markets, but they do have debt that you can go find their credit rating on. Right. And, and, and they’re,

Marcus: these

Vic: are big companies.

Marcus: These are big companies that staff hundreds of EDS around the country. So anyway, you know, you’re reading this, this sub stack and you go down to this chart and it’s like, The big names, I mean, and the big names to me are team health and sound.

Marcus: Um, I, I, I’m not that familiar with SCP, but team, team health and sound are, those are big. I think all

Vic: four are pretty big, but yes, but all of them are big.

Marcus: Yeah. So team health, sound physicians, U. S. acute care and SCP, they’re all, uh, sub a, first of all, they’re all sub a, which is, you know, Investment grade, um, and then in the non investment grade categories, like you’ve got team health, I think they’re like triple C [00:57:00] minus by, by, uh, by, by one of them, but they’re, they’re in the low Cs.

Vic: I want to read the Moody’s definition of CA. They have team health at CA, obligations rated CA a highly speculative and likely in or very near default. With some prospect of recovery in principal and interest. So, they are already in default, are gonna be soon, and you, you will get some of your money back.

Vic: Right. That is team health. And, I mean, that’s pretty scary because the number of docs, I don’t know what number of docs, actually, it’s in here somewhere we can go look at, but it’s a significant number. Keep, keep talking, I’ll, I’ll find it. They are in a real jeopardy of, of, of, Going out of business and not being able to pay their bills.

Marcus: Well, look right, right here. Um, team health staffs, 567 emergency [00:58:00] departments. The total corporate debt is 1. 974 billion. At interest rates, 6. 375 and 13. I mean, they can’t get out of that. Yes,

Vic: that’s right.

Marcus: That’s about, they got 2 billion in debt and, and we, we need to go back to the actual, like foundation of the story, which is the no surprises act.

Marcus: Yes. Yeah. So the no surprises act, which made out of network billing. Illegal. Yes. Can’t do it. Um, that killed this business model, the whole business model. I mean, all these companies went from being viable, you know, and maybe they were struggling in some of their negotiations here and there, but they were still had viability.

Marcus: They hadn’t some negotiating leverage without a network billing. No surprises act literally killed this business. Well, it took

Vic: away. plausible path for them to not end the negotiations with a, with a contract. Right. And so the, and to be fair, [00:59:00] these companies and others maybe used that leverage unfairly or, or used it very often and did too much out of network billing where they, they made a lot of people really mad.

Vic: Once the surprise that came in that the payers know that they. They can’t bill if they’re out of network. And so the negotiating power changed dramatically and they, they just don’t, there is no business model that really works well and they’re certainly not capitalized for the business model. If there is one, it’s, it’s a, it’s a lower margin business.

Marcus: I just want to make the point that. If anyone wants to know why we study policy as business people, this is an example of why like the no surprises act killed the E. D. physician. Yeah. Staffing business

Vic: and killed it in a lot of private equity. It was more private equity, but they lost tons of money. Yeah.

Vic: It’s a lot of money. [01:00:00] Yeah. Like

Marcus: you’ve got to track this stuff. Okay. Because this is, this is crazy. And like, does this mean health systems are about to just employ a whole lot more docs? Like who’s going to pick up the bag? I mean, no one’s going to, no one’s going to continue to run this business, but the doctors must continue to be employed somewhere.

Marcus: They can’t be independent. Right. That’s not going to work.

Vic: I mean, the, the way the U S system works is these comp, some of these companies will fail, meaning they’ll go out of business. The people that loaned money to a CA rated security will, won’t get all their money back. And then some, either the health system or some new company will hire probably a lot of those same doctors back, but the business model is going to be.

Vic: Not as profitable. It might be a utility. It might be a loss leader that depends on if it’s the health system and if they want [01:01:00] to drive volume through their ed or not, there’s, there’s a lot of, Question marks, but it can’t be capitalized the same way that it was capitalized before.

Marcus: No, can’t be capitalized the same way.

Marcus: The P& L can’t work the same way. Right. I mean, you have to assume based on all of these companies failing the way they’re failing that, um, at best it starts as a utility. More li. More likely. More likely. It’s a loss. A loss. More likely it’s a loss leading. More likely it’s a loss leading. More likely it’s a loss in year.

Marcus: Yeah. Which means it would be the health system’s bag to pick up, right? Yeah. I mean, who, if they want it, who else they need it. They gotta staff their ed. That’s what I’m saying, like, like get, get away from the business piece. The ED must be staffed, therefore someone’s gotta kind of take care of these physicians.

Marcus: The ED must be staffed.

Vic: Well that, and see, then it goes back to. It’s interesting, the government is feeding money into geographies where there’s a lot of struggling health [01:02:00] systems because their payer mix is bad.

Marcus: And also, in those, in those, in those struggling, uh, environments, ED usage is higher.

Vic: Yeah. And so that’s another reason to track these things is I think it might be part of part of the overall, I don’t think anyone plans it out this well, but more money coming into the system will allow health systems to, to take care of their population and they need to have an ED.

Vic: And they will create some way to make enough money to keep the lights on because they’ll be able to bring him up to the other parts of the hospital and do procedures on him.

Marcus: Moving into pharma, Merck is getting into the eye care business. Um, they bought a company called iBio for 1. 3 billion, which is actually not that much in the pharma space, which is crazy to say.

Marcus: I think the more important thing here is that they are, uh, moving away from being, you know, mostly sort of [01:03:00] cancer and moving into the iCare space.

Vic: Yeah, which I was excited about. I think, um, we have done well in iCare. And Merck have an interest and don’t go into that. It’s great. Yeah.

Marcus: Yeah. Thumbs up. Maybe, maybe another buyer for, you know, digital therapeutics or whatever.

Vic: Yeah.

Marcus: Um, all right, next story. This is more, uh, now getting into us a story around the impact of a cancer diagnosis and then the process of, uh, trying to recover from cancer, trying to get into remission and what that does to people financially. Um, so this is a story in the wall street journal. Uh, And, um, you know, look, our family has, has, has lived a version of this story.

Marcus: Not the same version of the story that is, that that’s in this article. Um, what, what stuck out to me when I was reading this article was that, um, this person who got the cancer diagnosis and then was, you know, working through [01:04:00] treatments. Uh, lost the physical, physical ability to do her job, and then she lost her job.

Marcus: Right. And that’s not a universally, um, expected outcome from a cancer diagnosis in terms of what is going to happen with your employer. But as you and I were talking about, Discussing, it’s probably true for better than 50 percent of the cases, right? Um, there are those companies that have war chests, they have these ridiculous HR capabilities, they can do the, you know, FMLA kind of thing, and they can, basically, they can backstop an employee, you know.

Vic: Yeah, for cultural, ethical reasons. Yes,

Marcus: yes, for like, this is who we are, this is what we do, but really, at the end of the day, It’s because they can afford to, I would say by volume, not by market cap, but by volume, most companies in America cannot afford to carry a, a person. They cannot afford to carry an [01:05:00] employee.

Marcus: And most employees. Work at

Vic: small businesses.

Marcus: That’s right. That’s exactly right. Most employers cannot afford to carry an employee who is not bringing productivity to the business. They simply cannot afford it. And so, that that stuck out to me because I

Vic: think about a restaurant or a small, small business that’s doing, making something and delivering A family business.

Vic: Yeah. Yeah, they, they need all the workers they have. They’re not like so profitable and putting money under mattresses that they can afford it. Even if they want to. That’s right. It would, it would, it would threaten the whole thing and all the employees there. That’s right.

Marcus: Yeah. I mean, what they would end up doing.

Marcus: In a lot of cases is like they just run a GoFundMe and they’d run fundraisers and they write, you know, like they would do things to try to support the family, but like, and they talk about that in

Vic: the story and about 30 percent of the GoFundMes hit their [01:06:00] target. That’s actually pretty good. Yeah, 30%. I mean, that’s, that’s not

Marcus: bad.

Vic: It’s not bad, but that means that 70%. it.

Marcus: I mean, I get that. But still 30 percent is not bad. Um, anyway, it’s, I think it’s just the reality that a cancer diagnosis Has such devastating implications. Um, because it takes you out of your ability, generally speaking, it takes you out of your ability to be, um, productive.

Marcus: So, you know, look, if you happen to have great insurance and you no longer need to make a paycheck, then the implications are sort of less, less. If either of those two things is not true, um, on top of you trying to do everything you can to fight cancer, you’re also just trying to stay afloat. Yeah.

Vic: And I mean, a lot of families, including my family, [01:07:00] it doesn’t work if one of the adults, Is not only not pitching in, but now traveling to, to get treatments and sick.

Vic: They can’t

Marcus: travel on their own.

Vic: Yeah. Someone’s got to

Marcus: join them.

Vic: Right. So it just, families, we don’t have that many extended families anymore. So there’s not all of the support structure. It’s, there’s just, there’s not enough margin for error there.

Marcus: There’s basically no margin for error. I mean, that, that, that is the, um, I think this is the thing that everyone is starting to finally wrap their head around in terms of, like, why we all need to care about health and healthcare.

Marcus: Right? Is, like, it’s the number one disruptor. Yeah, you know, like you can watch the news and you can hear about tragedies that happen, you know, murders or all sorts of terrible things, but the odds of those things happening to you are very, very low. Yeah, the odds of [01:08:00] something health care happening to you and your family.

Marcus: It’s almost 100%. Yeah, you know what I mean? It’s like. This is going to happen to you. And when it does, it’s going to wreak havoc, because it’s going to show you just how fragile your whole setup is. You know, if you’re already paycheck to paycheck, forget about it. Yeah. Forget about it. Right? But then, like you said.

Marcus: But even if you

Vic: have, I don’t know what the recommendation is. Maybe six months of rainy day fund. I think I would think for someone starting all starting to build their Their family and you have they both work or whatever six months of Cash in the bank you’d feel okay, that wouldn’t be near enough money for a cancer treatment No, first of all, you’re gonna you’re gonna be sick for a year to the rest of your life and it’s gonna cost I forget what it said was several hundred thousand dollars You So you’re going to blow through your rainy day fund.

Vic: [01:09:00] And you did everything right. I mean, you, you, you saved money, and you, you didn’t spend a lot, and you were ready, but, but you’re not ready for, for a cancer diagnosis. No,

Marcus: and then, and then you have, you, you know, you were talking about travel. Well, you have to travel to the best cancer centers if you want a good shot.

Marcus: Yeah. And then you have to, like, live in those places. Where do you live? Yeah. You know, I mean, I think it’s called Gilda’s House or something like that. Yeah. Like, there, there are some institutes there. Yeah, but it’s

Vic: there’s not a lot of

Marcus: capacity, a lot of capacity, and they’re not ideal for all situations.

Marcus: And most people need to bring their whole family with Children and maybe those environments are not perfect for that. So it’s just, um, look, there’s nothing sort of immediate to be done about it, but I appreciate. More media coverage. Yeah around this so that we can at least be more thoughtful and understand that this is Actually, one of the largest threats we have to society right is These these demon [01:10:00] diseases cancer kind of in particular actually, you know These demon diseases because other you know, when we think about what are the big things that That kill Americans, right?

Marcus: It’s sort of a category of chronic diseases. Then there’s cancer. And then there’s like, you know, the neurological diseases, you know, your Alzheimer’s Parkinson’s and things like that. Right. Um, cancer is the one that really, regardless of age range, regardless of sex, regardless of anything, like comes out of nowhere at any time, you can be doing everything right.

Marcus: And it still comes for you. Yeah.

Vic: And you might be 30 years old, 40 years old. That’s right. Whereas the chronic diseases, you could, you could suffer young, but, but they aggregate over time, accumulate over time. So most of the patients, not all of them, but most of them are outside their prime working years.

Vic: That’s right.

Marcus: That’s right. Yeah. Cancer is the one that just like comes out of nowhere and just wreaks complete havoc. So anyway, it’s a, it’s a tough story to read, but I think an important one and, uh, [01:11:00] you know, link in the show notes. All right. Uh, so extreme. Yeah. Yeah. South Park. Um, It’s taking on. I mean, I’m starting to feel like health care is getting mainstream.

Marcus: Oh,

Vic: yeah, it’s in the zeitgeist.

Marcus: Definitely. You know, it’s like this. This is actually starting to get mainstream. If South Park is doing an episode talking about, I mean, they’re talking about, you know, Ozempic and GOP ones. But they’re really talking about the whole American health care system.

Vic: Yeah. Right.

Vic: The tagline is the end of obesity and GOP ones, and there’s plenty of interesting comedic stuff around that. But navigating the health care system, and the health care system in general, is a lot of fun. I mean, I laughed out loud by myself at my kitchen table. Cause they do a good job and it’s so true and it’s, it’s funny.

Vic: Yeah, and also

Marcus: like, why would South Park cover it? Because we’re all realizing like We all, we all resonate with it. [01:12:00] It’s not a wonky thing

Vic: anymore. Like everyone has dealt with the, the medical director always says no. Well, did you tell him about my situation? Well, he just, he didn’t need that. He just says, no,

Marcus: right.

Marcus: His job is to say, no, right. I mean, and obviously like, look, it’s comedy. Okay. So that’s of

Vic: course not true. Yeah.

Marcus: It’s comedy, but it does reflect the Byzantine nature of this industry and the opaqueness of this industry. And it also reflects how people experience. The industry, right? And that part you have to validate, right?

Marcus: You can’t say oh because you know, you just don’t understand because you’re not in the industry, right? Like screw you I’m a person that has to deal with it. And I wish I didn’t have to deal with it. You know,

Vic: yeah, that’s right I mean, we have a lot of listeners that are in the industry and insiders and they will immediately Think about how the industry has gotten better or how it [01:13:00] does the best it can in a hard, it’s a hard industry.

Vic: And I think you’re also right that, well, that is true. I think we as an industry, and the reason I wanted to talk about this, the reason I think all of us should watch it is it’s true that we’re trying to do some really hard things. It’s also true that the patients that are coming in, this is their experience of trying to navigate the Byzantine nature.

Vic: And yes, we understand what payers and providers are and how it all fits together. But the patient just coming in trying to be seen and handed the 40th clipboard. Doesn’t have that impression. That’s not the experience they have. Right.

Marcus: Um, if you haven’t checked it out, we’re going, we’re going to put a couple of links into some of the clips, uh, on YouTube, but it’s, it’s, it’s hilarious.

Marcus: And

Vic: also it’s kind of worth getting paired, man. I have to say getting Paramount. I signed up for Paramount to be able to watch it. Yeah. I’ll, I’ll probably kill it after the free trial. Yeah, there you go.

Marcus: [01:14:00] Um, all right, moving on to our AI roundup, uh, Elon Musk’s XAI valued at 24 billion after latest funding rounds.

Marcus: So, uh, Elon has raised 6 billion and, um, you know, he’s kind of carved out his, uh, all of his AI stuff into a new business. Um, so he’s separated it from X. Sort of. Grok is

Vic: not totally over yet. Well, but it’s coming over maybe soon.

Marcus: Well, I, I think it will always be embedded in X. The AI will always be distributed via X, but as a business, I think the AI is the focus of the development is happening in a separate company.

Marcus: Okay. I

Vic: mean, I mean, look, Elon Musk confuses me because he is intentionally all over the place doing a bunch of stuff.

Marcus: Correct. So the reason why I, I, uh, I’m making that point is because a lot of people have been critical of the fact that he’s using the X brand. [01:15:00] He’s using the X platform to distribute this AI, but he’s not.

Marcus: Giving the value of the A. I. to the company X, right? And that could be because he recognizes it’s upside down and a total dumpster fire. And they can’t actually get anybody to buy ads on the platform. And, you know, all the debtors and, you know, the creditors are just going to take a bath. Meanwhile, he’s building this 24 billion valued A.

Marcus: I. company. On the side and, and, you know, I don’t know the cap table. So I would imagine X has ownership in, in, in XAI, but I’m just saying that that has been some of the, the, the critical feedback around what he’s doing here. Now he probably has a business reason that’s not about cap table, but more around the kind of resources that the company needs and needs to not be encumbered by all the different activities that X is doing AI is kind of the technology of our time.

Marcus: We need a company completely focused on AI and. You know, all of those arguments would probably hold water for me. [01:16:00]

Vic: Yeah, I mean, Elon is one of the best innovators and operators of our generation, right? And he also, some would say the best, is doing a lot of different things.

Marcus: Some, some

Vic: would say

Marcus: the best.

Marcus: Yeah,

Vic: yeah,

Marcus: I, I think probably the best. I mean, but, but here’s the thing. He’s doing a lot of different things, and I think that, that is an insult to our norms. Our senses. And at the same time, dude, he’s sending all sorts of ships into space. Yeah. Yeah. He, he’s,

Vic: he’s like, the reason he is the best is he, and he’s putting all these cars on the road kind of

Marcus: delivers He’s deli.

Marcus: Yeah. I mean he, he doesn’t really kind of deliver. Well

Vic: where I was gonna go is, is I, maybe there are some creditors and ex formerly known as Twitter versus compared to this one, which is XI, there’s a lot of Xs. Yeah. Um, but I think Tesla is the one that is kind of sticky. Because he has public [01:17:00] shareholders.

Vic: Yeah, sure. He’s in a fight over comp. And I think Tesla has the most AI potential. Now, Twitter X is, has a lot of, Data, but they have the, the self driving and they had, I think Tesla made that first robot. Tesla has a lot of AI stuff in a ton, a ton

Marcus: and it’s happening

Vic: and it’s, and it’s already in flight and there’s already public shareholders and all kinds of confusion.

Vic: That’s the, that’s the complication with this AI that made me not so much X as, as Tesla,

Marcus: here, here’s the thing. Elon has proven an ability, you know, cause when you say like, he’s doing a lot of stuff, well, okay. But how is he doing a lot of stuff and the how is he has proven an ability. To attract and retain, I think we can say at least the best [01:18:00] engineers in America to work with him on his various ventures.

Marcus: And that’s, that’s why, right? I mean, he’s not programming all of this stuff. He can’t, no human could, right? Right. He is attracting and retaining the best engineers. And I think it’s because he’s just trying to push the limits. I think what’s embedded in his ability to do all this stuff is the fact that he’s doing all this stuff and he’s setting the standards and the bar and the goals, you know, insanely high in a way that is providing a challenge to the absolute best of the best engineers that no one else would dare to do.

Marcus: Yeah, he’s breaking all the norms and that is attracting great. Great people.

Vic: Yeah. Yeah. So I’m rereading the, the, I’m going to butch the title of 15 rules of unconscious leadership or something similar to that. Okay. She’s a great, great leadership book. And one of the, one of them [01:19:00] is you sort of always being very open and honest about what you’re experiencing and just, just being kind of transparent with the people.

Vic: And I think Elon, I, I haven’t, Interact with him personally, but I, I believe he is like that. And then he also is, he stays like in his lane of, they call it your zone of genius. Like he’s really good at, I think probably problem solving and helping engineers like get unstuck. And he doesn’t have all the answers, but he can like bring it out of a team.

Vic: And then he moves over to a SpaceX and then he did, and he’s really good at that dropping in and being effective. Switching contacts and jumping to the next thing without much downtime, right? And I think that’s what, to me, that’s what makes him the best entrepreneur and operator of our generation. And that also brings complexity because [01:20:00] as he has shareholders and creditors and lots of stuff that he’s not behaving like they would normally expect.

Vic: And like a lot of their contracts suggest. But he outperforms. And so that’s just attention. Yeah. Anyway, he raised a bunch of money from great firms and. Yeah. I mean, I mean, look, I,

Marcus: I don’t, I, I, I think, I think we will miss much of the genius and much of the value of him. If we focus too much on the antics or maybe even the political leanings or the controversy.

Marcus: Um, so let’s just, if we just put that all to the side for a second, um, he is doing. The equivalent of what, you know, jazz music did when it broke into the scene. He’s just breaking all the rules in order to actually create something that new. Um, you know, society does not want us to do that.

Vic: Yeah. And he puts his own money at risk.

Vic: I mean, there were times [01:21:00] when Tesla was going up that it, his entire net worth. Was, was at risk, and then he, he pulled it out and delivered, and then I give him a lot of credit for Open, OpenAI’s formation, and their, their recruitment of, The early 2030 real engineers, but then he got crossway. So I want to see what he’s going to do with, with Grok and, and XAI.

Vic: So yes, we should focus on sort of what he’s doing and what the jazz music sounds like, as opposed to focus on the rules he’s breaking, maybe.

Marcus: Yep. I mean, for us, we can let everyone else like argue about that other stuff, right? That’s, that’s fine, but we’re, we’re trying to innovate and yeah. So I don’t know where

Vic: he’ll put his AI innovations.

Vic: But I don’t think I care. I will use it wherever it is. That’s exactly right.

Marcus: All right. Open AI has begun training their new flagship AI model. Uh, you know, we would expect it to be called GPT five, [01:22:00] maybe they changed the name, whatever it’s, it’s up to them how they want to brand it. Um, but this is all happening.

Marcus: It’s sort of at the same time that in the backdrop, um, Ilya Sestover has left the company, uh, you know, the, the old open AI board is now, you know, sort of speaking out and saying, this company needs real governance. Um, they’re, they’re creating their, a brand new safety committee. That’s sort of made up by the new board, you know, so they have more internal alignment, that’s, that’s good.

Marcus: Uh, but you know, it’s tough when. You’re, you’re doing things that are leading towards AGI. There’s a real concern about alignment. Um, and then it feels like the safety team is like compromised, right? It’s kind of the equivalent of, of, uh, you know, having a DOJ that you believe is compromised, you know what I mean?

Marcus: Like it’s, it’s kind of, it’s, it’s kind of scary by the way. And I’m not implying that the safety committee at open AI [01:23:00] is compromised. I’m saying the appearance because of all the departures and all the mayhem. Of course. It’s going to lead people to think that

Vic: this is a for profit company. They should just say they’re a for profit company and stop pretending that they’re not.

Vic: They put this charade on that. They still have this dual mandate thing that I don’t understand. I don’t know if anyone understands and that makes it hard to, to follow, but they have great products and they are also pushing the jazz music or whatever forward. But it was founded on a non profit mission to, like, try to save humanity from this thing called AGI.

Vic: I don’t know if that is something I should be worried about or not, but, but in the founding documents OpenAI, they were. [01:24:00] And so, I think that has changed. And yet no one has announced that to change, and so we have this constant challenge. I want to just look forward to GPT 5 as a for product, for profit product.

Vic: And not worry about the safety committee. I don’t mean, Google probably has a safety committee, but we don’t talk about it. I don’t care. They’re for profit. So,

Marcus: honestly, the big challenge for me is just, I’m struggling to understand OpenAI and Microsoft. I don’t, I don’t understand the relationship. I can’t tell if they’re competitive, if they are the same, if they are, It’s that’s the part that’s really weird for me.

Marcus: I agree with you on the nonprofit stuff. That is, that’s weird too, but that’s not where my mind default book defaults these days, because I’ve just sort of said they’re masquerading. They’re not a nonprofit, the Microsoft thing. I can’t wrap my head around from which [01:25:00] side. Well, I just, I just don’t understand.

Marcus: Like, is Microsoft doing their stuff independent of open AI with open AI? Do they have their thumb on open AI’s neck? Like I, I just, is open AI independent? From Microsoft. So can you answer any of those questions?

Vic: I think that we will know when the Apple announcement comes out of, of who they’re partnering with in, in AI fair play, my belief is that, but I don’t have any evidence for this.

Vic: This is just my prediction that open AI is going to partner with Apple and Microsoft will not be on the press release. And to me, that will answer that

Marcus: will answer the question that that will Microsoft

Vic: was a financing partner and as a as a partner that provided a bunch of money, they got a lot more than

Marcus: money that a lot of open AI is hosted and yeah, yeah, they got they got [01:26:00] credits

Vic: and Azure and that’s just money or that’s not just money that’s not just

Marcus: money.

Marcus: It’s more than that. It’s more than that. It’s it’s it’s it’s more than that. It’s more than that. I think it is. Equal to money. No, it’s not.

Vic: So we can talk about that later. We’re too late to the show. Yeah. So anyway, we’ll, we will see if open AI and Microsoft partner with Apple, then my view is that open AI is a division of Microsoft now, but I don’t know that that maybe it’s unfair, but that’s the next thing I’m looking at.

Vic: Yes, it’s really confusing. Um, and I think Sam and Satya Nadella probably are both trying to move to, to make it a different way. And, and it’s confusing cause they haven’t decided it yet.

Marcus: Yeah. Um, PwC. Is becoming [01:27:00] OpenAI’s largest chat GPT enterprise, uh, customer, and they’re going to resell chat GPT into the enterprise.

Marcus: And I think this is brilliant and also necessary because for as cool as chat GPT is and all the stuff you can do with it, like you need. A consultant to help you actually make it valuable in your business. Like it is not. You

Vic: need to consult it. You need a lot of people to implement it and get it organized and then keep it going.

Vic: I mean, it’s like any very large software initiative. It has to be. Manage, maintain, upkep, and PwC will be great for that.

Marcus: And better believe PwC is also going to use it internally on themselves to increase their own margin.

Vic: They’re going to, they’re already one of probably tech, most tech forward of the, of the big four.

Marcus: Absolutely. So they [01:28:00] probably already have done a ton of work internally with it. They figured out how to increase margin, how to deliver things better, blah, blah, blah, all this other kind of stuff. Now they’re going to be able to use that. that to present to their clientele around the world, right? Yeah, this is how you leverage chat GPT.

Marcus: We’ve been using it in deep partnership with open AI for a year. I forget what it

Vic: was, but in the story, they quote how many hours their employees have worked on it. Um, and it’s. Significant. They have a lot of employees and they’re all working on it. Yeah, it’s, uh,

Marcus: this, this is brilliant. Yes, it’s good for both sides.

Marcus: Makes all the sense in the world. Yeah. Um, makes all the sense in the world. And also, I think, hopefully it makes people feel a little bit better, like, it takes, it takes a consulting firm To really kind of make this work in the enterprise. I mean, that should make you feel better about your inability. Not you, Vic, but like, you know, one’s inability.

Marcus: Just pop open GPT and like make your business more effective. It’s not that easy.

Vic: It’s not

Marcus: that easy.

Vic: It’s real. [01:29:00] And unlike Microsoft and Google. OpenAI doesn’t have a big like enterprise sales consulting implementation team. They just don’t have that. So they need, they need this support. That’s right.

Marcus: All right.

Marcus: Final story. Uh, this is a, a good story and hopefully one that will expand to the United States, um, Google for startups, which is a global, um, uh, initiative that Google has, uh, they are. Focusing on Europe, Middle East, and Africa in supporting 24 startups in advancing healthcare with AI. So super cool. And it’s something that I really hope they bring to the United States.

Vic: Yeah, I love that. They’re doing it. I wish it wasn’t in Paris and in somewhere in the US, but, but it’s great. And the companies look pretty, pretty interesting and they’re from all over. Those those geographies. So, um, it’s interesting that the the health care zeitgeist is sort of growing in the public conscious here.

Vic: And then I also think, um, [01:30:00] globally, it’s a huge market. And there’s no matter what the payment structures, which, of course, are different in the US versus other countries, treating heart disease, treating diabetes, treating cancer, the human body is fairly similar, no matter what language you speak. And so.

Vic: Certainly, there’s some cultural differences, but there’s a lot that we can learn from these startups and we can pull them here and bring our startups over there. I think I’m excited about it.

Marcus: Absolutely. And look, the reality is that the healthcare industry is a global industry, especially when you think about pharma and devices and things like that.

Marcus: You think about companies like Philips and, you know, so it’s already a global industry. It’s very fragmented. It’s very much driven by how, you know, different nation states choose to manage their population’s healthcare. Um, but huge components of the industry are actually global in nature.

Vic: And what do they call public health versus health care?

Vic: Right?

Marcus: Yeah. All of that. That’s where all the complications come in. But, you know, in those complications, there’s lots of opportunities for people [01:31:00] to make money. Yes. Um, all right. Great show. Thanks for pulling it together. And we will see you all next week.

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