7 – Digital Therapeutics post-Pear Bankruptcy | “Hawkish Pause” by the US Fed | UHG Signals Increasing Patient Volumes

Marcus: [00:00:00] All right. Hello. Hello. Welcome back. Episode seven of health further. What’s up, Vic?

Vic: You’re still here. So going, yeah. Just a

Marcus: quick throwback. We did the pair therapeutics episode. I think everyone kind of knows that. And, um, got a ton of feedback from that this week. Modern healthcare came out with an article talking about. A meeting that happened in D. C. with the Digital Therapeutics Alliance and how they were trying to kind of move past the whole fiasco that was Pear Therapeutics, uh, and aligned with that, we had a friend of ours who Vic was, uh, part of the Nashville Healthcare Fellows with in 2016, um, who joined us and we have an interview that we want to share.

Excited here. Yeah. So, uh, Aaron Gani is the founder and CEO of behavior, uh, spelled [00:01:00] behave VR, uh, for virtual reality. And he was formerly the CTO of Humana. And this is a great 30 ish minute, uh, interview with him. Really

Vic: a leader in digital therapies broadly and then running a great company

Marcus: and amazing guys.

So anyway, we will, uh, go to that interview and we’ll be back afterwards. All right. So we’re excited to have, uh, via the magic of the interwebs, uh, our friend, fellow Nashville healthcare fellow, uh, founder, uh, former CTO from Humana, uh, and digital therapeutics advocate, uh, Aaron Gani. What’s up, Aaron? How you doing, man?

Aaron Gani: I’m doing great. Thanks, Marcus. Good to see you both.

Marcus: Good to see you, man. So, so, uh, you know, you, uh, we’ve, how long have we known you, Aaron? I mean, Well, we were in fellows together.

Vic: So when

Marcus: we spent

Vic: a lot of time in 2016 together learning about. I thought I knew healthcare until I did fellows and I realized all the things I didn’t know.

Marcus: Yeah. Yeah. So [00:02:00] we’ve been fortunate to know you for a long time and you’ve been doing incredible work in the space for a long time. Um, but we got reconnected, you know, really, I think based on a couple of things. One, Recent events in the digital therapeutic space. And also, you know, Vic and I getting this, this podcast off the ground over the last couple of months here.

And obviously we did sort of a whole episode on digital therapeutics, talked about a ton of stuff where we don’t need to rehash everything that we talked about, but that got us reconnected. Um, because I think, you know, um, you’re, you’re obviously leading a company in this space, but not only leading a company in this space, but probably, you know, part of a larger group, um, that are really trying to, to, to advocate for You know, some, some basic, basic sort of standardization and a framework for, um, actually being able to commercialize the space properly.

Right. So you reached out and we were like, Hey, let’s definitely talk about those efforts. Um, and you know, also any feedback you had about, about the, you know, the show that we did, you know, we’re, we’re doing this from the perspective of VCs and thinking about capital [00:03:00] allocation. We, we had a successful exit in the, in the digital therapeutic space.

And I think we’d prefer to have more. Um, but I think our perspective was that the pair, um, you know, outcome was pretty damaging from a capital allocator perspective. So, um, so yeah, so I guess with that, you know, I’ll just let you say, share a little bit about yourself and then let’s just jump in.

Aaron Gani: Yeah.

Well, again, great to see you both. Um, and thanks for the opportunity to talk about digital therapeutics. You’re right. I, I really enjoyed your, uh, your podcast on the topic and you’re, you’re spot on that, you know, the, Uh, the bankruptcy of paratherapeutics given their profile in the space and really being an innovator and absolute pioneer has had, uh, A lot of ripple effects in the space at many levels.

Right. And so I think from a, from an investor perspective, from the perspective of payers, providers, a lot of stakeholders, there’s a lot of [00:04:00] questioning about, well, what does this mean for digital therapeutics? Right. And you know, one thing that, um, I think is useful, like, like many things, it’s, it’s helpful to, to decompose or abstract them into different layers, and, um, I think we could talk a little bit about.

You know, what does the demise of pair tell us about pair, the specific company pair? What does it tell us about the space of digital therapeutics broadly? And as you referenced, and we can talk a little about this, there’ve been some even industry events in just the last week that are, that are worth spending a few minutes on.

And then the other thing I thought was really interesting about your analysis was. It also said something about, um, you know, the, the SPAC craze, right? And those companies that went public through that means, and probably a lot of whom shouldn’t have. And we can talk about that as well. Yeah.

Vic: Yeah, certainly.

So, but just for the audience, I mean, we all know each other, but give your personal background. Cause I think You [00:05:00] came to be an entrepreneur in digital therapeutics up through the industry, and I think it would be good context for people to know your experience in sort of traditional health care. And then I believe that during fellows, you are launching behavior behavior.

Um, and so talk about that, just to sort of set context in your background.

Aaron Gani: Sure. Happy to. So, so I’m a lifelong tech guy and nerd all the way back to childhood and have always loved creating things with technology. I was in financial services for many years for the early part of my career. With big commercial banks and community bank service bureaus and things like that.

I got into healthcare in 2006 when I joined Humana that was associated with a move back home to Kentucky for my wife and I. So if I’m completely candid, it wasn’t that I was desperate to be in healthcare, but I wanted to get back to Kentucky, here’s a great company in the form of Humana. Was fortunate to get in the door there.

And what I found was like many of us in healthcare, you know, it’s it, you get the bug, you know, and you’re just [00:06:00] like, wow, this is great. We’re working on things that are so meaningful to people. And I was at Humana 12 years. I loved my time. There is an amazing company. Got to work with a lot of really brilliant people.

I was in technology and innovation roles. And in my last couple of years was the chief technology officer. What that specifically meant in that company. Was tech advancement. So at the time that we met Vic in the 2016. Uh, fellows program in Nashville, I was doing that CTO technology advancement role at, uh, at Humana.

And, you know, as I said, great company, great gig. The problem was I had wanted my own business pretty much my whole life. And, and as you also know, you both know this part of the fellows experience is us being challenged with, well, what are you doing to improve healthcare? So one thing to talk about it or learn about it, what are you going to do to make this thing better?

So that. Kind of converged with my own, um, unscratched itch around building my own company [00:07:00] and I just took the leap, you know, and I, I spent, uh, quite a bit of time thinking about what problem to tackle at Humana. At the time we were getting increasingly tuned into the notion of just what a big deal mental and behavioral health are not, not just for, uh, what we spend on those.

Conditions individually and the impact of those conditions. But when you think of them as the meta comorbidity and how they intersect with all of chronic disease, which is where we spend what 85 percent or so of our four plus trillion dollars a year, the pain and suffering is huge. The value at risk or at stake is huge.

And, um, we don’t have anywhere near the human capacity that we need. to tackle the scale of the challenge. And so being a tech guy, for me, it seemed fairly natural. Like, well, well, there’s this emerging area called digital therapeutics. If we digitize treatment and take evidence based treatment, bake it into something that is digital and that can naturally [00:08:00] scale in the way that only digital can, then we have a shot at scaling up to meet the demand and attacking the challenge.

85 percent of a 4 trillion problem. So I couldn’t think of a more motivating higher value opportunity. And then the last thing I’ll say is, like many of us, far too many of us, I have personally experienced in my immediate family and extended family, the impact of these conditions and how devastating it can be.

So. All those things lined up for me, and I just took the plunge and founded behavior and off we go.

Vic: Yeah. Yeah. I, I, I agree completely that I don’t think it’s possible to really, truly address chronic disease at, at the industry level without also addressing behavioral health. And there just simply aren’t enough humans.

There aren’t enough human caregivers at any licensure level for the, for the patient need. And so eventually we have to find a way to bring it to the digital world. And so you’re exactly right. So talk about your company, because I do want to get into a pair and the whole [00:09:00] industry, but I think it. It’s, um, it’s worth it to spend a minute on, on your company.

And we have it on the, on the, um, on the slide here, immerse experience, transform one of many images we could have pulled off your website, but it’s really, um, I mean, I have tested it out. I’ve put it, put it on and, uh, experienced it, but give the audience a sense for like what it is.

Aaron Gani: So broadly speaking, then we’re working on digitizing evidence based therapies, so creating digital therapeutics to use the industry phrase, um, focused on mental and behavioral health.

And then within that context, we chose to work in the medium of virtual reality. And I did that for two reasons. One is we think that VR, and even in 2016, when I founded the company, there was about 15 years of research at that time. So now over 20 years of research demonstrating the unique and differential power of this medium [00:10:00] versus other 2D flat digital experiences.

So when used in certain ways, and you really should not do everything in VR, at least not yet, maybe someday with Apple’s vision and we’ll get to special computing. But for now, it’s a lot more complicated and expensive and the design is more challenging. So you should do things in VR that really matter when they’re done in VR.

One really cool thing about, or two, two things you can do in VR much more powerfully than any 2D medium is. Address fear and pain. So the fear aspect, think of that as exposure therapy. So I can put you in this multi sensory simulation that your brain only has one way to process, which is this what’s happening to me right now.

Everything we do on a 2D screen, whether it’s your smartphone all the way up to an IMAX theater, you Your brain processes that as it’s not happening to me. I’m looking at it. I mean, I may be engaging with it. It might be funny or scary or exciting or whatever, but it’s not me. It’s just on that screen with VR.

It’s completely different. We’re replacing your sensory [00:11:00] input streams, primarily visual and auditory. You can do more with haptics and olfaction and other things, but mostly it’s visual and auditory and Your brain only has one way to process that, which is this is my current experience. This is happening to me, uh, using that, um, uh, characteristic of the medium, we can put you in the presence of a thing that is threatening or traumatic or stressful for you.

So that is digitizing exposure therapy. And then through that process, uh, help you work through it with a thing called inhibitory learning as part of cognitive behavioral therapy, very powerfully and in a very scalable graded and personalized way. digitize exposure therapy. So that’s the fear side. On the pain side, which is the other thing VR does really, really well in a nutshell, I’ll say VR has been proven very effective for distracting you from acute pain in the moment, but also we do pain education.

We do mindfulness and calming, which you can think of as a flip side of exposure therapy, and then most [00:12:00] powerfully graded exercise and movement. So we can get you in this immersive spatial experience. Gamify and motivate your movement in a way that is graded and gets more and more advanced over time So you can also think of that as like exposure to your fear of movement getting over your fear of movement And there are studies that show there’s reduced Negative sensation while you’re in vr longer time to exhaustion and so on so that was a bit long winded Sorry, but that’s what we’re doing in vr is fear and pain Which are incredibly useful to address a range of conditions in mental and behavioral health from anxiety to depression to chronic pain You up through SMI, agoraphobic avoidance, other things.

So that’s what we do.

Vic: Yeah. And I think it’s a perfect example of where VR is actually more effective. Because you can grade it exactly and measure it, and it’s, it’s a course very safe, you can always take, take the goggles off, and if it gets overwhelming, the [00:13:00] patient can, can come back. But it’s, it’s much more controlled and measurable.

You can have an exact program that you work people through. Where in the real world, that’s difficult to do, uh, at that lane, at that sort of, uh, fidelity.

Aaron Gani: Yeah, and and that that characteristic of digital of VR that you described is also true, broadly speaking, in digital therapeutics, which is the safety profile of these interventions is very, very high, very safe, right?

So it’s nothing like the kind of side effect or safety profiles of drugs. Medical devices, implantables, things like that. So you have something where it’s not going to work for every single person, just like no drug works for every single person, but you have powerful effects, which are clinically demonstrated and proven.

With very little safety risk or downside. You still have to prove it, but having proven it, you know, we find that the safety profiles are great.

Marcus: So Aaron, one of the things that, that Vic and I sort of stumbled upon as we were [00:14:00] trying to do a bit of, uh, you know, uh, layman’s autopsy of the, of the Paris situation is the nuances in the language coming out of the FDA.

Maybe you can speak a little bit about this. Cause I don’t think we, we came to it with any level of authority, but we did seem to. Note that there were many, many instances of the FDA clearing usage of digital therapeutic, uh, digital therapeutics. However, not necessarily approving them. Uh, was, was that just us reading PR speak, or is there any definitive difference in those two terms from an FDA perspective as it relates to digital therapeutics?

Aaron Gani: Yeah, that’s a great question. There, there is a difference. And so it’s all based on risk profiles and standards that the FDA defines. So think of three classes of devices that they regulate. And by the way, they chose to regulate these software based digital therapeutics. As a [00:15:00] form of medical device, so the phrase is software as a medical device, and so there’s class one, which is sort of low risk class two, which is a higher risk profile.

And there’s as everything with the FDA. There are very specific definitions, but broadly, you can think of it as this is impacting something that is is material in terms of health and well being. If it’s done incorrectly, it could cause harm, but it’s generally not putting like life and limb at risk. If you’re getting to that level, that’s level three.

So if you created a medical device that goes inside the body or something we ingest, now you’re up in class three because you get that wrong, you could kill somebody, right? Or, or, or, you know, really injure them. The class one, two, three language FDA will review and either Basically, class one, you just need to register with the FDA.

So you’ll see things that are FDA registered. Class two, they will clear. Class three, they will approve. So it’s not that if you have [00:16:00] something that’s Intended to be a class two device in our case, a software as medical device, class two, Sam D the best it would get from the FDA as a clearance, because what the FDA does on class two step is clear it, not approve it.

So it should not be read as, as, as like not approved. It’s clear. It’s clear. Yeah. Got it.

Vic: And then how does that translate to CMS reimbursing it? Is there any translation? I think it’s, uh, traditionally there’s been a, there’s been a. Distinction there, but maybe that’s needs to change or maybe it is changing.

Aaron Gani: So the, the FDA, um, so let me, let me take a slight detour for a second. So we’re a member of an industry trade group called the digital therapeutics alliance, and DTA was formed back probably 2015 or 16 timeline, um, really led in no small part by paratherapeutics, which is the real industry leader and innovator.

Achille is another early and, [00:17:00] and significant leader in the space. And now there’s, I think, 130 or so companies, including, by the way, big global pharma companies that are members of DTA. So DTA has been helping define what is this space specifically, where to digital therapeutics fit within a larger digital health landscape.

And so, um, as part of that advocacy work generally. It’s, it’s understood that like everything in healthcare, it doesn’t matter how effective it is. If you can’t come up with a business model and get it paid for, you’re not going to reach people who need it. So we’ve been working on how do we get these things paid for, which is a topic in its own right that we should get to in a minute.

Within that, there was a lot of people in the digital therapeutic space came from pharma, pharma, you know, they, they know how to put really high quality, rigorous clinical studies together. They understand regulatory pathways and so on that did come with certain. Assumptions that were sort of built in, which is most people in digital therapeutics tend to subscribe to [00:18:00] this model that because these things are like digital medicine, they’ll be paid for like drugs, right?

So you can, you can see people making this leap saying, well, it’s, it’s, it’s like a drug, but it just happens to be digital. We should pursue a pathway where, uh, it’s like on formulary and there’s an agreed upon price. I file a claim and I get paid. It’s logical enough. Okay. It’s not necessarily how payers see the world, but we should come back to that.

It’s logical. All right. So in that advocacy work, part of the part of the challenge then is to get Medicare and Medicaid to pay for it because commercial payers, as you guys well know, tend to follow up Medicare and Medicaid do. They’re not forced to, but it trickles down, right? They sort of set the standards.

Medicare and Medicaid. don’t have the statutory authority to create new benefit categories. So there, in the law, the Social Security Act, it’s defined what kinds of things Medicare and Medicaid can pay for. And it’s things like physician [00:19:00] services, drugs, devices, facility charges, uh, durable medical equipment, and I may be leaving something out.

There is not a category for a purely digital therapy. When, when, when the social security act was written and in all the prior updates, that was never envisioned. So there is no category for a purely digital therapy. The FDA regulates what can be cleared and under like, what, what are the guidelines, the, how do you assess risk?

How do you decide if it’s level one or excuse me, class one, class two, class three. Based on safety and risk profile, FDA decides if you have presented enough evidence to convince them that your product is effective and safe, and at least as good as other options, you can’t be inferior to other options.

What they don’t decide is what gets paid for. That’s a CMS question. And so when we would address this with FDA and CMS, [00:20:00] CMS basically said, we would typically not pay for things that are not reviewed and cleared or approved by the FDA. That makes sense, right? They’re not going to pay for snake oil. So they want it to be FDA cleared or approved.

But that doesn’t give them the fact that the FDA cleared my product doesn’t mean that they get to pay for it. What CMS needs is Congress to act to say we recognize this new category and you may pay for it. So there is a specific bill, uh, on the Hill right now. It’s in its second, generation or submission.

It was submitted last year and last year’s Congress. It didn’t make the cut. It’s been reintroduced. It’s bipartisan support, bicameral support. It’s called the Access to Prescription Digital Therapeutics Act. And it lays out that if you have an FDA cleared or approved digital therapeutic, the FDA would be permitted to at least consider paying for it.

Doesn’t mean they have to pay for it. Like all payers, they can still evaluate and say, I’m going to pay for your thing and not your [00:21:00] thing based on value. But they need that congressional, uh, action to allow them to pay for it.

Vic: So, so let me rephrase just to make sure I’m following that. The FDA made a decision, um, like administratively that they would, they would look at these software as devices, And then consider similar to other medical devices that are much more hardware, but of course, there’s software in them too.

They categorized it like that and they have been clearing or not clearing, um, digital therapies, therapeutics. CMS has taken a different tact where they have said this is not defined. And either they don’t feel like they should, or they haven’t chosen to put it into the device category or drug category.

Is that, is that the right, is that what you’re saying?

Aaron Gani: That’s, that’s really, really close. So, so I, if I try to simplify even further, it’s like this. Uh, if, if the three of us [00:22:00] created a new drug, we think is going to be fantastic and helpful. The FDA would review our drug and decide if it’s safe and effective.

Payers would decide what they’re going to pay for it, but it’s already been established, like CMS is already permitted to pay for drugs. So they’d say you have this new drug. The FDA approved it. I’ll pay for it. If I think there’s value. And as you guys know, in, in, in the payer universe, they’re starting to be more pressure on luck.

We can’t pay so much for everything. We need to start talking about value, right? Even in pharma, there’s pushing for value, right? So think CMS is the payer. FDA is the regulator on. Is it safe and effective? So it’s not that, um, You know? Yeah. I don’t wanna repeat myself all the stuff I said earlier, but, well, what I’m stuck,

Vic: and it seems like, I mean, when FDA was created, there were not digital therapies either, but they made the decision to, to step in and take a view on these things.

Yeah. But the d CMS saying, we’re not gonna, yeah. But the

Marcus: F fda, I [00:23:00] mean, I. It’s the food and drug administration. I mean, it’s got a broader remit than, than CMS, but by definition. So I think, I think it’s, it’s, it’s possible that this just falls into their, their remit as an agency, whereas CMS has a much tighter band that’s, that’s like built into the social security act.

And I think we, We oftentimes just sort of think of them as left hand, right hand, you know, agencies from a health care perspective feels like FDA has just got a broader remit to sort of, you know,

Vic: yeah, maybe they also kind of contorting themselves. I mean, they’re calling this a software used as a device, which is.

I think, you know, fine because I want them to look into things, but it would be better if they said this is a new category of software. So CMS could, I don’t know, they made a different choice.

Aaron Gani: Yeah, I, I, I like where you’re going there, Vic. But so, so FDA, this was back during when Scott Gottlieb was the [00:24:00] commissioner, by the way, I think he had a real influence on this.

They did a nice job of trying to get ahead of, hey, digital is going to be important. We should regulate it. We should put some rules down on risk classification. And how would we decide safety and efficacy, which is their remit, right? To Marcus’s point, they chose, and I don’t know the backstory on this candidly, but they chose to regulate it within CDRH, the center for devices and radiological health.

Which is a different, let’s say, swim lane within the FDA from where they regulate drugs. They thought it was more like devices than it was like drugs. And, uh, but it’s unlike devices, there’s no physical thing, right? So it’s just software. And, um, but you’re right. They, they chose to go ahead and plow that ground and say the world needs these frameworks.

Uh, not, not insignificantly. There, there are. Medical device regulation frameworks around the world and a lot of harmonization of those happening as well. So there’s a, I will not [00:25:00] remember the acronym on the fly. I M D R F. I think international medical device regulatory framework there. I did it. Yeah. So we’re different countries around the world are saying, Hey, this is a thing we all need to get ahead of and their local regulatory bodies.

Are, are trying to harmonize so that manufacturers like us don’t have 15 different ways to get these things cleared around the world.

Marcus: Okay. Let’s I don’t want to go too deep down the rabbit hole, although I think Vic, I have a slightly different view on this than you. I think, I think regulatory bodies.

This kind of goes back to the Emily Evans conversation about the Chevron deference doctrine. Right? I think regulatory bodies are swelling their assumed authority because there’s nothing to really challenge it. And so they’re just saying our remit is as broad as we can kind of argue that it is. Um, you know, we see that a bit in the SEC and the CFTC around crypto and things of that nature.

Um, so I, my sense is the FDA is just sort of saying, if not us, who?

Vic: Yeah. Well, I like that. Right. Yeah. I mean, I think CMS should, but they’re not the

Marcus: [00:26:00] same type of regulatory body. I think is the main point. They’re a payer, right? They’re, they’re sort of a budget management organization. And so I just, I just think, I think the point Aaron is trying to make is until we get Congress to pass an act, we’re not going to be able to get reimbursement because they’re just simply not going to assert authority.

Yeah, whether I want them to or not, CMS

Vic: is not going to.

Aaron Gani: CMS concluded, I guess their, their attorneys, let’s say, concluded that they just didn’t have the freedom to do it. Right. And they said, what we actually need you guys to do is go to Congress. Right.

Vic: Okay. Um, now maybe let’s shift to your take on pair.

Cause you seem like you had some interesting

Marcus: and, and, and when we talk about pair, like, can we also, cause to me, I want to kind of separate, I got a bunch of feedback saying, you know, um, I think people felt, felt bad for the founder. Um, I think, you know, people felt that pair did a lot of things that were very, very helpful and important in the movement for [00:27:00] digital therapeutics.

I think I’d like to talk a little bit. Specifically around the investment path and the, and the, and the resulting SPAC, um, because I think there’s an entire, I think there’s two different things here, right? There’s like, what was the ethos of the company? What were they trying to do? You know, the leadership position they held amongst other digital therapeutic companies, and then this investment path that led to a SPAC that sort of, I think ultimately led to the demise of the company.

So maybe you can, you can draw a line between the two things a little bit.

Aaron Gani: Sure, I’ll give it a shot. And just one more thing on sort of this reimbursement question, guys, if we think of it as a business model question, right, just to put a bow on that, I happen to believe, and it’s a crystal ball, so it’s cloudy like everyone’s, I think ultimately we will get to a place where Congress authorizes CMS to pay for digital therapeutics, but I don’t know when.

Is it two years from now, three years from now or five? I don’t know. In the meantime, we need a business model for digital therapeutics. We know [00:28:00] that they can scale like only digital can. They can close that gap, which is so desperately needed and they can change the economics of care. Cause when you stop, when you start swapping out humans for digital, I mean, that’s when digital really transforms industries, right?

And there’s a huge value creation opportunity there to scale exponentially like humans cannot while marginal costs will go down, down, down, uh, in the way only digital can drive. So that’s. We think there’s a huge business business model opportunity if we align with value based care hair i think the general consensus in the industry as they were a great pioneer in the space they did a lot of good they showed a lot of companies ours included a path forward they worked closely with the FDA on some of these regulatory frameworks and different pilot models of.

Of how to look at change control frameworks and things like that. But as you guys know, cause you got a whole bunch of companies in your portfolio, every company is, is unique in its own way, right? Like, you know, strategy, how much did they [00:29:00] raise as a result? How did they build the structure of their organization?

What kinds of things did they pursue? What were their ambitions? You know, there’s, there’s a thousand or 10, 000 decisions that Corey and his team had to make. And so I won’t second guess those. I will simply say they were fortunate and they raised a lot of capital. Of course, when you raise capital, you got to deploy that capital.

So they had a cost structure that was pretty significant. And the, the irony is they were getting some payer deals done, not CMS, by the way, but, but where, where Medicaid had like local, um, uh, freedom to operate with, with things like opioid settlement funds and different sort of diverse buckets, they had some payer deals in place.

They were growing, they just weren’t growing fast enough. And then, you know, better than me, what happened in the capital markets and they ran out of runway. Um, so I wouldn’t, I wouldn’t question that. I think it’s a shame for them, but they did a lot of good in the industry. Uh, I do, I will say this, uh, not specific to [00:30:00] Pair, and, and, Where I think you guys made some great points about SPACs is like, is, is a company with um, that kind of a profile, with that level of early stage sort of uncertainty, lack of clarity around revenue, you know, quarterly, an ability to hit quarterly revenue targets and scale them predictably and so on.

Is that really a company that ought to be going public? That’s a really interesting question, right? And, uh, I wouldn’t want to be public right now. I’ll tell you that. I think we like raising capital, but not that way.

Vic: Is there a reason for SPACs? We have an underwriting process to take a company public through the IPO process.

The SPAC process was a shortcut to that. And I think there’s, there’s a reason the shortcuts maybe aren’t the best thing. It gets liquidity to people. But then you end up with a whole bunch of small shareholders that maybe they don’t even know the exact thing they’re buying. And it’s [00:31:00] not, it’s just not the same profile company as other companies that before they go public there, they, they have a different operating structure, different management team, different, different everything.

Aaron Gani: Yeah. I, I think, you know, the, the points you made about, was it good for the investors? It was good for the early investors. Wasn’t it? Yeah. It was, it was a good for the little guy that came in later after they were public. Well, I think pretty unequivocally, no, it was

Marcus: not good for them. Yeah. And then, and then I think maybe just the final point is, um, You know, we respect the work that you’re doing actually, when, when you lay out what you’re going after, you know, pain and fear, those seem like very logical places to, to be focusing with the kind of solution that you’re developing.

Right. Um, I think, as you know, we, we had a success in the digital therapeutic [00:32:00] space company called Ambly attack. Right. So. We’re, you know, we’re definitely pro innovation, pro digital and pro finding ways to lower the cost of delivering more care to more people. You know, there’s no question about that. I think for us, especially in a market, especially in these capital markets that I think are going to be durably difficult.

Um, it’s, it’s really frustrating when a couple of actors. Doing a financial arbitrage play, because there was a loophole in the system, actually create a lot of negative energy around an entire space of innovation, right? Especially one that hasn’t yet figured out its fundamentals in terms of business models and things of that nature.

Right? So that’s, that’s a, that’s a fundamental, uh, problem. And, and, and I do think we have to call out those, I think I think we have to call out those actors, you know, at the, at the end of the day. I think we do. And I recognize your position in this. You know, you’re very connected in the space. You’re, you know, you’re part of the [00:33:00] digital therapeutics Alliance, as you said.

So I’m not going to ask you to say anything, but I, but I think from our perspective, um, there’s a whole lot of companies out there that we are going to have to be more harsh in our underwriting against, not necessarily for our own belief, but just like, what is the macro environment going to think about them?

How hard is it going to be to syndicate other investment and things of that nature, rel relative to this Paris situation, you know, um, and that’s, and That sucks. I mean, there’s no other way to say it. It’s like, that is, that’s really unfortunate.

Vic: Yeah, they were, they were a role model for the entire industry.

And there were a lot of great things about that. Like you said, they helped, they helped teach the FDA how to process this stuff. Uh, but, but then that role model made some maybe poor choices and then eventually went bankrupt. And so that, that has negative effects too. So I guess I cut you off there. Will you get a comment and then also extend it to as an entrepreneur in this space, and we have a lot of audience members [00:34:00] that are entrepreneurs or investors in this space.

How do you think about the path forward from here? I mean, lobbying and the Alliance is certainly a piece you, you hinted at value based care, which maybe is a pathway. Uh, so how do you think we go forward from here?

Aaron Gani: Yeah, well, I think first of all you I agree with you guys like it is it is a shame And yet it is a reality That you know what happened with pear has a lot of you know It’s a big blast radius, right?

Like a lot of a lot of people are Conflating many things. I heard even at the summit, the digital therapeutics line summit last week in D. C. Uh, senior medicaid director. I won’t name him or the state who said, you know, given what happened with pair, we felt pretty burned. I don’t see us being a funder of any digital therapeutics in the near term.

Which is, which is a candidly, I think an odd thing to say, it’s a shame that pair didn’t work out and they felt like they [00:35:00] spent time and energy structuring deals that are now defunct, but that’s a different thing from did they or other digital therapeutics companies have a therapy that is safe, effective, can improve the health of his member and save him money.

Like that’s two different things. And, and yet I agree with you. You’re right. Like people will say, Oh yeah, I don’t know. It seems like a big, messy space. Right. So I think it’s important. And that’s why I appreciate you guys giving me this opportunity to help tease apart some of these layers. I think to your question, Vic, of how do we go forward, both in my company and in the space, generally, you have to be grounded in, do you fundamentally believe you’re doing something that has value and a lot of potential value, right?

So do we think Digitizing therapy so that it can scale almost without limits, reach millions of people who have no other options and save payers and taxpayers money, is that a value creation opportunity? [00:36:00] Absolutely. It’s a big one. That’s, that’s the thing that gets us up every morning. Like, wow, when we transform care and we digitize a lot more of care, a lot of what we’ve done with, with technology or digital and healthcare is sort of wrapping around the way care is delivered.

It’s, it’s analytics and it’s portals and telehealth and, but the care is still delivered by humans or by a drug, right. Or a device, let’s say we’d now for the first time ever, we can actually digitize the therapy. And then these other dynamics come into play, right? The exponential scalability and the economic shift.

That’s a huge value creation opportunity and an opportunity to touch literally millions of lives. So that’s true north. That’s what we have to go after. And. And then we must be clear eyed about and we need a business model now, because I don’t think we’re going back to free money and gushing capital markets anytime soon.

It’s going to be tougher for some digital therapeutics companies than others. There are some, I’m not going to name [00:37:00] any, that are solving. Interesting or challenging clinical problems, but when you look at it, there’s no payer or sponsor that has like a strong economic interest in solving that problem.

Those companies are gonna have a really tough time. But if you’re aligned with something that payers want to buy, which is they’re looking for people who can target their high cost populations, With significant needs, improve their health and save them money. Now they’re interested. And so we’re getting smarter.

I’ve been slower than I should have been at figuring out how to package our digital therapeutics core in that kind of a value prop, because that’s, that’s when payers are, they’re happy to talk to you.

Vic: Yeah, it’s interesting. So, I mean, there’s a theme for the show that, uh, I’m relearning continuously that the entrepreneur really needs to build their product sort of in partnership with the, the system, the existing system, payers in your case, what should they want help with, what, what patient populations they need help with.

And then that, [00:38:00] that gives you a sign of where you can build a viable business model.

Aaron Gani: Yeah, that’s exactly right. I’m, I, I set out to make every mistake that entrepreneurs can make. I think I’m at 90 percent now, something like that. More than I can count, you know, smart people say all the time, don’t start out with your solution, looking for a problem, right?

It should be the other way around. I ignored that advice. I just had a vision about what we could do with, with VR and digital therapeutics. But ultimately, um, to get where we’re trying to go, you’ve got to come back around to like, Hey, I can solve your problem. And, uh, and I think there’s a big opportunity for, for DTX companies to do that.

Marcus: Awesome. Well, Aaron, listen, uh, you’re, you’re a good man. You’re a good friend. Thank you for, uh, spending some time with us. And also, you know, you’re the, you’re a great, I think, spokesperson for the industry. Hopefully they will continue to elevate you and, and, uh, you know, have you speaking out more. Um, and also you’re exactly the kind of entrepreneur that we, You know, love [00:39:00] who’s dogged will fight through all these kind of really tough turns that the industry gives them and also is very, very well, um, well aware of the reality of the healthcare industry.

So, uh, thank you for coming on. And hopefully, you know, you’ll come back when there’s some meaningful development after

Vic: you sign a bill in Congress. That’s right. Or bill signing,

Marcus: or you, you figure out one of these big value based contract deals, um, you know, cause maybe you can lay the

Aaron Gani: blueprint for that.

I like that even better. I mean, I appreciate the invitation guys very much. And I, without generalizing too much, which is unfair to a lot of people, I do sometimes think, you know, the business model that we DTX companies need is a business model that looks and feels like something Nashville and let’s say Louisville, Kentucky, no, really, really well.

And it’s less like what. Boston sort of biotech biopharma or Silicon Valley is used to. Um, and if that offends people on the coast, I apologize, but it’s the combination of those things, right? Sort of the biotech meets [00:40:00] Silicon Valley wrapped in a Nashville business model that we think can crack this thing.

Marcus: Certainly. Certainly aligns with our themes here on health further. All right. Thanks so much, Aaron. All right, we’re back. Vic, what did you think about that conversation with, uh, with Aaron?

Vic: I like to see the, I mean, I love entrepreneurs. That’s why I’m a VC. He is trying to build something great. And I think he’s very clear eyed about the challenges.

And despite that pushing through and climbing mountains as they get put in front of them and I’m, I’m a cheerleader for him. I, I, I still continue to think as we talked about with him, there’s a, it’s a long road he’s exactly right to think about. Designing digital therapies for the paying customer, you know, the insurance company, the payer, and that’s, that’s the path that [00:41:00] can work.

It’s also hard, but I think Aaron has a good start with anyone.

Marcus: Yeah. I mean, you know, I think the thing that I was just reminded, cause I hadn’t talked to Aaron in a while, um, was just, you know, what a good guy he is. And, um, it just kind of makes me even more. Upset to think about what really happened in 2021 with all the big money that came into the space that didn’t care about what we’re trying to do here in early stage venture.

You know what I mean? Working with entrepreneurs like that, like, you know, as investors, we have to be shoulder to shoulder with them. We’re not working with a lot to actually and a lot of that’s. On purpose, like we’re not trying to throw a bunch of money at a problem that isn’t fully baked, right? And um, it’s just really frustrating that Uh a bunch of money got thrown at this thing and then it’s backed and now it’s flamed out and literally no fault of his Own his own path is now so much harder, right?

That’s everyone’s path is harder That’s the part that’s just [00:42:00] infuriating about it quite frankly.

Vic: Yeah, I mean obviously i’m we both are biased because we have small funds Too much money too quickly It’s hard to build a business that way. And then the investors want an exit course and pair got us back exit.

But, but that was okay for the early investors, but not good for the overall, not

Marcus: good for the industry. Right? No, not good at all. Okay. With that talking about, uh, Small early stage funds. Uh, let’s take a minute to go to our ad for jumpstart foundry.

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Thank you guys. Now back to the show.

Marcus: All right, we’re back. So we’re going to kind of run through. A series of things that are not necessarily new. We’ve been talking about them over the last few weeks, but obviously this was a big week in the world of finance as we had both the CPI print and also the fed had their FOMC meeting in Jackson hole.

So we’re going to cover that for sure. But, um, we did have this, this tweet, uh, from Alison Barr Allen that, that we, we talked about, and I wanted to put it on screen here and also just have a little conversation about the capitulation of, of the late stage venture markets.

Vic: Yeah. And I was at dinner last night with someone who [00:45:00] listens to the show.

Well, he walks his dog. Okay. And, uh, so we might need to just sort of read it or, or touch on it. So Alison Barr is describing how difficult the late stage VC market is right now. And she starts off with two great examples. Insight Partners, New York based, very successful firm set out to raise 20 billion for their new fund.

And they got to two and then Technology Crossover Ventures, another really big fund, uh, raised 1. 4. Of their 4 billion goal.

Marcus: These are funds that you would expect to oversubscribe.

Vic: Historically, they, they would oversubscribe. Yeah. These are old, very successful, have delivered great returns. Great brands, great brands, great brands.

And I think her, her point is that the, the entire growth stage, late stage growth stage of venture has shifted and there’s much less capital [00:46:00] that institutional investors, the LPs are willing to deploy. And then she goes on the next tweet. So the follow up to that is that Tiger and SoftBank are not doing this investment anymore.

They’ve pulled back. They were the two biggest investors in 21 that, you know, contributed to things like pair and lots of, lots of the bubbling stuff. And so, um, that is probably healthy and what needs to happen. And yet she falls up with what should founders do today. And at this point, um, you really have to be viable.

You have to be able to make enough money to pay your employees and deliver your service. after you get through the seed round. That’s what she puts in her tweet. Founders should not depend on new rounds and should always have backup plans to be cashflow positive. That is, I think, right. And it’s also very [00:47:00] hard to do if you are a company that has raised four rounds of capital.

Design your business a certain way. And now the VCs decide they’re changing, but I think it’s true.

Marcus: I’m telling my portfolio this every single day. They’re so tired of me saying it that like, you need to be able to get to cashflow. Positive. You don’t have to stay there. But you’ve got to be able to get there.

You got to be able to get there. I’m sorry. I just, I don’t think any of us fully know. I mean, we’re, we’re about to shift from this to talk about, you know, CPI and the Fed and, and how I think we both agree what the Fed’s action and signal this week is like, not a good thing. Right. Right. Um, this is the status quo today.

Right. And

Vic: it’s getting,

Marcus: it’s going to get worse. It’s going to get worse. It’s going to get worse. And so Yeah. I mean, gosh, I just don’t, I feel like we just say this all over and over again, no one

Vic: wants [00:48:00] to let go of people. That’s what it really is. No one wants to let go of people that have done really good work and can add value to the team and yet they have to get to cashflow positive.

And so it’s a survival thing. If you don’t survive this winter, that’s coming half of the companies that have been funded in the past few years are going to. Fail and shut down and everyone will be get let go. So the question really is, can you cut enough to make it through this winter? And have your vision survive and then prosper when, when the sun comes out again.

And that involves really hard, difficult decisions. People that are great people might have to be let go. And that’s the job of being a CEO founder.

Marcus: I mean, founders are still talking about growth. I know, but that’s, that’s foolish. It’s just, it’s, it’s so hard. Uh, Lex Friedman [00:49:00] actually, Interviewed Mark Zuckerberg, and I thought it’s incredible interview is a great interview, and I think among the many things that were powerful in there was when Lex asked Mark to say something nice about Elon Musk, and the first thing he said was he showed everyone in the valley.

You can do a lot with a lot less than you currently have. Yeah, right. And just this whole idea that Everyone just got sluggish and unfit during the pandemic and needs to basically get fit.

Vic: Yeah. And I think Mark, Mark did it. It was a great interview, really long, but one of the sections that I really liked is when Facebook was growing, they intentionally designed it, you know, a normal manager can manage six, eight, 10 people, but they designed it.

With three to four on average, because they were hiring so many people, right? And now that they’re not in that growth anymore, they, they need to increase the number of people that each manager [00:50:00] manages, and that’s a core like, uh, architectural shift in how they organize their business. And it would result in a lot of mid level managers not being needed.

Marcus: I loved his articulation of why layoffs are so hard, right? Because, and I think this, this is, this is why it’s so hard for founders to wrap their head around what we’re saying, right? Because layoffs are not a result of, um, the performance of the affected employee or even necessarily the performance of the company.

Right. Right. There, there are, there are larger economic factor, um, that drives this thing that’s happening. That’s how, that

Vic: what makes it a layoff.

Marcus: Yeah. Yeah. But, but it’s, but when, when you, when you pull it apart, when you pull apart the psychology of why it’s so hard, I think for people who have, you know, founders, I think are often people of strong values.

Right. And a layoff. And loyal. A lot of them are really loyal. And very loyal. And a [00:51:00] layoff is kind of like an anti value thing. You know, if, if you can’t think about the larger implication of the company’s survival being paramount to all other things, right? In order to achieve the vision and the mission of the Yeah, I mean, I think in analogies, I

Vic: think it’s like amputating your leg because otherwise you’re going to die.

And those employees have done good work. They’ve done nothing wrong. They fit with the values of the company. Nothing they did is causing this. It’s either a macroeconomic thing, or maybe it’s an industry thing. And unfortunately, the strong management teams have to understand that and the ones that aren’t strong, the whole ship goes down.

Marcus: Yeah, it’s, it’s tough. Okay. So we had a CPI point this week. Um, Vic, I love this chart that you pulled up, which is, uh, you amended it. This is this. So this is for the Wall Street Journal, right? [00:52:00] Okay.

Vic: And. I like it because it’s a month to month change in the core CPI and the overall CPI.

Marcus: Yeah, so first of all, we should say, CPI went up, what, 0.

1%? Yeah. Yes, yes, it

Vic: grew 0.

Marcus: 1%.

Vic: That’s right. And I think the Fed looks at core CPI on a month to month change. And this is the chart of that. And then I added in the blue line, Which is their target rate. And I was listening to Chairman Powell yesterday in his press conference. He, he must have said three or four times how damaging inflation is to everyday workers, um, and it just struck me that he’s very focused on getting the inflation down to that 2%.

And so I saw this chart in the Wall Street Journal. And [00:53:00] the blue, I added the blue line because it, it, it seems like we’re pretty stable, except we’re stable at the wrong. So for people that are walking their dog, it’s, um, you know, it’s month to month. So there’s lots of noise. It goes back to 2020. But the past, uh, eight, nine, 10 quarters, it’s been way over, way over, way over the 2 percent

Marcus: analyze rate, obviously, because it’s, it’s north of 5 percent right now, right?

The core is north of 5%. So you have 3 percent of a Delta. Yeah. And it’s not moving. It’s not, it’s flat. It’s not moving. So anyway, um, I think just because it was going to be so incredibly unpopular, unpopular to do it again, right? They did not do a rate hike. Um, however, they did say to expect more rate hikes before the end of the year.

I think they signaled calling it a hawkish

Vic: pause, which is kind of a weird, I never heard that term. Whatever. I mean, I think, I think they’re terrible at, I mean, show the next one. So this [00:54:00] is the annualized rate and I mean, core is running at over 5%.

Marcus: Yeah. 5. 3%. It’s too much. Yep. It’s, it’s definitely too much.

Um, and, and I think what’s so difficult is you can see the overall, Is decreasing pretty aggressively. Yeah. Right. So clearly the interest rates are affecting some aspect of inflation.

Vic: Yeah. Right. And so I think energy is one of the earlier. Indicators of the overall economy, and it’s coming down dramatically, but other things have not have not followed yet.

So, I mean, I think it’s been fairly, I think the Fed has been fairly clear that they’re going to keep rates much higher for much longer. Then we as venture capitalists or really most people would like wall street, wall street. And I think they’re going to keep going until either the core rate comes down pretty close [00:55:00] to two.

Which feels like a long way from long way from here, or something goes really, something breaks, something just is not functional.

Marcus: Yeah. And the

Vic: stock market going down is not breaking. And

Marcus: I think now that we’re like several months away from SVB, it’s pretty clear, nothing has broken yet. Right. You know what I mean?

Like now that we’re away from that panic moment, it’s like, it’s almost like a blip, it’s almost like nothing happened. I mean, you know, all of those bank accounts were opened by JP Morgan, right? People are still banking. No dollars were lost. There. Um, well, nothing mean nothing

Vic: has broken yet, yet

Marcus: to me is the key word.

Well, that’s my point, is the fact that nothing is broken means we have yet to see the bad times. Right. We’re not in the bad times. We’re just, we’re, we’re just, I’m talking about for VCs, right? There’s a third of the deals getting done. There’s capital calls being pulled. There’s, uh, you know, companies capitulating.

There’s companies getting leads and can’t find, you know, they get a seven 50 lead. They can’t get the final two 50. The [00:56:00] lead doesn’t follow through companies out of business. So in the VC space, we’re seeing all sorts of turbulence, bad things. And we’re not even at the breakage yet.

Vic: Yeah. Things

Marcus: haven’t broken

Vic: yet.

They’re going to keep it high and keep raising until much worse things happen. Yeah. And so

Marcus: that’s not good. No, it’s not good. So, uh, also this week, um, big mall, the Westgate mall in San Francisco, uh, turned over to the lender. They just, the mall just said, we’re not paying.

Vic: They just gave the keys to the lender.

Yeah. Literally like we walking away from the entire assets and you know, one level, San Francisco is a train wreck. Hold hold on.

Marcus: Westfield is a really, really high level brand. It’s a, it’s a nice mall. Yeah. Yeah. It’s like, I, I remember my time in San Francisco. You see this mall all the time. This, this is a, there’s a very prominent mall, the location of it.

It’s a, it’s in union square. It’s

Vic: right in the middle of [00:57:00] everything. Yeah. Um, and the reason to bring it up is that. It’s, it’s the first time I’ve seen this size project happen where they just walk away, who knows what the lender is going to do with it, but then they’re not going to operate it. So they’re going to sell it to some distressed person for a really low price that will then feed into the commercial real estate value assessments, you know, the fair market opinions.

And so the reason to bring this up is that. I think perhaps something that could break that would get the feds attention. My portfolio is not going to get their attention. Even a stock market going down won’t get their attention. I think they see that as the kind of the normal market corrections. But many commercial real estate properties not getting refinanced, the owner walking away.

The bank having to figure something out and not able [00:58:00] to, that’s going to seize up the entire banking system, commercial lending market.

Marcus: Yeah. So, so in this week of June of 2023, I think this story is mostly categorized as a San Francisco story, right? Because we’ve been dealing with this narrative for well over a year now.

Of the fall from grace of the great city of San Francisco, right? And so I think San Francisco is going to be how people are going to frame this story but I think you made the point that While this is a san francisco story and it makes sense that a big commercial real estate capitulation would first happen in san francisco That makes sense.

However It’s a commercial real estate story, right? And, um, where will the next big mall owner operator hand over the keys, right? Where will that happen next?

Vic: And it’s not just malls. No, office buildings. Office buildings, yes, yes, yes. It’s going to be other big cities. San [00:59:00] Francisco maybe is the worst, but there’s, there’s a lot of cities with very, Low vacancy rates, high vacancy rates, low, um, occupancy rates.

They’re not getting cashflow from the building and the bank won’t refinance it because it’s not worth. So I have to put money in to get a new debt deal. I think people are going to walk away from buildings.

Marcus: I just, even a personal story yesterday, uh, my wife and I were meeting with our wealth management folks and we were sort of going through all the stuff and we got to talking about our, our HELOC, you know, and, uh, A year ago.

What’s the rate

Vic: now?

Marcus: Uh, you know, it’s, it’s, it’s, it’s North of eight. Yeah. Right. And, and we had a really great rate before, you know, we’ve got great relationship with the, with the bank. And, you know, this, this facility went from, uh, Oh man, go to town with this thing, you know, to like pay that sucker off immediately, like down now.

Okay. We’ve, we’ve got the cash, like, let’s get that thing [01:00:00] handled. Right. And that’s just the change in how the credit markets. You know, are just, it’s just how fast they’re moving a year ago. We were like all good green lights, you know, go ahead and use this thing. And now we’re like, shut it down. It’s, it’s not to be used.

Right. Yeah. So credit

Vic: card balances are at highs that haven’t been seen since the great finance and delinquencies are going

Marcus: up. The

Vic: 30 day delinquency rate is going up and that interest rate for credit cards is over 20, 22 percent big time. Yeah. Big time.

Marcus: Yeah.

Vic: So anyway, um, okay. Then the, um, Do the BTFP.

Okay. So, so this was the, the program. So on the topic of how our bank’s doing, the fed put together a new program, new four letter program to save the day for Silicon Valley bank depositors called BTFP. And so you can, if you’re not walking at all, you can see on the screen, you know, in March, when that happened, it [01:01:00] immediately went out to those banks.

But what I thought was interesting is. It’s still going up. There are banks this week that came to the Fed and needed money. Now that the program exists, they can do that quietly. But the banking problems kind of below the, below the waterline continue to get worse.

Marcus: I think it’s fair to say commercial real estate is the is the big scary thing.

There’s nothing else even remotely close. Right. Um, and we’re, we’re trying to talk about things that will not affect 1, 2, 3, even 10 banks. But what of the 4, 000 banks across America might affect. A thousand of them, right? What might affect a thousand banks and commercial real estate is the thing that would affect a thousand.

I mean, half a trillion dollars has to get

Vic: refinanced this year. And I don’t see how it’s going to get terrible rates. Well, terrible rates, meaning you can’t, you [01:02:00] won’t be able to service the loans, but there’s also the loan to value is not there. Yeah. So you got to put more money down. It’s there’s a lot of buildings that are not

Marcus: terrible rates slash.

Devaluation of the asset. Right. So then

Vic: it’s a, it’s a self feeding loop where then as, as the mall gets given to the, to the bank value goes down more and more, more malls go. And so eventually the fed or the treasury, we talked about this in another show. I don’t know which has the mandate. Neither one really does, but the U S banking system.

Just to figure out something with real estate.

Marcus: Yeah. So, um, scary back half of the year. I would say, you know, based on this week’s print and announcement from the fed and where we stand with CRE and the stuff that’s going on in venture, I mean, I just think

Vic: and the public stock market is You know, holding in there, it’s, it’s a small number of names, but the overall indexes are [01:03:00] still okay.

I, I keep, yeah, I told Wendy, my wife, I was going to sell some stuff. I was really worried at Christmas. And it just keeps, keeps going up, but I don’t know why.

Marcus: All right. Final thing, uh, an actual healthcare thing. Um, so Goldman Sachs had a healthcare conference this week and, um, United health group was there and basically signaled that volume is up, which is interesting because we had a whole, uh, session talking about price and how the volume hadn’t hit yet, but as we all know, you, HG has, you know, You know, in many cases, more data than almost everybody.

And so they’re able to signal things, uh, that maybe everybody else doesn’t quite know yet. Um, so they signal that the volume is up and that obviously means that, uh, the payers are going to be impacted by that. The costs are going to go up, that’s less money for the payers. Um, so there was a sort of stock hit across the space for managed care organizations that are publicly traded.

Vic: Yeah. And they, they literally [01:04:00] said that. pent up demand from the pandemic, more patients are coming back with higher acuity, they’re more costly and they expect to continue through 23 and 24. So their medical loss ratio, the MLR is going to be higher. That of course affects their earnings and therefore the stock goes down.

But it’s a pretty interesting read through to the whole market because of course that will affect all the payers. Maybe some differently than others. United has a lot of levers to pull. They’re playing both sides of the trade. Right. Uh, but on the health system side, that’s good news. I mean, more acuity, more volume.

As long as you have workers to take care of the people, that would be a good thing. Yep.

Marcus: Yeah. I mean, I think, I think again, it’s probably good for providers with the right payer mix. Um, but yes, generally speaking, this is some of the first good news for providers in a while, [01:05:00] um, that this is happening, but also we were talking and, and I think this is something we need to try to do some work on over the next month, how, when you say this is bad for payers, what does that even mean anymore, right?

Because the profile of what a payer is over the last 10 years has just changed so dramatically as this payvider thing has gone from. It started as this thing that maybe consultants were, we’re framing to talk about the moves that UHG was making and growing Optum. But now it’s a full fledged thing. And so many payers are really just business units in larger health and healthcare conglomerates, whether it be primary care, whether it be, uh, uh, you know, pharma and pharmacy.

Or whether it be, you know, a full health services capability. That’s not everything that’s not in the hospital, which is the Optum case. Right. Um, you know, really the ones that are just pure pairs left over are small regionals and blues and things of that nature. But any of the ones of scale, whether we’re talking about a humana focused on the MA space, um, you know, in Aetna, I think they all realized you [01:06:00] don’t just want to be on one side of the trade, you know, you want to be on both sides.

Vic: Yeah, they, they all realized that United really started that. And because of the leader, all the other payers have created their own strategy, but they all have taken different approaches, either through acquisition or building things or, um, combination of stuff. So what I actually think has been great about this podcast is we, we see this in the news and now I want to dig into the different payers and try to understand.

Okay. How is, How are the, how are the different strategies going to be maybe beneficial or detrimental given this, uh, higher volumes, higher acuity. Some can maybe navigate that better than others. It’s interesting on the healthcare side, they haven’t really differentiated the same way on the, on the health system side.

Yeah. Yeah.

Marcus: No, no, no. They, they haven’t. I mean, we, we talked. I don’t know, maybe four weeks ago about the merger with Kaiser and Geisinger. Haven’t really heard [01:07:00] much since then because I’m sure that integration will take well over 12 months to actually make any sense, uh, operationally. Yeah. Um, yeah, it’ll be interesting to see how those health systems start to really operate at scale.

Yeah. Um, with their pay components. I talked to Kaiser

Vic: on an investment thing that’s confidential, but I talked to them this week and they are building in value based care. They’re building in innovative things. And they’re thinking by coastal. Yeah, definitely. Of course. It makes sense.

Marcus: It makes sense. I mean, you want to get that scale because you want to try to centralize as many of the value based care.

You know, assets and be able to deploy that across the country. Right. Really. Right. Um, whether it’s protocols, technology, you know, learn from different markets. Yeah, exactly. All right. Well, busy week again. Um, fantastic conversation with Aaron, uh, and. Look, you know, the, just for the listeners, I mean, the conversation with Aaron happened literally because he responded to our pair episodes.

So, um, if you’re listening, I mean, reach out to us and, uh, and let us know, especially if you’re [01:08:00] a friend and you’re in the industry and you think you’ve got a perspective on this that you want to share, um, you know, the microphone is open and, uh, you know, but we, we are looking for people who are in the trenches actually, you know, not just a pining about stuff, but actually the people in the arena.

Vic: Yeah, but you don’t, uh, agree with us and everything. We want different perspectives. And I think that’s what makes the, that’s what makes the output of the show better.

Marcus: Yeah, for sure. Um, we will be back next week. It will be a remote show. Cause I will be in Aspen at the Aspen ideas, health conference. Maybe you’ll have some ideas.

It’s unlikely, dude. It’s unlikely. Um, all right. Well, until then, until next week, Vic, I’ll see you.