Ep 26: This episode: transparency in healthcare costs, and venture capital firms take a pause

Upside/Downside is a podcast about the hard work of value creation with a dose of humor thrown in.  Panelists Dana Price and Sami Akbay join me to discuss two recent news stories:  health insurers must now report publicly what they pay for every item and procedure, and venture capital firms pull back as the longest bull market ever becomes a distant memory.  What does all this mean for companies, investors and regular everyday people?   We also take a question from an entrepreneur considering a start-up in the home caregiver industry.  Join us!

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Matt

Transcript

SPEAKER_01: 0:02

Welcome, everyone. This is Matt Cooley, host of the podcast Upside Downside, where our panel explores the value creation angle of current news stories and how the actions we take as business professionals can affect profits and cash flows. Joining me are Dana Price and Sami Akbey, esteemed professionals and friends I turn to for advice on a regular basis. Dana is CFO at Area 9 Lyceum Group, and as we established in our last episode, she likes to break things, particularly technology, and I can vouch for that. Welcome, Dana.

SPEAKER_02: 0:32

Thanks, Matt. It's great to be here.

SPEAKER_01: 0:36

Sami Akbey is a technology executive and founder who bridges business and technology for a living. He's been in data, AI, and analytics since before it was cool, and he's also been in more interesting sales calls than anyone I know. Welcome, Sami.

SPEAKER_00: 0:50

Thank you, Matt.

SPEAKER_01: 0:51

Let's get started. Today's topics are transparency into healthcare costs here in the US. And the second topic is how venture capital firms are adjusting to current market conditions. So first, healthcare costs. Starting this month, health insurers and self-insured companies have to report publicly the prices they've negotiated with providers for every item that they buy. And for you too, that does include lobotomies. Those of us in finance and management know that healthcare costs are one of the biggest items in our P&L. So what kinds of upsides might we see from this massive amount of data that's starting to become available? Dana, do you want to take that first?

SPEAKER_02: 1:33

Sure. So instead of a lobotomy, I think I'd rather have a bottle in front of me. But beside that, putting the words transparency and healthcare in the same sentence is somewhat of an oxymoron. But that said, listen, I think, you know, the more data we have, you know, more data leads to more informed decisions. So if you look at it from an employer's perspective, anyone who has gone through the period leading up to an open enrollment. Am I changing carriers? What are my costs increasing to? Do I have a high deductible plan, a PPO, an HMO? What are the costs for all of that? How do I split the cost? Am I 75-25 employer versus employee? All those criteria that go into sort of the HR and CFO and CEO making that decision is In theory, the more data you have, the more informed decision you can make, not only to protect the employer, but am I giving the best opportunity for care to the employees? And I think that is a potential upside. I think it's going to take a little bit to sort of decipher the data. But I think from an overall perspective, one day, I think it would be great to get somewhere where you can make informed decisions.

SPEAKER_01: 2:52

I think that's an excellent insight. Sami, what do you have to say about this?

SPEAKER_00: 2:56

Well, first of all, I agree with everything that Dana said. And from a consumer's perspective, something that I've observed is when you travel a lot internationally and if you ever have to reach out for medical care, even if it's not socialized medicine and you're paying out of pocket, there are situations where the copay in the U.S. is big than the amount that you would pay internationally for the full service. And we're talking about premium care, not bad care. So from a consumer perspective, that transparency is definitely going to be helpful. I think the healthcare system subsidizes certain portions of itself with overcharging in others. So this is probably going to lead to some price corrections and ultimately I always believe in the transparency of information that's going to improve both service and pricing for the end consumers. The other thing that I was thinking, Dana, this is probably a little bit more your area, is that some companies may opt to go self-insured rather than using an insurance company or an underwriter in the back end at the very large scale of companies. And this might shed a better light in their decision-making process as well.

SPEAKER_01: 4:22

Did you want to comment on that, Dana?

SPEAKER_02: 4:27

Totally agree. I mean, that too is an animal that needs to be unwrapped like an onion, but yeah, absolutely.

SPEAKER_01: 4:35

A very big onion. Yeah, I think my perspective is it will level the playing field over time and it's going to take a lot of time, right? We know healthcare doesn't change quickly and increase competition and innovation in an industry where it's badly needed. So I think long-term, maybe super long-term, there are plenty of upsides. What about the downsides? Sami, you want to take that first.

SPEAKER_00: 4:59

Sure. So one of the other things that I've observed is, for example, if I'm traveling internationally and I don't have insurance coverage and I can still afford obtaining medical services, and because I'm paying out of pocket and nobody's paying a cut to an insurance company, I'm getting premium services, it creates a disincentive for people to obtain insurance. And that effectively kind of breaks the whole concept of insurance, right? I mean, you need to have higher number of participants in order to ensure that the insurance model works. But if you know the cost and if you suddenly realize that it's more affordable to not be insured than paying$1,500 a month or$3,000 a month for a family of four in insurance fees, then would the number of participants in the insurance system reduce get reduced because of this. So it would create a disincentive for people to obtain insurance. I mean, you might just opt to get catastrophic insurance and then pay for everything else out of pocket if the services that you receive don't justify you paying the amount that you would otherwise pay for insurance.

SPEAKER_01: 6:20

That's interesting. That's a pretty fundamental change to where we've been with insurance. Dana, what do you have to say?

SPEAKER_02: 6:27

So I think, you know, it Healthcare is generally not something from a consumer perspective that you shop, quote unquote, right? So how comfortable, number one, are people going to be to shop their healthcare? Number two, if you see, let's say, you know, you're having surgery and your doctor's tied to hospital X, are you really not going to either have the surgery or go to another doctor because they're at a different hospital? So, you know, I just question sort of what the decision impact might be on a consumer. And then if you think about the largest, you know, percentage of our population in the US are, you know, what I call the golden years, and they're the ones that need the health care the most, fundamentally, you know, overall, generally speaking, how adept are they to be able to compare? I mean, I can't figure it out, you know, let alone someone who might be 85 years old with early onset of Alzheimer's, how are they actually going to be able to figure that out. And I just, you know, again, it kind of goes back to Sami's comment about disparity. You know, if you have the ability to pay for it, does that now put you in a different category? And there's a little disincentive for folks who may not be able to understand it.

SPEAKER_01: 7:46

Yeah, that's interesting. We could be moving into a multi-channel approach. Yeah, I think you both make very good points. From my perspective, the the upside a few minutes ago, but it's going to take a long time for change to take place. But ultimately, it should turn into lower costs for all of us. For health insurance companies, the industry in general, this, in my mind, means lower margins, right? So when you take away that lack of transparency, then it just invites competition in. And that's good for all of us, but insurance companies are going to face some kind of fundamental change. It's a matter of how long from my perspective. Okay, very good. Let's move on to venture capital. So we've gone from the longest bull market ever to a downturn that's seeing a relatively material number of layoffs in the tech sector, which is super interesting to me, given that's where I work and both of you do as well. While the economy as a whole might be okay, and I might in quotes, VCs are pulling back and starting to suggest debt financing and extending runway to their portfolio companies. So Sami, what does all this mean and what kind of upsides might we see here?

SPEAKER_00: 9:06

So, I mean, what that means is the investors as well as the companies need to focus on bottom line more than they have been and shift their eyes from the top line. It was growth at any cost for quite some time, which has led to some interesting behavior. You would not do those things in an established company. But I think what's really going on is that the series B and series C companies or later stage companies are suffering the pullback in investments more so than the companies that are in series A or seed stage. And the investment sizes are getting a little smaller. So let me give you an example. If you're a new company that's doing their seed or series A round trying to get your financing, yes, money is a little bit more expensive but at the same time, the number of participants in the investor community is larger. Let's say that I have a$5 billion fund and I'm looking at companies to invest. I cannot really afford to go and do small investments because the economics from an investor's perspective does not really scale. But at the moment, a lot of these guys are looking into investing in smaller chunks and smaller tranches and having their companies kind of show some milestone progress before they do their follow arounds, which is kind of putting a lot more accountability and putting a lot more kind of mindfulness in the way that the company is operating. So I think there is an upside. It's going to help with the wage inflation or hard to get employees access. It's going to help with quite a few things for the earlier stage startups and might be a little bit more difficult for the series B and series C and above companies.

SPEAKER_01: 11:08

That's interesting how you break it down that way. Dana, what's your thought on this?

SPEAKER_02: 11:13

So I think not all VCs are created equal. And I think at this point, there's still, listen, there's so much dry powder sitting on the sidelines that deals are still going to get done. That said, Sami has a bunch of really, really on point comments. And I think some upside potentially might be that some of the VC valuation and invest might become a little more standard or widespread. instead of, oh, hey, that sounds pretty good. And I'm being very, you know, over sweeping general.

SPEAKER_01: 12:13

Which coast are you implying there in that? I'm just kidding.

SPEAKER_02: 12:20

So I'd like to think it might, you know, even the playing field a little bit.

SPEAKER_01: 12:24

Oh, that's interesting. Okay. I think this is a great opportunity to relearn the fundamentals of value creation. If you think how long the bear market is, has been, and how many people have entered, uh, you know, the VC industry, if you will, in that time, it's going to be a time to reset on the fundamentals. I found this quote in a recent institutional investor article. When making good investments, investors appear to bet on the horse, but when making bad investments, they appear to be betting on the jockey. I thought that was interesting. Okay. What about downsides? Dana?

SPEAKER_02: 13:06

So I think, you know, like I said, VCs, you know, they're not all created equal. Some, you know, and I think some of the more mission-driven ones, you know, will stand by you when you go into the depths of hell, right? And I call the last couple of years the depths of hell. Yet there are other VCs, again, you know, bet on the horse versus bet on the jockey that will run for the hills, you know, if, you know, something bad happens or it's tough or your sales are down or you can't, you're not achieving the growth that you expected. You know, to say... instead of going to raise venture fund to go raise debt, you know, I've, I've done both right in my career repeatedly. We've just raised a venture venture debt. Raising debt is very difficult and it's very difficult if you're, especially in early stage company, especially if you are not, you know, EBITDA positive. So raising debt for someone to say, go ahead and go get it very, very easy to say it versus do it. And as, You know, the stock market's all over the place. You know, I truly believe we're heading into a recession. If you look at, you know, the government trying, the US government trying to regulate interest rates, you know, they historically haven't really done a good job of, you know, throttling it the right way. So I think we are heading into a recession. Hopefully it's not a recession that's as bad as the last recession. But I think as you go into a recession, if you don't have enough cash in your balance sheet to raise debt, also becomes a bit of a trick. So it's a catch-22, and sometimes the horse before the cart.

SPEAKER_01: 14:43

Interesting. It sounds like you may have some sleepless nights ahead of you. Some more sleepless nights. No, I

SPEAKER_02: 14:49

have the debt already. I'm good.

SPEAKER_01: 14:50

Okay. All right. All right. Check. Sami, let's see.

SPEAKER_00: 14:54

So I was just going to say, I think the companies with savvy finance professionals, they tend to raise the debt soon after they raise their equity rounds, and they don't necessarily draw on the credit credit line, but the moment that they sense that things may go southbound, they start to draw against that. And that just gives a lot more staying power. But the financial engineering aside, the biggest downside here is dilution. I mean, money is going to be there. Investors, even when they stand by you, and I've gone through a number of downturns in venture-funded companies. Been fortunate that our investors were always very astute and supportive over the years, or at least most of them were. And at the same time, the price of every dollar you raise is more than in the kind of up and up and up times, right? And that creates an interesting dilemma. If you're a founder and When you're getting diluted, that's one thing. It's your baby. But if you are something who joined and you have a lot of options, the price of those options get, the value of those options start to drop. So suddenly the upside for the employees in these startups evaporate quite a bit. And how fast that happens really determines the livelihood of those companies because this is a very technology-driven business, typically what VCs invest in. So the impact of dilution is not just for the major owners, the founders, and the top executives. It's also impactful to those who have been granted options and given up their other jobs to join these companies, which just changes the morale and overall entrepreneur entrepreneurial spirit in many of these companies.

SPEAKER_01: 17:12

Yeah, that's a good point. I was just sitting here thinking, yeah, scooters and free drinks don't make up for that, sadly. Yeah, from my perspective, short-term pain for people who need to find new jobs if you're unfortunate enough to get laid off in this timeframe. And for investors, it's going to take a while to rebuild your ROIs. So yeah, very interesting situation right now. Let's end with a question from a listener. So we have an interesting question from Janice in Sacramento, who is pondering a startup idea in the home caregiver industry. Greetings, Upside Downside panel. The home caregiver market is large and disaggregated. How do you figure out where the value creation opportunities are in a market like this? Who wants to take that first? Dana.

SPEAKER_02: 18:07

That's, you know, that's a really, really tough question and brilliant question at the same time. You know, I've been in that situation. I've been the person looking for the home care. So it's, you know, it's a really hard question. problem to solve because it's so fragmented. And I think the value creation comes from providing the proper service to the individual that is desperately seeking it at the time. And I think the question is, how do you find them? And because it's so fragmented and regional and focused in specific geographic markets, how do you start small and become I think there's absolutely an opportunity there. I'm just honestly not sure how the easiest way to do that is.

SPEAKER_01: 19:02

Yeah, I hear what you're saying. And I have a thought on that as well. But Sami, what's your thought here?

SPEAKER_00: 19:09

So I mean, I really liked the idea. And I think it's not a simple, it's not a simple solution. There are a couple things, I think one of them is, first of all, who pays for it, right? So a lot of individuals have some level of insurance coverage. But being able to navigate through it is very difficult. If I could go to an aggregator and say, look, I just had knee surgery and I live alone and I'm, you know, this is my profile and this is my insurance company. I need a person. And if in the background there are agreements made with the insurance companies and I don't have to deal with all that complexity, then you're providing an immense service for me. So that's one side of from my perspective, the kind of simplification of how this gets provisioned in the back end. The other part of it is obviously the matching, right? Because there are individuals who are willing to provide the service and there are individuals who are interested in receiving the service. And this is quite nuanced. I mean, if I got knee surgery versus if I'm recovering from, I don't know, something else, some other ailment, or if I have ulcerative timers, these are all very different kind of profiles. And I'm sure the more vectors you do the matching on, the more valuable the higher value you're creating for the consumer. So that way, if someone can say, Okay, this is the profile of my patient, this is the profile of my need. And the matching in the backhand gets done based on a deeper set of criteria. then I think that contributes to the value creation. Now, of course, the trick is the value creation in that second scenario is strictly tied to the number of participants, both from the consumer perspective as well as the provider perspective. So we could probably have another 45 minutes on just to go to market parts of this. But I mean, I think it's a great idea. I think it's definitely a need as the population is aging. Those are my two cents.

SPEAKER_01: 21:33

Yeah, and I think you both make good points. I agree with you. What comes to mind is, I wonder, Janice, if you should study the dating app business model, because it's a two-sided model. It's very local. And you need to have that supply and demand in there. And using the dating analogy, everybody's got a different personality. Well, you're going to have a different set of medical needs, as Sami pointed out. So kind of a combination of what you both said. That might be a business model to study. Okay. Well, time is up, my friends. Thank you for your insights today, Dana and Sami, and also for your good humor.

SPEAKER_00: 22:12

Pleasure to be here. Thank you for having me.

SPEAKER_01: 22:16

All right. And to our Upside Downside listeners, look for our next episode soon. And thank you for being here. Have a great day.