Catalyze: I'm really excited to have you on and talk to you. Before I even jump into the question, as an entrepreneur in healthcare, thank you for iTriage. It really has paved the way and set an example for everyone else to show the value of mobile technology in healthcare whether on the clinical or patient side. Again congrats, and thank you for iTriage.
Dr. Guerra: Thanks for having me. I'm looking forward to our conversation.
Catalyze: We'll start with general disruption. You've been in the industry for many years, for 20 years. Bringing disruption to your own industry can be very, very challenging. You guys did it with iTriage and changed the way that patients were able to access care, and then the way that providers and systems were able to actually expose different services and care options to patients more directly. What do you think was the major difference for iTriage that enabled them to have such disruption and really pretty quickly?
Dr. Guerra: I think, in general, healthcare is really complex. My other co-founder, Peter Hudson, also an emergency physician, we've both been involved with actually taking care of patients, for over 20 years. I think on one business trip we added how many patients we've actually seen; it's over 50,000 that we've taken care off. We understood consumers and the patients really, really well. We call them the three Ps, the patients, the providers, and the payors. We also understood the clinical side, being hospital-based physicians working within hospitals.
We were both involved in different business aspects of medicine our entire lives. Going to meetings, seeing what the hospital is struggling with, talking to other providers: the specialty providers, orthopedic surgeons, dermatologists, things like that, and seeing what they're struggling with. We had some experience with the payors, mostly in contracting, but that expanded the knowledge. I think part of the success was that we had a deep understanding of the industry. We had at least a reasonable understanding what payors wanted and then a deep understanding of also what providers needed.
I think we were trying to create a product that benefited all three of those Ps. Being physicians, we knew that if we could aggregate enough users—getting enough downloads, getting enough people who are interested in using it on a daily basis, the business model would evolve, and especially if we were benefitting the other two Ps as well [providers and payors].
Catalyze: Looking specifically at iTriage, do you think it's easier to innovate from the inside or is disruption generally much easier and really have to come from the outside an industry?
Dr. Guerra: If you are a consumer-based product, and certainly we're all healthcare consumers, developing that sort of mental mindset of why it is so difficult to get this product or service out of the healthcare industry is critical. If it's a primarily consumer-facing product, then having someone outside of the industry that really is suffering alongside the users, trying to achieve those things is important.
I think you're going to see some barriers erected or at least some difficulties when you try to get that integrated into the actual industry. If you don't understand the work flows and the incentives of the providers and the payors, it's going to be tough to get broader adoption. You're starting to see some movement where consumers can push a lot of things and get change within the industry, but it's going to be slow going if you can't benefit those other two Ps – providers and payors, and just understanding those work flows.
I hear about new products because I do a lot of advising of new companies and start-ups. Whenever I hear that all a doctor has to do is open up this web app, I immediately think it's [not going to work]. One more piece of technology that's not integrated into the doctor's work flow, into their practice management system or their EHR, it's going to be a struggle. Even though it seems conceptually easy, it's going to be tough for providers to do that.
Catalyze: Specifically looking at what you lecture on as a professor now, when you think about enterprises, why do you think they need to look beyond simple incremental innovation in healthcare?
Dr. Guerra: You just think about the incentive models, how much they've changed over the last five years, it's really upending the entire organization. I remember Mark Bertolini, the CEO of Aetna, stating that their entire business model has been changed when they had new medical loss ratios that were requirements. And saying that he wanted to become a health information technology company that allowed providers to assume risk. Years ago, if I was a CEO of a health system, it was all about driving the greatest number of patients to my system and delivering that at the highest margin.
Well, that's no longer the workflow. You just think about the 30-day readmission penalty. Well, in the old model doctors always had patients' interests at heart, but if I discharged someone a little early, and they didn't understand their discharge instructions, they couldn't get their prescriptions filled, they came back two days later and were re-admitted. I discharged them with pneumonia, they stayed in the hospital for a few days, then they would have to come back and be readmitted.
Well, in the old model, I actually may have received extra revenue for that, right? While I'm not going to obviously do that on purpose, there wasn't a huge disincentive besides having to go through risk management and quality assurance and discuss why the patient didn't succeed at home. But in the new incentive model if the hospital isn't going to get paid for that admission, now you are seeing all transitions at care to make sure the patient goes home with the prescription, simple things, but these are all the psycho-social things that create failures in the delivery model.
When you change incentives, it drives more than just incremental innovations, it's driving disruptive innovations. I think in large organizations, they are going to be looking for more and more ways to disrupt the way they do things because their whole business model has been disrupted.
Catalyze: You touched on a topic there I wanted to ask you about. In our last Innovation Series interview, we talked to Dr. Marc Chasin about innovators coming into healthcare or start-ups in healthcare. We asked if he had any advice for selling to a health system. It was interesting to see that because what you talked about is understanding that there is the shift and it is coming to healthcare where the business models are totally getting flipped on their head and were going from volume to value. He also talked about that transition happening over time, and start-ups and technology vendors or technology-enabled service vendors looking at ways that they can potentially appeal to both sides of the system or both stages of the system, if you will. I am curious to get your thoughts on that?
Dr. Guerra: I think it's very relevant because hospitals run on a very, very small margin. When you look at the overall revenue, especially as a small company, you are thinking, ah, it's massive, the health system is so big. But then when you really look at their margin being low single-digit... they don't have a lot of opportunity to invest heavily in something that might fail. If you can show some short-term results, but then, hey, in the long game, you're going to be very effective as well. That's obviously the best. You are feeding both of those needs.
Before I left iTriage, we were starting to do this. Some of our bigger health systems that had partnered with us for the last three or four years were definitely seeing net new patients come to their doctors and their facilities, not just the ER, but their outpatient facilities, radiology facilities, all those, because the person used iTriage to find the hospital.
We started creating an ability to have a log-in that would allow a patient, who is maybe also a part of their accountable care organization, to then sign-in into the general public application and then the application converted and had more tools to help the patient manage at a higher cost and lower—or higher quality and lower cost initiatives. Connecting with their doctors, being able to not just make appointments, but also even being able to start communicating with them.
That's the direction that we now see it's taking—sort of that fee-for-service model, still bringing value to the fee-for-service model, but then also being able to deliver some tools in an accountable care organization or a primary care medical home, and helping that same sort of use of the application with a log-in that now has some different features. I think if new companies can do that, straddle that appropriately and navigate that, then all will benefit. Because if you don't show an ROI until three years down the line, it's going to be tough for a system to be able to invest in.
Catalyze: How do you gauge the size of market when some of these markets are still kind of being defined, everybody talks about healthcare being whatever, a $2.3 trillion, $2.7 trillion industry. But when you look at something like appointments, or whatever it might be, how do you go about gauging the size of that market or advise people in terms of how they gauge the size of that market?
Dr. Guerra: People always ask "Is your new venture going be in healthcare?" I say absolutely, there's so much inefficiency. If it's $2.1 trillion, $2.7 trillion, a third is wasted. It's unfathomable. Getting back to iTriage, we experienced every day those 50,000 patients that we visited, but about 30% to 40% of all emergency department visits could go to a lower level of care with the same quality of healthcare delivered. They can go to an urgent care, retail clinic or a doctor.
There's 135 million to 140 million ER visits a year now. If you have an ankle sprain and you go to an ER versus a lower level of care, the cost of that is somewhere between $600 and $900. You start doing the math, that is tens of billions of dollars wasted for this one problem, redirecting emergency department visits to the appropriate level of care. That's how we kind of define a market and that's how I ask new companies that are looking at this. I say, "Let's outline your problem and try to get as many facts around the problem to define that market, so you can actually size it and see how big the opportunity is." That's super important especially when you're trying to raise capital especially after the C round, you're trying to get the series A.
Also, how does your solution solve that problem? For us, it was pretty clear. A patient opens up the iTriage app. They think they have a cough, so they click on that. They think, oh, it sounds like bronchitis, because I don't feel that sick. Then they see that they have these opportunities besides going to an ER. They can choose an urgent care, retail clinic, and then iTriage makes it really easy to connect with them. That's a great pathway that we could describe over and over and over again. I think for any brandnew company that's trying to size their market, they should look at what the problem is, make sure it's big enough. You don't have to solve all the problems because healthcare in some ways is screwed up; you can take a small portion of that problem and still be a very effective and have a profitable business.
Catalyze: If you're advising somebody who is sort of pre-idea or looking to get into healthcare, are there specific areas or buckets that you see as particularly interesting to target right now over the next 12 to 24 months?
Dr. Guerra: I would go back to what was always successful for us. When we first started iTriage and drew the concept on the back of a napkin, there were 8 million iPhones in the world, 8 million. But we knew these devices were really uses of the technology. I don't know if you remember the first time you downloaded an application and it worked 30 seconds after you opened it. It was an amazingly efficient delivery of software. We just knew that these things were so compelling—these devices were going to be broadly adopted. And then Android came six months later and brought down the price point for these devices.
I would recommend that people look at the tailwinds. What are the market trends that you think are going to happen? You've already touched on some of them, bundled payments, absolutely. The ability to help providers deliver care more effectively and efficiently and also kind of longitudinally. It's not just about before I need the procedure and now when I need the procedure, but post procedure, because the post procedure problems transition when you go home. That's causing a lot of the extra cost when you have to come back to the ER or maybe even get re-admitted. All kinds of models there are improving that delivery of care. I love that. I love the information from patients.
You're seeing a lot of this now. The technology is getting less and less expensive. For example, if I need to send you home with a heart problem, I can put a sticker on you and monitor your pulse and temperature for the next two weeks. That's very inexpensive technology and now I can see on a continual basis through algorithms this data coming to a central repository. Now one nurse can take care of 30, 40 patients in their home versus a home health nurse that can only take care of three or five a day. Technology is magnifying the capabilities of the providers, but also able to find problems much earlier at the proximal phase of the illness or a complication and treat those before they become major problems under re-admission. I love that space.
There is about $765 billion being wasted. There's still a huge percentage of people that are getting the wrong procedures, or getting procedures that they don't need. Technologies are managing that and connecting the patient with a symptom to the right provider. Again, I still love that space as well. Now, we can focus on emergency medicine in the acute care setting that we understand the most. But there's still a huge need for that. One example is back pain. If you get to the wrong provider, you're going to probably have a back surgery. There's a lot of literature saying you probably don't need that back surgery, thus an increased cost for the system, increased risk and cost for the patient. Being able to get more efficient with those patient work flows and delivering care more efficiently, love those themes.
Catalyze: If you were advising a start-up on how they could sign or work with a big provider like HCA or getting more integrated into ONC and HHS, what your advice would be for them?
Dr. Guerra: We were very deliberate at iTriage. Actually it was Peter Hudson's original idea...
He called me on my birthday and said, "We've been talking about inefficient health careers and I just shut down something I was doing..." He sits up and he starts drawing on the back of a napkin. After 45 minutes of discussion drove down to a bank and started our business. It was one of those banks, wasn't a real bank, it was a bank in one of the grocery stores, a Safeway grocery store. We had some seed money and opened a bank account there and started our business.
Five months later, we had our first application in the app store. That was great and I thought This is awesome. Guess what? First day—10 downloads and all those were friends and family; second day—20 downloads; third day—15 downloads. We thought it was going to go viral; we thought it was going to be super cool that it was just going to take off on its own. But healthcare was not cool. I suspect there is no virality in healthcare. So we were very, very deliberate in getting our first referenced customers.
Again, this goes back to our original discussion about being deeply involved in healthcare. Centura was our first customer. Centura is the largest employer here in Colorado. They have 13 hospitals, and we worked in their hospitals emergency departments, so we had access to their CEO's and to their management. We showed it to them, and they said, "We love this." We created very low barriers for them to participate. We never did anything for free, but we created very low barriers to get them to participate. That was our first referenced customer. We then signed on Sutter and then HCA right after that. Here we have three major large health systems both for profit and non-profit involved in the application, which gave us great credibility.
The government outreach was very, very deliberate. We first reached governor, excuse me, Senator Bennet on a soccer field. Our VP of Business Development and Senator Bennet's son were both on the same team. He just showed it to him. He showed him, "Hey here's the application, this is what we're doing." And it resonated with the themes that Senator Bennet was interested in—lower cost, higher quality, patient empowerment, consumer engagement, and he said you need to meet Aneesh Chopra. Aneesh Chopra was at that time the CTO of the White House. Initially, well, Aneesh wasn't that excited about what we were doing, but then he saw the real ER wait times. He went crazy and said, oh this is awesome, you guys have to meet Todd Park, and then Todd Park was trying to develop the open data initiative, and we became the first poster child for that whole initiative, but it was very, very deliberate.
When you think about disruptive innovations, there are really more marketing challenges than they are technology problems, right? I mean, disrupted technologies are a mash up of technologies that already exist and then applied to a different problem that no one has ever applied to them before. Getting people to know about it, that's the tough part. It takes a deliberate constant effort. It's that Jim Collins Flywheel, you start getting it's just barely moving then it kind of become virtual as it starts to move the momentum, gets it to continued move, but there was a huge outreach for us. So I think, yeah, being very, very deliberate about both those endeavors as important.
Then again getting back to HCA with our larger health systems, we gave them exclusivity in certain areas for a very fine period of time that allowed them to adopt the app almost as their own. And some of our larger health systems, well they would do radio spots, TV spots, put up bill boards to download iTriage, they'd send fliers and mailers out to their community, because they loved the theme of it: that a patient or a user or a member of the community would have this in their hand and would make better healthcare decisions. They wanted to be associated with that. Obviously, they had some downstream increased deeper service reasons as well, but they like the other subjective things. Those were spot on and very deliberate. We were happy enough to be and lucky enough to be successful on those endeavors.
Catalyze: I'm assuming as an ER doc in Colorado you guys had some access at Centura for those first meetings and first customers, is that correct? How do you get to the point where you're pitching to HCA? I'm curious how you sort of make those leaps?
Dr. Guerra: I was on a shift. We had just gotten the prototype for iTriage. I saw the CEO walk by at the hospital, and said, "Hey Ken, I am working on this really cool thing, I'd like to show it to you." He responded, "Oh! Come right after your shift. What time do you finish?" I said, "4:30". So I come by and showed him, and it was awesome. The first thing he says is, "Can I invest?" He was willing to take risks. He likely had a higher margin hospital, so he was able to take some risks and then introduced us to Centura, which was also doing well at the time, and interested in reaching out to their community. They are really far reaching or far thinking and knew that the delivery of healthcare was going to change. They needed to be on the mobile bandwagon; they needed to reach out to their customers.
The Sutter thing was really interesting, as well. Centura was awesome. They said, "Hey we have a Sutter team coming in to talk to us about all the different things that we're doing, and we're just going to be sharing information with Sutter and we'd love you to present iTriage." I was like, "Yeah, that's awesome, that's it." So Pete wasn't able to do it, so I got my suit on and everything and it's about a 30-person board room, I'm seated at the podium, ready to go, and two people walk in, one from Centura, and another person was Kerry Jeffords, at the time from Sutter. I thought we're going to have a whole room, that's going to be the team, and it turned out just to be Kerry from Sutter. I said, "Well this is kind of stupid for me to be at the podium, let me come down and show you what we're doing. And Kerry kept her cards close to her chest and didn't really say much. She said that's interesting, but she really liked it. She pitched it to Sutter and asked us to come out and do a broader pitch and that's how we got introduced to Sutter. Tons of stories like that, it just comes from—if you're an entrepreneur, you should always be excited about talking about your product and trying to network with people, because you just never know which one is going to... which conversation is going to be the most fruitful, and lead to either a great customer or a great introduction or even with a killer product, and that's going to get you to the next level.
Catalyze: Do you think a lot of the disruptive innovation and a lot of the technologies which kind of enable these big shifts in healthcare, you think they are going to come from a mix of the enterprises and the small vendors, or do you think it's going to come from predominantly one or the other? I'd be curious as you sort of engage and probably have pretty good insight where you think that's going to come from?
Dr. Guerra: I think it's still going to be the smaller companies that are outlining the problem and then developing a really unique solution and then grow from there.
I think it's just really, really hard for large enterprises to do—to go beyond sustaining innovations and be really disruptive. It requires an incredible discipline from the top leadership of finance, they must create enough time for the team to be able to evolve their product, and then you must give them room to fail, which is not a word that you usually use when you're at a larger organization, but that's the process that you use, right? You must innovate inexpensively as possible, so that means you're not doing market research. Large corporations loved bringing consultants in to do all this market research, so they feel comfortable with making their decision; we saw that happen. Many times we're like, "Hey, give us the quarter million dollars and we're going to build the feature that we think people are going to need."
Creating commitment, enough time to succeed, creating different metrics. If you're an intrapreneur within a company, your whole business plan should be about learning. Creating a product, it's okay to fail. But what you're going to learn from that and how you're going to redeploy as soon as possible to get to whatever you're trying to solve.
The core organization has different metrics of success that you just can't measure for the intrapreneur that's trying to do something disruptive. You need to protect that team from the core. It's those processes and then finally setting up the right incentives. You have to create that environment. Very few companies that have that discipline to do that.
Catalyze: Are there certain areas of healthcare to potentially get investment from an investor or a large fund? And if you have any specific advice for small companies, how should they would go about fund raising and raising money?
Dr. Guerra: You're exactly right about the entire investor community. It's just different. If you think about 2009-2010, the whole financial crisis that's so prevalent even though you're making an investment that probably won't exit for three to five years, the current IPO market, the current valuations affect greatly the decisions you make right now. It kind of doesn't really make sense, but that's just the way it's always been and the way it is. The valuations are way higher now than they were back in 2009, 2010, and 2011. That's great for new companies.
I think it depends on who you're going after as the buyer. If this is surely a consumer play, I'm usually pretty resistant that consumers just don't want to pay for services; they get so much for free. It's tough. In healthcare, it's been a challenge to get people to do that in a significant way. I worry about that. I think you have to involve the consumer, but I go after the other two Ps [provider and payor]. If it's the provider side, then you got to remember that you either have to focus your product or service on increasing quality and decreasing cost, and then if you can show an ROI within 18 to 24 months, that's about all they are going to project out, and it's just really, really tough to do. To go beyond that, again, because the margin has been so low.
On the payor side, there is still a lot of interest and again it's the same theme of the triple aim, it's improving the consumer experience, it's decreasing cost, and increasing quality. It seems easy to say, and obviously it's complex, but if you have tools to do that for a segment of their population then they would be willing to try that.
I love you mentioned pilots earlier, that's a great way to get started, and you get some initial traction in proving that your product actually does do what it you say it does in an environment that's a real life environment of patients actually trying to get care and get well. I think that's the move there that you need to focus on.
Catalyze: Those are great points about investment. The really good thing for entrepreneurs whether they were coming from within healthcare, like you and Peter, or coming from outside of healthcare, is that the investment community has changed considerably. We're starting to see digital health is a trend that big, big venture funds are heavily looking at and now starting to invest in. That's an incredibly positive thing.
Well, Wayne, I mean this has been fantastic. I mean, honestly I'm racking my brain for something more to ask. I don't really have anything else for you. Are there any other topics that you think you would like to touch on and like to dig a little bit deeper into, anything at all?
Dr. Guerra: I'd just like to reiterate that if you truly have something disruptive then you need to have a plan of how you're going to tell the world, because it has to be focused and disciplined. Keep analytics on it and you got to have a better plan for that. You know unfortunately healthcare is just not that cool and it's really, really tough to get just naturally the spread. And if you can focus on, especially if you have a great consumer facing product, and even if it's super beneficial to people, they will use it and keep it and tell their friends about it, but you still have to have that focus on more opinion from PR outreach. That's what I would like to reiterate.
Catalyze: That's something you touched on before. My interpretation of our talk so far is that going out and intentionally finding those reference customers and finding organizations like the OMC or HHS that you can partner and co-market with.
Wayne Guerra: We at least talk about finding like-minded people. We developed for a market of people that would most likely benefit from iTriage, busy moms that have become the CFOs of their families who are making more than 80% of the healthcare decisions. We reached out to mommy bloggers, both paid and non-paid and get them to write about us, talk about us. We talked to business travelers, because we saw huge value for a business traveler who is now in a foreign city and they have an earache, they only need an emergency care, but how they're going to find one easily. Simple things like that and then likeminded organizations like the ONC and HHS, what they are trying to do, and finding things that they are interested in.
It's really about crafting a message to the constituent, taking more partners and focusing on the attributes that would be most interesting to them, and getting them to partner with you. You have to have money set aside for that, because you need people to bring that, but it is super fun as well because you get to meet, network and collaborate on some really good initiatives.
Catalyze: As you are passionate about your product, it enables you to talk about it, and find ways to work with other people or partner with people on the thing that you're passion about.
I don't really have anything else, Wayne, other than a thank you for your time and insight. This has been incredibly valuable.
Wayne Guerra: Thanks for having me.