The US Healthcare System Overview. Digital Health Interviews: Kevin M. Baumlin

Before we start our today’s interview, we’d like to remind you that the war in Ukraine is still far from being over. Right now is one of the most crucial times for the battle for Ukrainian independence and democracy, so we encourage everyone to continue to support Ukrainians in any possible way even harder than you did it before: this is important to us.

Our old subscribers probably know that over the past year, we’ve done a lot of interviews all over Europe and Asia. Today we start the new chapter of our “Digital Health Interviews” series. We’re in a new country, on a new continent: we’re in the US — the most desirable country and market for most digital health startups worldwide. The reasons for that are pretty obvious: the market is huge, the amount of capital is much higher than in any other place in the world, and, to be honest, the healthcare system in the US is far from being perfect, so there’s lots of room for improvement, especially for a technological side. So that is why today in our next interviews we’ll try our best to learn, explore, and research the American healthcare system, how it adopts technology, and basically what you need to do to succeed in this market. So we’re super happy to introduce our today’s guest — Kevin M. Baumlin.

Introduction:

Kevin M. Baumlin: “I’ve been a doc for 30-plus years, and I began training here in Philadelphia at Hahnemann Hospital as a grad student. I started working literally in the computer lab writing computer assistant instructions way back then, and I initiated a software company in the 80s. It was a failure, but I learned a lot from my lack of success. I’m a boarded clinical informaticist as well as a boarded emergency medicine specialist and Professor of Emergency Medicine, now retired. And I’m here at the Science Center because I want to affect change in the healthcare system from a different angle. As you may know, I tried politics and ran for U.S. Senate. That didn’t work out so well, so now I’m trying on the private equity side working with a whole host of talented startups who want to make a difference to our system here, in the US, and make it better than it is now.”

Our first guest from the US this year gets an essential mission to give us a brief (if it can be so, of course) description of the US healthcare system. He likes to say it’s US Healthcare systems, and if people think about it that way, especially entrepreneurs, it’s a little bit easier to dive in.

The first and biggest part of the US Healthcare systems is the commercial payer system: 50 to 60% of the population gets health insurance through their job. That’s usually pretty good insurance: it covers a lot of prescriptions, visits to doctors, and in-hospital costs. But the US copay and deductible system is like sticks in your wheel.

Kevin M. Baumlin: “In the commercial world, some jobs don’t have great health insurance, but they cover you when you’re in a hospital, so you don’t go bankrupt if you have a really serious illness. But some plans will have high copays and deductibles, even as high as $5000-8000 a year, so you can do the math: if you’re making $40,000 a year, that can wipe you out. That can be the only thing you have left over for your kids. So part of my job is to figure out how we can decrease copays and deductibles and how we can keep people well and to work with commercial insurance companies to talk about wellness.”

There’s Medicare which is the US federalized plan, mainly for older adults and folks with disabilities. That’s about 17, somewhere 15% of the population. Those Medicare plans cover health insurance, but not all of them. The main ones are A, B, C, and D; those are called Medicare Advantage Plans — they don’t have copays and deductibles, which are very attractive to older adults: they don’t have a lot of savings, and are on fixed incomes.

Kevin M. Baumlin: “There’s a lot of entrepreneurs in that space looking at populations of people thinking: “How can we do a better job of decreasing their cost of care and improving its quality?”. The value proposition is better, so those Medicare Advantage Plans are looking for entrepreneurs to help them care for wellness for older adults, and keep them out of the hospital.”

Then there’s Medicaid, which is a hard-to-understand combination of state-based and federal-supported care. It’s state-based care, and every state has different rules and regulations. That’s very complicated for entrepreneurs to understand.

There are also exchanges that are different state by state. It’s a kind of commercial insurance company working with people who don’t have a lot of income so they can be covered as well. And then there are uninsured people who have literally no health insurance.

Kevin M. Baumlin: “What’s important for entrepreneurs in the exchange space and no insurance bases, those are consumers. So if you have a cool way of providing cheaper, more cost-effective healthcare, there’s still 10% of the population where you can have an impact. Remember those people with high deductibles: they’re looking for low-cost solutions, too, so 10% or whatever that is there’s still a lot of money. So there are a lot of entrepreneurs who want to get into the space of direct-to-consumer because there’s still a lot of money to be made there.”

If the company you work for isn’t covering the insurance or you don’t have a job, it’s up to $600-650 a month per person depending on how much money you’ve earned during your life. But if you’re on the exchange, you’re still talking about $1000-1500 a month for health insurance depending on how much tolerance you have for the deductible.

Kevin M. Baumlin: “What happens to a lot of young people? They will opt for the lower monthly but high deductible plan because they think that they’re invincible. And the №1 reason for bankruptcy in the US today is the healthcare costs and bills. The wealthiest country in the world puts so many people in bankruptcy just because they went for care or had a catastrophic event. But the majority of young people don’t necessarily need it year to year: you can have a healthcare savings account which is a whole other topic of conversation. It’s doable but if you have kids, especially if you have more than one kid, it becomes essentially catastrophic. If your plan doesn’t cover your kids’ hospitalization, it can hit you hard. It makes a poor system that has a lot of stressors and not a lot of answers. My take now is working with insurance companies, and hospital executives saying: “I have this cool company, and they’re going to help you bring down the cost of care for this population. Why don’t you consider working with them? It’s a win-win: if you (an insurance company) are paying out fewer claims in dollars and if you (a hospital) are getting fewer unpaid visits from a population, isn’t that good?”. I choose to think that there’s hope.”

To Kevin, the most pressing issue that needs to be addressed is this whole concept of co-pays and deductibles. It’s a regressive tax: it affects essentially poor people disproportionately more than wealthy ones.

Kevin M. Baumlin: “We as leaders in healthcare should figure out ways to bring lower-cost quality healthcare to consumers who don’t even reach their deductible. They can go to an urgent care center or a large pharmaceutical company. Large companies’ services are accurate in quality, and they bring down the cost of their care. And then we’ll decrease bankruptcies which is a great thing so people have a better quality of life.”

The US healthcare system is also often criticized for its high costs. A big trend in healthcare right now is the workforce, because during the pandemic the system lost a lot of doctors and nurses with the incredible stress of caring for patients with COVID.

Kevin M. Baumlin: “The driver for hospitals and the healthcare system is to make money. They’re the dollars they make from the private insurance, the commercial side supplement and support Medicaid, Medicare, and the non-paying people in the system. That’s the only way it works in the U.S. Otherwise without the commercial payers everyone will go bankrupt, so hospitals can’t manage that budget hit. So what happens when you no longer have that workforce? The workforce now is what we call travelers: higher-cost nurses and providers who travel to hospitals but they garner higher pay. For instance, one local hospital here has 300 travel nurses. They cost double what a regular nurse would. It’s a huge impact on their operating budget. And I would say the first paid place to look is an incredibly huge administrative burden. Why do we have people reviewing charts when we have NLP and algorithms that can do all that work probably better and take away the administrative cost? So there are 18 administrators to 1 provider. Crazy, right? If we can make that proportion less by decreasing the number of administrators, then we win. We can have more providers, pay them more, and improve overall healthcare for everybody. It’s just one example of a place where we can use science and AI.”

Most of the pitches of startup founders are here. The best piece of advice from Kevin to them is to do a lot of customer discovery encounters — and then work on making a pitch with an idea.

Kevin M. Baumlin: “I like a good geeky solution, but is it something that healthcare administrators or consumers want or need? Administrators are looking for ways to bring more dollars to their workforce or make more money. Our current state is fee-for-service instead of value-based care: the hospitals are still driven by the amounts of dollars they bring in the surgical procedures and oncological care. So innovators have to figure out how they’re going to pitch, and to whom they are pitching: to the hospital or to the plan? I was trying to make a case for innovators to pitch to the Medicare Advantage Plans because they’re value-based — and they got it immediately. On the consumer side, if you could figure out a way to get into the market as direct to a consumer something that people can afford, so they don’t have to get a $150 urgent care bill — then that makes sense. There’re places in the market where you can make some good money if you do your customer discovery, I believe.”

Our host Alex asks a question that bothers him a lot as a patient. His family and he came to the country a little over 2 months ago. He had to choose a PCP with his insurance, set up appointments to get physicals, get a few other appointments with specific doctors, and every single time he needed to call the hospital. Usually, each call with all the redirections and questions takes at least 20 or 30 minutes on average. Over the past 2 months, Alex’s spent at least 10 hours on the phone with his insurance and hospitals to make some regular appointments. So why most hospitals don’t have regular scheduling software which would save just a ton of time for both sides of the process?

Kevin M. Baumlin: “Healthcare systems are like Titanic. They can see the iceberg ahead of them, but they can’t quickly turn. They’re a large bureaucratic entity: even if they wanted to turn to void the iceberg, they move so slowly that they’re going to hit it anyway. So why don’t they use scheduling software? To go through the process of getting, for instance, an IT app or an IT solution adapted you have to go through the whole process. You have to get somewhat interested in a team, say, psychiatry or emergency medicine, and be a passionate early adapter. You have to advocate with Clinical Informatics — a bad clinical traumatic system. For instance, you have a company that has a good track record in 20 hospitals and you’re pitching to a large healthcare system. Okay, let’s do an RFP (you have someone to write the request for proposals); you have to send it out, wait six months for responses, evaluate the therapy RFP, get the response, score it, and bring it to the committee — and that’s already another year, right? And then, maybe, you might get on a budget cycle which is once a year; budget cycles don’t happen all year long. One time a year you have a chance. When I explain that whole process to entrepreneurs, they’re like: “No, that’s not true!”. But it’s just how it works. And are we going to try a different segment of the market? Okay, go for it. Maybe, you’ll go to payers, that’s an interesting place. Maybe, you’ll go for the direct-to-consumers. But if you’re trying to get into the healthcare system market, good luck: it’s a long road.”

For some startup founder, who is working on an AI startup right now for a hospital, and he listens to us that they’re still not scheduling software implemented, this interview can be a kind of disillusion. But we don’t mean to sound negative! There’s hope, planning, and really good customer discovery.

Kevin M. Baumlin: “We here at the Science Center have a program called “Proof Positive”. We go through the i-core NSF training — and we teach. I’m a mentor for a customer discovery class. We teach how to do it and teach the “why” to do it. It’s the scientific method, it’s testing your theory, and you have to learn how to pivot. Maybe, you think you’re in one segment and now you think you’re in a different one. Now, maybe, a different segment is a really hot topic for payers, and you have a lot of interviews with payers in the Medicaid care space or in the Medicare space. There are lots of ways you can take your customer discovery journal and then move into your commercialization, your capital raise journey to be able to pivot and to know that that’s part of the process of being a founder. It can’t be so fixed in your belief and so arrogant with your thought processes that you can’t even conceive of changing. You have to be able to adapt to the change and do a self-check along the journey. There are lots of avenues to look at. Don’t get discouraged: just keep working hard and reach out to places like the Science Center that do this work, so that we can help you along the way. It’s still America, there’s still a lot of opportunities, and there’s great money to be made and care to be delivered. That can have an impact on people’s lives, all along the continuum of your life.”

Then we raise the topic of telemedicine in the US and its future.

Kevin M. Baumlin: “I see great potential to expand the healthcare team by using telehealth and telehealth services, especially for lower acuity issues. But I’m more interested in seeing you in person in the hospital than over the telemonitor. What I think telehealth is great for is low-cost low-acuity care. Insurance plans right now are looking at bringing the overall cost of care for their populations down. For older adults, follow-up visit care is great. Taking, for example, my mom to her appointment is a struggle and a half-day event. And here’s a follow-up visit on a screen when she can talk to someone she’s familiar with. I don’t think telehealth is for everything, but it is for some things. Wound care, for instance, bypass surgery wound. My dad had it — and my mom took a picture of his wound every day because he didn’t want to come to New York City from the Jersey suburbs to have it looked at. We can use telehealth services to improve care, decrease its cost, and improve its quality.”

Hospitals are interested in telehealth depending on their practices. Psychiatric care, for instance, went from 5-10 to 95% telehealth during COVID, where they are now approximately. Follow-up evaluations by telehealth are a big deal, and there’s stickiness in that space. The question is where is telehealth gonna stick? In other countries, for instance, Australia, they have a lot of rural areas where they want consultations with secondary or quaternary care. Telehealth helps improve the quality of care.

Concerning the intersection of healthcare and technology heading in the next 5-10 years, using home monitoring devices directly integrated into EHRs will be in Kevin’s prediction the much more accepted care at-home models as it is in Israel. The entrepreneurs in the space of “Hospital at Home” will be the good ones and a good investment. There will be a sorting out of the behavioral mental health services investments that were made during COVID-19.

Kevin M. Baumlin: “As a scientist, I always push the startups to study, and to have a perfect preferably a double-blinded placebo-controlled trial or at least two cohorts of patients in a well-designed study. We’re not just pitching an idea to a market that doesn’t want to just hear ideas. We win ideas that are backed up with some results.”

Let’s wrap up our great conversation with some of additional Kevin’s recommendations for digital health startup founders.

Kevin M. Baumlin: “Years ago, when I started my software business, I learned I didn’t have enough capital and time. And it’s the same lesson today: if you don’t have enough capital, if you don’t have enough savings or early friends and family investment, bootstrap investments, to fund yourself for one or two years, don’t even start. You’re just gonna waste your money and you’re not going to get anywhere. You need to do your customer discovery. Actually DO IT! Don’t just: “Oh, I talked to such and such.” Do it, record it, document it. I think there’s hard work, just like anything else in life. Do the hard work — and you can succeed. Be able to pivot, be able to listen, and really hear what’s being told to you!”.

Our previous episode was with Alexander Voigt: DiGA Fast Track Isn’t That Fast, Is It?