Annie Lamont: Healthcare, AI, Epic, and Medicaid

[upbeat music] Before we begin, let me introduce my guest, Annie Lamont. She's the co-founder and managing partner of Oak HCFT, one of the preeminent venture and growth equity firms investing at the intersection of healthcare and financial technology. She's been doing this for over three decades. She had early bets on athenahealth, One Medical, VillageMD, and Devoted Health, and she's appeared on the Forbes Midas List seven different times.

We're going to cover where American healthcare is headed, what AI actually changes, and whether the capital that's flowed into the sector over the last decade has made things better or worse. [upbeat music] Annie Lamont, welcome to the pod. Happy to be with you. So let's jump right in. You've said AI might finally deliver on technology's long-standing promise to transform healthcare. I mean, that's a pretty bold claim given how many times we've [chuckles] heard that before.

What do you think is actually different this time?

I think it's, it is fundamentally different because every time we have introduced software into the process of healthcare, it's added burden. I mean, it's been important to organize data and information and drive cons- you know, a patient experience, but it is added burden for nurses, clinicians in general, doctors. So I think what's exciting is this is the first time in my entire [chuckles] healthcare career that we are, we are taking friction away.

We are making the experience of delivering here more pleasant for the clinician, um, and reducing the amount of time they've gotta spend on administrative burden. So I think it is, it is gonna be really powerful. We're already seeing it, uh, and I'm, I'm super excited about, like, that's one of the initial reasons, but there are so many in terms of actually, like, changing the game and taking cost out in healthcare which, as you know, is we've not done a very good job of the [chuckles] last 30 years.

That, that's for sure. So you've also, I think, flagged something you call the revenge of the incumbents. Can you walk us through that? I mean, who are the incumbents in this story, and how do they use AI to protect turf rather than improve care? Yeah. Well, I think, um, let's go to the number one [chuckles] offender, Epic. Um, I think, you know, Epic has done some good work. You know, we were, we were investors. You know, full disclosure, we were the largest investor in athenahealth many years ago when it was started.

Um, and they were more ambulatory, and, and Epic was obviously sort of ended up owning, and it-- that's only accelerated, owning the hospitals. And that is, they're literally gonna be a m- complete monopolist, you know, I think in the not-too-distant future in terms of every academic medical center certainly in the country is, like, converted or converting to Epic, it seems. And they, that gives them a lot of power as the incumbent, and they're definitely, you know, investing in AI.

But I think the trap is that innovation, 90% of innovation is coming from the outside, and the reality is their ability to, uh, slow innovation by saying, "Hey, no, we're gonna have that feature in a year or two years or three years," it rarely will be as good. It will come much later. But you know, they do have this captive base, and so the question is do somebody really, you know, need or want that experience now, and what's the friction that, that Epic can create in terms of integrating into their EHR?

And that's, you know, you know, that is not only a psychological as well as [chuckles] physical barrier for, for new companies that are entering, uh, hospitals. Let's circle back. You, you said that you think AI's gonna be different this time, but there are skeptics who basically say, you know, every major technology in healthcare has essentially not come through and has promised cost reduction. I mean, again, why should AI be different this time?

So it's not just for healthcare or hospital systems. I mean, it's every facet of our lives, and I think we're, we're all experiencing it. I think, you know, one cool thing is consumers are experiencing healthcare in a different way, right? Just being able to diagnose things that, you know, they used to go f- to Google for. But the reality is [chuckles] whether it's Gemini or Claude or OpenAI and, and ChatGPT, I mean, they're experiencing that they can actually have much more knowledge about their own healthcare today.

And I, I think this actually starts the ball rolling in a more D2C approach, friendlier approach, uh, and real enablement of consumers that we, that we just really haven't seen yet. And I, I just think every-- I mean, we're, you know, like, we're spending in my own firm an amount of money that I never anticipated to automate all of our internal workflows. I mean, it, it is-- I think that it is undeniable in my point of view.

I mean, I lived through the '99, 2000 period where there was overinvestment in infrastructure, and it took a while for usage of the, of the, you know, on the internet to actually catch up with the broadband infrastructure that was cr- you know, spent and created. And there were a number of broadband companies that went bankrupt then because, you know, video didn't come till much later, and so in terms of, you know, clogging up the, the pipes.

And now you just look at the reality is the constraint is data centers. The reality is the demand for AI, uh, usage is going, growing so quickly in every aspect of our lives, every aspect of research and, uh, you know, enterprise that, you know, we can't build them fast enough, I'm afraid. So I think the- This sort of, I think it's a canard, you know, that to say that it's AI hype. I think the reality is, is this infrastructure [laughs] is going to be needed, and we are all gonna be using it in so many, in e- in every aspect of our life.

And that makes sense, and, and we at The Puck agree, and we're trying to follow where things are going. And it may take a little longer than people think, but it, it, I think it's here to stay. So when you look at the healthcare system today, and as an investor who's been in this space for a long time, do you think the space is fundamentally stable or under structural stress that hasn't fully surfaced yet? I mean, I think it's under a ton of structural stress.

I think we just have to start with the fact that the only reason we created net new jobs last year was because of healthcare. Right. Right? I mean, it's kind of amazing across America. You know, if you think about, you know, 18% of all workers are in, working in healthcare in America. It is the largest employer other than Walmart. In a few towns, it's the largest employer in every state. It's the largest employer in almost every community.

So it has a lot of entrenched interests, you know, let's just say because we are employing so much of the economy in it. And so it's very hard to reform some- like, we should have ... You know, I wish AI had come sooner. I wish we'd had more maybe pressure sooner on cost and quality because now it's just a little bit harder to reform the system because we are, it's so much of our economy, and our jobs and lives are, you know, like, dedicated to it.

So I think that, you know, that, that's one aspect of it. You know, just think about the lobbying power in, in all the states across the country and in the feds is, is enormous. So entrenched interests are, you know, like, difficult to get around. I think the payers are getting absolutely crushed, right? They're the evil ones, you know, being portrayed, and they are. But, you know, like, everybody ... You know, I'm not gonna demonize providers.

I'm not gonna demonize payers. I mean, the reality is everybody's doing a job, and there are a lot of good human beings in both [laughs] of these industries that are trying to do a job. It's just that the payers are now considered the bad guys, and what they have been trying to do is control cost, and, you know, but not that effectively, [laughs] you know? And so as we think about, like, reformation, I mean, I think we are having structural problems.

There are healthcare systems that are doing incredibly well, very, very profitable. There's more profit in provider systems that are, than there is in payer, on the payer side right now. But then you have small hospitals, you have rural, you know, that are struggling and suffering. So it's really a tale of two cities there, um, you know, like, depending on where you are. Um, so how do you, you know, like, how do you reconcile that?

I, you know, like, honestly, I think vir- I do think, I don't wanna be Pollyanna, but I think virtualization and AI have come at the exact moment where we

100% need them, um, because we need to extend capabilities into rural environments, right, that are virtual, that are ... You know, just think about oncology. You know, like, if you're within 100 miles of one of the great col- oncology centers like Memorial Sloan Kettering, MD Anderson, your care is an order of magnitude better than if you are in a rural environment in Tennessee or Arkansas or Mississippi. Um- Mm ... and we need to change that.

And the way we change that is having access and information, and you can do that through platforms. You can do it through extending the kn- the research knowledge that's out there about all the trials, all the new drugs. You know, like, there is no way an oncologist in, um, you know, uh, outside of their, or a primary care doc, right, who's treating patients, you know, in a community that's not directly re- linked to one of these great systems can know all that information.

But now we're gonna have that information at people's fingertips, and we're going to create new models, care models, as well as access, uh, that won't have to be, you know, living, having a structure, you know, within 30 minutes of, uh, an individual in, you know, in,

uh, rural Mississippi. Which, which should obviously be huge. And I wanna circle back to something you said about payer and pay for a second, which is

as someone who was very involved in billing and collecting for hospitals is when I was a corporate lawyer, and then now as a restructuring guy when I get called in to fix companies that are struggling, one of the things I don't think everyone knows is what a black box insurance billing in healthcare is, meaning the coding and the thousands of pages back and forth, and the games that insurance companies are able to play, and the hospitals, and they hold onto your money as long as they can, and then they finally come up with a percentage and they pay it out.

Do you think AI may finally kind of put an end to the black box so that billing and collecting really becomes more mechanical and, and, and forces real change where, again, to put a pin on it ... I mean, I remember when, you know, a tube of Vaseline was $100 in, in the hospital because that's just how they billed for things. It- Right ... do you see AI finally, you know, changing this?

I do, I think in terms of, like, claims or real-time payments, and then I, I do think we're heading there. You know, this idea that, you know, pre-auth is done sort of at the end of a process as opposed to, you know, let's focus on the things that are egregious, and let's focus on the, the actually, uh, having the right diagnosis in the first place, which leads to the right care, which leads to the right reimbursement.

I mean, those things if we can get payers and providers more on the same page earlier are going to reduce a lot of friction and cost in the system. So I, I am encouraged by that Again, staying on this theme of kind of the financial part of the industry and AI coming in, but we all know because of, as you said, the big data and otherwise, it's gonna, it's gonna take away time for these data centers to be built, the energy to be there to pro- you know, power them.

If, if nothing quickly structurally changes, there's no major policy reform, no breakthrough in payment models, where do you think the system cracks first, and what's the most likely point of failure? I think it's cracking already in Medicaid. It's absolutely crushing state budgets. The acceleration over the last two years has, has been extraordinary, and obviously inflation in healthcare has been across the board high.

But I would say in Medicaid budgets, you know, the issue is a couple things. One, the expansion of the definition of autism, and then, and then there are games being played, I would say, in terms of, like, accelerating. You know, there are some groups that are, you know, sending autism patients to other states where reimbursement's higher. I mean, there are games being played. But I do think the expansion of the definition, the number of people that may or may not really, you know, should or shouldn't be on it, that's probably a third of the increase of the budgets- Wow ...

in Medicaid. Re- it's big. Drugs, 30 to 40%, uh, increase in expenses, and some of that, depending on the states, will be, uh, GLP-1s. So you know, as we bring down the cost of that, that will be better. I, I am hopeful. I mean [laughs] actually my, my own PCP said they were just at Disney World last week, and she's like, "Wow, noticeably thinner people at Disney World this year versus three years ago." I was like, "Well, that's encouraging," 'cause hopefully that leads to a healthier population.

That's the goal, right? So maybe, you know, like maybe we're spending money to save money, and I... You know, we've said, said that a million times in healthcare and haven't proven that, and I sure hope that's true. But that's only part of it. I mean, I think the marketing, we had a spike in Connecticut after the Super Bowl, all the branded drugs that we're marketing. And man, in Medic- in Medicaid, the next day, literally a massive spike in prescriptions as they were requesting, you know, all these different kinds of pres- prescriptions.

And you know, in brandeds, and they have to have... And you know, we have a, like, you're more likely to get a branded drug sometimes in Medicaid than you are in your commercial plan, so like focusing on generics and what the lowest cost drugs are that have the same effect. You know, these are, these are things we're, you know, like, I think the country's still working on in terms of, like, if we're gonna provide care, let's figure out how to provide it at the cheapest cost, you know, with the best outcomes.

Specialty drugs, what a great innovation. I mean, so many things are amazingly powerful. I, I think if, you know, if any innovation has really made an impact in the last 15 years, it's drugs, right? I mean, starting with oncologies, you know, like, there are a number of amazing drugs that have been hugely helpful, even in the, you know, orphan drug population. I mean, game-changing, wildly expensive. You know, as a country, we've made that choice and, you know, on specialty drugs, maybe a fraction of drugs prescribed, but they are a vast majority of the spend right now.

And I can't give you an answer to that, like how do we solve that problem? We don't wanna discourage innovation- Right ... yet, you know, c- we, we say we can't afford it, but you know, and other countries deal with it differently. They, they say, "No, we're not gonna cover it," you know? And Americans are not gonna accept that, and I, I don't know if they should, but you know, like there's a cost to that. Yeah. No, for sure.

And, and look, at, at some point with the $39 trillion deficit, we're, we're gonna have to address it in whether or not it's more and more inflation or making tough choices, which, which Congress has just not been willing to do.

Not willing to do, and I, I think whether it's education or healthcare, thinking reform and making massive reform is really, is really hard. Um, and, and unfortunately we just spend more money doing it as opposed to thinking about how to do it more cheaply, inexpensively, and I, you know, I think we're just not incented to do that right now, uh, structurally. So speaking of incentives, let, let's talk about the engine underneath all this.

Is the core problem in American healthcare fundamentally a misaligned incentives problem, and, and if so, where does that misalignment run deepest?

You know, if you think about the vast majority of spend,

I mean, again, people like

payers sit on top of the infrastructure. You know, the max they can get in most cases is like 15%, so say they add 15% to the overall cost, then the rest is in providing care and devices and drugs, right? It's, uh, it's like that, kind of that simple. So i- if most of the cost is in providers, now drugs have gone from 10 to 20% of spend in the last decade. It, it's been an ex- you know, like that is probably mo- much of the inflation.

But on the provider side, we, we pay people to do things, right? We, we pay fee f- fee, fee for service drives the system 100%, and we keep, you know, talking about value-based care, but there's very, very little of it. And as long as you're paying people to do things and not for outcomes, we don't, we don't measure outcomes at all.

We, we say there's, like on a hospital website [laughs] or you're supposed to report, but nobody knows what the outcomes of their own providers are. It's all, it's 90% like word of mouth, and until we're paying for outcomes, you know, like we're gonna get the same thing. Um, and until people are encouraged to, you know, sort of be more efficient, I, you know, it is my, it is my hope that- We enable people to serve at the top of their license with AI, and that you just naturally...

Like, we've invested in a NP, nurse practitioner provider network that we're gonna be expanding across the US, and they can do so much. And primary care is so challenged, that if you can just that, you know, do that, like have NPs more accessible, more available, and empower them with AI, and provide more information to them so they can do so much more, and leverage them, and leverage primary care docs, you know, to do more better, you know, then that should, instead of paying people more, I mean, the reality is hopefully they can do a lot more with what they have.

So as an investor, and when you look at the amount of money from private equity and venture that's gone into healthcare,

has the venture and PE investment improved the system, or do you think it's distorted it?

Don't... You know, you're... I'm gonna have a... You're gonna... I'm gonna show my bias here. [laughs] Yeah, that's okay. I feel,

I feel like the venture community has,

you know, they, they're re- it really is about transformation. I mean, what we're trying to do and, you know, like, our mantra is if it, if something doesn't try to improve outcomes, access, lower cost, we're, we're not investing in it. You know, like, they, we just don't do that. And I think for most VCs, we're trying to tech enable things. We are trying to change things. We are trying to move to value-based care. So I think there is a, in general on the venture side, a, a, a, like, improvement transformation.

Now, you could argue how much have we improved in the last, you know, 20 years? But I do think with virtualization now, we are, you know, there are consumer models now. There are, there is virtualization expanding, you know, access for systems. That does make it, you know, cheaper at the end of the day. It creates more access. But

PE, I don't know. I mean, I think, you know, it depends. It's kind of like there are definitely cases where hospitals have not been run. I mean, you could say HCA is a fam- you know, like, was a family-owned business that had, you know, multiple PE tracti- transactions going private, public, private. You know, they're now a public company.

They run the most efficient h- they don't get 340B, you know, like, drug benefit that most hospitals base their profit on. You know, like, they are an incredibly efficient, well-run system that provides good care, and they do it responsibly. Um, so they're like a, I think, an amazing example of, you know, good care, and they provide, I think, more Medicaid than not-for-profit systems in Texas, for example.

So I, you know, there are great examples. There are bad examples. I think Autism, they're terrible examples of PE acquiring companies and then basically figuring out lots of different ways to charge more, to bring more people in, and, you know, move people one state to another 'cause reimbursement's better. So there are good and bad examples everywhere, and, you know, not-for-profits, um, I can cite good and bad examples, too.

So when you look at, you're talking about things like autism. I mean, when you look at that or you look at homelessness or you look at mental health in the country, you look at the whole debate between using police to deal with people that have, you know, mental health issues. I mean, from a, from a societal perspective in terms of the, the, the care that's required to take care of these people, I mean, has, has the system got any strategy to deal with this onslaught of people that really have these, you know, illnesses that require actual,

you know, either, you know, confinement or a hospital to go to or a nursing home to go, go to? I mean, there, there really needs to be hands-on care for these people. Is, is the system even beginning to deal with that?

I think there, there are a number of models, uh, for hands-on care. There's certainly more money than that forever. I mean, if you're talking about an improvement, I mean, maybe there is more mental health and substance abuse than there's ever been, but if you went back 30 and 40 years in how we dealt with these people, that was, that was a, a lot worse than it is now. I mean, you know, the institutionalization, um, the isolation, the lack of care was terrible.

So I do think we've got lots of different models. We have some more virtual models even for some seriously ill that are supportive. You know, there's inpatient psych care all over this country that's been invested in, and some really good programs developed. So

while it seems bleak, I actually think there's a lot... I mean, in the last, you know, 10 years, five years, I mean, obviously COVID brought, made us more, I think, more aware and able to talk to, and certainly the younger, you know, like, 20-year-olds talk w- quite openly about seeing therapists and what their issues are and their friend who was suicidal, and, you know, that just didn't happen in an older generation.

So I think, I think we're making, uh, huge progress actually in terms of expanding models and increasing investment in mental health, and I, I will give a shout-out. Dan Brillman is now running Medicaid, and he ran a company, Unite Us, that combined looking at all these, it was all about social determinants of health. So I do think the administration understands the importance of homelessness, mental health, you know, food, uh, I don't wanna say food insecurity 'cause, like, the people that have food insecurity don't call it that.

They just call it, like, starvation and lack of food. Um, and but all of those things together impact, you know, individuals' healthcare and health. So it is, it is something that I, I do think systemically we're gonna be looking at more and more as a society.

But with an aging population and with people, for instance, whether or not it's dementia or other, you know, uh, Alzheimer's, i- i- in terms of just the sheer number of people that need elder care, so to speak, we don't... It's not covered by insurance, and from a strategy perspective, from an investor perspective, do you see people thinking about how we're going to actually take care of these people that really do need personal care?

Again, I don't wanna go back to technology, 'cause, uh, we- we're gonna need humans. [laughs] You know? Like- Right ... the reality is one of the reasons we hired more people in healthcare than any other- Right ... industry last year was we need humans, and a lot of these people are caregivers, and, you know, a lot of those people are immigrants. So we should remember that. Um-

Yeah ... and so I think that human touch is, like, essential, but I also think it can be leveraged and will be leveraged by automation in the future. And I literally, [laughs] literally talked to a company this morning that is going into dementia units and, uh, in independent living and nursing homes and putting in technology to monitor patients so they know when they fall. They know when they're going to the bathroom too often at night, that there's a problem.

And having had both of my parents in dementia units and assist- in assisted living, you know, we had to get 24 by seven care sitting with them because there's no way somebody can really monitor in one of those facilities that, you know, care. And so I do think with the leverage of technology monitoring patients, then people know when somebody needs help as opposed to, you know, we're, we are unintelligently having people monitor every three hours, we have to stop by that room.

[laughs] You know? Like, that might be too late. You're also getting data on these individuals. Like, oh, what is their... Like, what is the problem they... Oh, we... They are going to have a problem, and it could be a, you know, an orthopedic issue. It could be, you know, some other issue that we can get ahead of by actually in a blinded basis, um, like, tr- collecting data around their movement during the day.

So now let's kinda talk a- about a subject that's near and dear to me, which is kind of this issue of how do you deal with the financial stresses? So for instance, if you're a big hospital chain and you have certain hospitals that are struggling, and you afford yourself a bankruptcy filing, for instance, and you spend $3 or $4 million on administrative costs, you, you can theoretically afford that. But when you look at some of these regional hospitals that are really loaded up on a lot of debt and that are really, really struggling, do you see strategies, especially in these regulated industries where, for instance, things, tools that we use in California, like assignments for the benefit of creditors, which are less expensive out-of-court ways of liquidating and restructuring a company.

Do you see the need for kind of an out-of-court restructuring process where professionals come in and help these companies get their debt in a more manageable form? Because again, one of the changes we've seen over the last 15 years without a recession is that bankruptcy costs and administrative costs have just gone through the roof. There's a, there's a shortage of people doing restructuring 'cause it hasn't been a sexy space for the last 15 years.

Right. And as an investor, you know, looking at these companies, what types of strategies or things are you seeing discussed that can actually help get some of these regional hospitals out of, you know, the, the debt spiral, so to speak? Yeah. Well, I think there, there are two sides to that. One, y- you're the lawyer, so you [laughs] would know that side better than I. But I do think from a regulatory point of view, we a- absolutely need it, need to make it,

uh, uh... It, it's really judicial. Regulatory judicial. You know, we need to accelerate and make it easier and take it out of the court system and create a... You know, it should be mediated and negotiated, um, between the parties. It is,

it is criminal what happens in terms of how long and the cost to reconcile these issues. So I, I do think that that absolutely could be, you know, should be changed. I think the, you know, the other problem, it's also very hard to close a hospital system. And you could have, in fairly dense areas, too many hospitals, but people are very attached to their local hospital and, I, you know... So I d- I think the problem is

unfortunately we, we do have too many hospitals, and you can't, you can't... It's like [laughs] just politically, culturally, it's very hard to close systems. And so I, it, you know, that's a political will question as to, you know, whether we, we can do it. And I, and I do think the...

Uh, you know, while I don't like [laughs] it's like I like lo- independent local hospitals, the reality is [laughs] that there is a benefit to scale here, and the right people have to own the scale. And there is a, there's a problem with being monopolous in a market, but there's is a even more of a problem with an independent hospital that's not running efficiently. And the, the reality is there's so much that can be done in the next, you know, five years to run a hospital better and allocate resources.

I mean, we... I have two hospitals locally. You know, they're both quite good. But, you know, why, why would they both compete on oncology? Why would they both compete in cardiology? Like, this is crazy. You know? Like, one should own one sector, one should own another, that we can't... You know, like, it's really

not probably great to have every capability in every hospital that are within 15 minutes of each other.

Well, do you... And for instance, you talked about change from a regulatory or a judicial perspective. I mean, one of the things I've seen successfully done is where you have sophisticated managent- management bring in consultants where you actually negotiate with your creditors, and you explain to them, "Look, we can file bankruptcy, but you're gonna get zero, and it's gonna be incredibly expensive." Or we're worth more alive than dead, so let's stretch out your payments, take a discount or otherwise.

Are, are you seeing, you know, hospitals being sophisticated in bringing in people to actually help them negotiate down some of this debt that they're struggling with?

You know, I... That is, again, probably more your world. You know, we've never owned a hospital. I'm not inside the hospital, so I, I don't, I don't know from that aspect. I, I do know the State of Connecticut is now forgiving debt for [laughs] ... It's basically paying off the debt that's been outstanding for, uh, individuals who can't afford, uh, to pay, so.

And then,

you know, when we look at the structural aspect of American healthcare today, and if you look at kind of, you know, a wish list of things that you, if you could sit down with politicians and get done, I mean, what would you like to see, the one aspect that you really think could be done that would help the system the most?

I, I, there has to be a fundamental change in how we pay.

I mean, reimbursement model is not working. How we think about paying people has to be based on outcomes, and figuring out a structure for that and paying everyone that, uh, in that way

be- because right now we've tried to do value-based care and, uh, and then we've, we have a fee for service system. You ask any CEO of any healthcare system, they're, they have, they've got to have a, um, uh, you know, a, a functional profitable system, you know [laughs] , that's their responsibility. Uh, you know, as the, the Catholic, uh, nuns used to say, you know, "No money, no mission," you know? [laughs] So that's just the way it is.

Uh, so I think the reality is, is if you moved everything to functioning in a different way and it was all based on outcomes, then people would behave differently and they'd get paid for that. And I think right now you, um, you know, when people are paid to do things, and that's just a reality, and they're not bad people, it's just, like, the more, the more procedures you can drive, um, you know, the more profitable everybody is.

So I do think we need to think about that. And then drugs, I, are, is so complicated that I, I think the problem is I would take layers out of the drug system. I'd make it far more transparent. I think the reality is we've got between the pharmaceutical firm and the individual that's getting the drug, you've got four or five layers of people that are taking cuts along the way. And just figuring out a way to streamline that.

From a, from an insurance perspective, I mean, you've got insurance companies, you've got the government involved, you've, you've seen people talk about single pay systems. How, how do you actually structure it where the payment system becomes consistent? I mean, what, what are the alternatives that actually get you there?

Well, I think, and we again don't, I mean, you gave away... I'm, I'm giving you the dream scenario. [laughs] But from the government's perspective, you know, we don't have the political will to mandate, right, to fundamentally change, uh, how we, how we pay. CMMI has done some nice things in creating models. I think, I think it is actually gonna bubble up, and I think it's beginning on the employer side, in that what we're seeing in commercial is, um, paying for, uh, the alternative plans at, that are lowering cost.

And they do that in different ways, but some call it narrow network, but it's really, there are many different ways to do it. Think about episodes of care. So

a number of these firms have a version of this and these alternative health plans, and United has Surest and there's a company called Garner in New York that's working on this, and Oxbridge and a number of other companies. But what they, what they do is, as a, an employee, if you opt in for one of these plans, you have an issue, you, you're going to be sent to a,

a doctor and a network where they've already negotiated a rate. They know that this doctor has good outcomes and what it's gonna cost. And so they've got a s- specific rate for whatever issue you have or whatever procedure you're gonna have. And I'll, I'll give you an example. I mean, Hospital for Special Surgery, HSS, you know, like unit cost high, but outcomes fantastic, uh, readmissions low, and so therefore, and they're least likely to say you need back surgery or surgery at all.

So actually having them in your network can lower your cost. So they're actually in, and they're going to be in some of these narrow networks because they're so good, and the only problem there is, and they're trying to expand their capabilities and their approaches, you know, and, um, uh, broadly. But the reality is if you can do that, that's lower. That's like, okay, well, you may be paying your surgeon more, but the outcomes are better at the end of the day because they've done all the right thing.

They've said, "No, you know, you should go to PT or a physio." You know, like 70% of back surgeries don't work, right? Uh, they have fewer readmissions, and they do it right the first time. So I mean, I think, and there are, you know, like other hospitals that do that, so and they're... But it's, it is thinking about, like where are the best outcomes and ultimately where's the best, uh, the lowest cost because of outcomes and, and how people behave in terms of whether they're recommending surgery or not, rec- or recommending,

you know, something that's lower cost and just as effective

Well, a- a- and when you look at kind of all the discussions about

rationing healthcare or incentives, I mean, one of the things that I've always noticed is whether or not it's car insurance or life insurance, they're actuarially based. I mean, there, there are, y- you know, there are... If you, if you have DUIs, you're gonna pay more for car insurance. If you're a smoker, you're gonna pay more for life insurance. H- how does this system work if we don't build those kind of incentives and, and actuarial, actuarial models into healthcare?

I would like to incent people [laughs] on the wellness side. That is just been proven to be extremely fraught, right? Um, in terms of people's a- abilities to,

um, you know, knowledge of what, how to exercise, you know, healthy eating, uh, all of those things. W- Is it, you know, like genetics? Are we gonna profile people for their genetic lottery? You know, like I think, like, you know, you and I were probably given like good healthy genetics, and not everybody's given that. So how do you punish somebody for that, you know? Like, so I think it's very hard in healthcare to incent people.

I do think, you know, like employers incent people. You know, like, they, they do penalize people for smoking. Like, that has been allowed. Weight has not been allowed. You can incent people to go on GLP-1s if they've had a weight issue. I mean, the reality is, is it's working, so you, maybe you haven't had to incent people. They're taking it. 25% of people that, uh, are

eligible in terms of the categories of obesity, diabetes, et cetera for GLP-1 are taking them right now. So we are, you know, we're making progress I think on, on that front. I would love... You know, I think the reality is, is what we're tr- you know, like the administration's trying to do in, in, uh, in terms of food quality is great. But, you know, like just taking dyes out of food is not gonna happen. We have, you know, we have two problems.

Lowest cost for consumers. They're struggling with affordability in food, and so they're gonna go for the cheapest food. And the other problem is big business, right? I mean, no- well, Trump's not going after big business that's producing a lot of processed food. [laughs] It's just not happening, so. Right. You know, so you have the worried well and those that can afford it, you know, eating well, ha- you know, exercising well.

Yeah. And how do we expand that? Like, that would be

a huge goal. How do we keep the population well, you know? Uh, we'd save so much money doing that, and I don't know. I hope GLP-1s is a magic bullet. Well, and, and based on what you're saying in terms of Disneyland, it, it definitely seems like... I mean, people don't advertise it. They just, you know, a lot of people are using it silently and stuff, but, and it's so it's hard to get the statistics. But it does seem like a lot of people are taking advantage of it.

Yeah, 100%. It's, it's, it's effective. Yeah. I guess one thing I'd like to talk about

is

the FDA. Now, we don't invest directly in products, but we invest in

the, all the services. You know, we just invested in Chai and drug design, you know, AI and drug design, which I think is incredibly exciting and transformative. But I do think that, that we are in a con-

we are in a deep crisis [laughs] at this moment in this country that people don't even know yet because

we need to be thinking differently about what we're doing in drug development. We have... That has been one of our most innovative industries. We have owned the biotech life science pharmaceutical industry. You know, drug development in, in, uh, this country has been a, the last 20 years, a huge economic issue and a benefit, you know, to our population even though expensive. And right now, the

60% of all R&D dollars from major pharma are going to China. They can do it more cheaply. Uh, principally they can do it more cheaply. Um, and they're investing a lot of money in that. They've obviously got cheap bodies. They're investing a lot in technology. Their regulatory process, you can get into clinic a lot faster. And I do think the administration is aware, but it, it literally should be, you know, like a 911.

We have got to figure out how to get clinicals to go faster, how to get preclinical processes to be faster, to invest in drug, you know, design and development in this country. Um, otherwise we are gonna lose our industry. And it's, it is I would say the one industry [laughs] that we have, you know, one of the few industries we have a ma- we had a major advantage of and have, have lost that or losing that. Which is interesting 'cause I had not heard that.

So in other words, even with the AI and ability like what happened with warp speed and new vaccines and, and so forth, you're seeing a lot... I mean, again, we, we were leading the world, right, in drug development, and people come here for treatments. I have read about how people have gone to China, that there are these places where people can go and, and get special treatment in China now. That, that's something I had not heard about.

But the 911 is, is what's actually happening? I mean, is it, is... What's changed that's, that's made this shift? I think what's changed is they've invested in R&D there. They've invested in like services. They've opened up their clinical process. They refined it. So I think it is we are, we may still get the benefit of those drugs, but as an industry and an innovator, we're losing, you know, we're beginning to lose. And I would say, you know, so many of our major pharma companies are, you know, s- Send it, spending much more preclinical to clinical time and dollars in China.

And so that's just something, it's hard. We are not, we are not gonna have the cheap bodies, but we do need to figure out how to do preclinicals, how to, how to foster and accelerate our clinical processes here in the US. And that's something that the FDA does have a, a lot of influence on, and obviously NIH dollars. You know, if we focus on research, I mean, we need to figure out how to accelerate, um, research and innovation here, and, and just do it in a more cost-effective way.

And I do think there's some great companies like Chai out there that are going to be transformative. It's just we, we need a,

you know, sort of industrial focus and effort on that. It's interesting, you know, you're, you're now making me think about this. As a restructuring firm, we do a lot of work in biotech, and I've noticed, for instance, again, because a lot of the government reimbursement and just the venture capital, what I would call liquidity issues, there's no question that we have seen some, you know, 100, 200, $300 million of equity being washed out in some of these biotech firms in San Diego and Orange County, for instance, because the funding has just, in a sense, in the last year, dried up.

And, and, you know, there, it seems to me there's two aspects to that. There's the government lack, you know, cutbacks, but there also is a unwillingness on the venture capital and private equity f- world to continue to invest. I, I've really seen a pullback, and we've been, like I said, we've been much busier in the healthcare biotech space than we were a year ago. Is that... I mean, again, is it, it is all these factors coming together at once?

I think all these factors are coming together at once. And I think there, there was obviously... [laughs] This is, you know, there's been a cycle for 30 years. There's sort of a mania, and when markets are up, you know, all these biotech companies get funded, and, you know, probably half of them shouldn't have gotten funded, so. And it, and it's also a risky proposition, right? I mean, this is a... You know, we did drug discovery and products, and we founded Genzyme, and Cephalon, and Alkermes, and Alexion, and all those type companies.

It, you know, but the reality is just it, it's binary, right? And, and so it's like the drug works or the drug doesn't work. Um, and so it is a, it's, it's a frisk- it's a risky proposition. And money, I mean, from some of the same firms that are investing in these are also being invested in China. I have to say, it's, you know, there are alternatives. And, and do you think that some of that is just inevitable? Meaning, you know, we've got a pretty large economy.

We've thrown a lot of money at healthcare, and we kinda own certain fields. And, you know, again, it, it, it was like, you know, after World War II when, when, when Europe was decimated and, and we were the only game in town. I mean, China is a, you know, huge country now with, with a large economy. Yeah. Is some of this just inevitable in terms of our, our monopoly power is gonna ultimately shift away?

Well, I thi- I... Look, nothing's, [laughs] you know, nothing's inevitable. [laughs] You know? I mean, I think through innovation. I mean, the reality is I think it, it's just... You know, it's interesting. You look at, like, our GDP and where we spend and everybody would assume as a percent of the, you know, world population, I mean, we're, like, almost better than ever. So I'd say we're, we're doing okay in terms of innovation in general in America and holding our own there.

But,

but it's not inevitable in terms of FDA regu- what the things that we can do that we're n- not doing and need to do is really rethinking the whole FDA process, the whole approval process. Uh, and, you know, obviously we can't have the NIH, like, pull back on, on funding research. That would, it'd be horrible. Right. Annie, this was terrific, and really, really appreciated it. Great. No, fun doing it. You made it, you made it easy, Jim.

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