Honey Pots Wanted

We’ve made three investments in the business side of health care.  We’re not a health care fund, not expert in treating disease or handicapping the odds of of new drug approval (except to say that they seem very poor).  But we understand how new competitors using methods like eCommerce, software as a service, and new business models can disrupt markets.  And, we are struck by how great that opportunity is in the health care business right now.

By “honey-pot” I mean a market where big players are taking out a lot of money without creating value they can defend against competition.  Health care is rich with honey pots:

  • Historically health care has been an entitlement, paid for by someone else, so consumers knew little, and cared little, about who gets paid what.  Government and plan sponsor efforts to control costs have hit diminishing returns.
  • The medical profession often casts doubt on lower-cost approaches.  E.g., when I found a legal source for my Simvastatin for a small fraction of what the local drug store charges, 75% of my medical friends said, “Be careful that the drug you get is safe and effective”, and only one was excited about cost savings for patients.  I did some research: all legal suppliers pass rigorous FDA certification.
  • Regulation creates significant entry barriers (as it should).

But, change is happening, making honey-pots accessible:

  • Health care is unaffordable:  plan sponsors are hollowing benefits out, and consumers cannot easily afford their cost share, which makes them cost-aware and motivated to find new options.
  • eCommerce entrepreneurs are learning to tackle complex, regulated businesses, like pharmaceutical distribution, and some new regulatory mandates (e.g., e-prescription) make this easier.
  • Universal heath care will increase the U.S. patient pool by 20%, critically straining resources (e.g., primary care) and forcing new approaches.

Our three investments:

  • Qliance: primary care, for a fixed all-you-need price, outside the insurance system, delivered by a mix of MDs and nurse-practitioners, achieving better health at lower cost. Qliance is growing nicely in Washington state, and receiving invitations to enter new states with support from major plan sponsors.
  • HealthWarehouse:  a legit online pharmacy (licensed in every state), selling generic meds at prices far below insurance co-pays, growing like kudzu.  A dirty secret in the drug business (not the only one, I suspect) is that generic pharmaceuticals are a huge profit sanctuary for pharmacies.  HealthWarehouse has a big paw in that honey pot.

Simvastatin: Retail Price & Gross Margin

  • Truveris:  a cloud/software-based service that audits drug bills from pharmacy benefit managers (PBMs) for health plan sponsors.  Hundreds of billions of dollars/year flow through PBMs.  Errors are common and mostly against the sponsor.  Truveris traps errors quickly and efficiently, cutting costs.  The name comes from Ronald Reagan’s famous saying:  “Trust, but verify.”

We are very pleased with these investments.  If you know of other health care start-ups attacking similar honey pots, please send them our way.

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