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December 16: Today on the Community channel, it’s an Interview in Action live from HLTH ‘22 with Lee Shapiro, Managing Partner at 7wire Ventures. What is Lee’s coaching to startups around the economic downturn that they're going to be facing over the next couple of years? What is his advice on leveraging being a trusted provider in order to take healthcare outside the four walls of a hospital?

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Transcript

This transcription is provided by artificial intelligence. We believe in technology but understand that even the smartest robots can sometimes get speech recognition wrong.

interview in action from the:iew in action from the Health:

You got it. All correct.

Man, I'll tell you, doing the introductions is the hardest part of the interview, , because the rest of it's just you and I riffing on some different stuff. This is an interesting time in healthcare. I was just with a bunch of different healthcare leaders last week, and the number one thing they're saying is financial disruption, like the financials of healthcare are shaky right now.

And that leads to, it generally leads to opportunity. Or something's happening in the, market.

Well, you say financials are shaky. I think they're shaky inside health systems, yes. They're not so shaky inside health plans. Some have more challenges than others, but some health plans have reported record profits.

When you think about what's been happening in terms of some of the disruptors that are creating new business models you've seen some of them growing revenue significantly. There is this little bit of, there's the haves and the have nots right now in the healthcare

ecosystem

and the, the hint full of startups I talked to, I heard of two pivots already.

We are not selling to the providers anymore. We are selling to payers and we're selling to the employer market as primarily what I'm hearing. And a majority of the people I, I talk to around this, this hall, that's who.

Yeah. A lot of people here at the health conference are shifting from either direct to consumer or direct to provider and hoping that the providers will sell offerings to their, members.

Part of, I think the challenges is that reimbursement around some of these offerings for providers has been challenged. There may not be enough. Vig in there for the providers to make enough in terms of offering these solutions. I wouldn't say that's a rule, but it's challenging to get them to adopt something else and in the short amount of time they have with the patient to be able to now explain to them, gee, here's this offering that you can use outside of the office, and I'll review the data and I'm gonna spend additional time trying to figure out what's going on with you beyond what I'm doing in the office.

That's a hard sell.

The health conference, HLT H is appropriately named. Cuz it feels to me like this is not about healthcare. This is really about health. Yeah. It's about keeping people healthy in their home even with chronic conditions. I mean, it's, technically healthcare, but it's saying, Hey, you know what, self-manage at home your chronic condition and live a, more, I don't know, productive, happy life.

I guess

There's no doubt that there's going to be a. Well into the future for our integrated delivery numbers. Absolutely. The laying of hands is still gonna be important. There's procedures that are only gonna be able to be done in hospitals with the right modalities, the right medical devices and equipment in order to get us healthy.

But for those things are gonna be done on the prevention side, and then to manage chronic conditions. More and more of that is outside the four walls of the hospital more. A length of stay, I think is been a challenge for hospitals, but if you can provide the right modalities to get people out faster, you can try and, give them a, an environment that's potentially safer for them to recuperate in at home than staying in the hospital.

But all

is not well amongst the startups either. Right? We've seen a lot of lot of layoffs, a lot of challenges. What's your coaching to startups in terms of the environment that they're gonna be facing over the next couple of years?

Well, bill you and I have been around for a while and it's the gray hair would indicate yes and seen a few things.

sterday about the.com bust in:

This is a time to think about what they do really well and to try to build their value proposition for their customers to make sure that they're not chasing too many balls all at once. To think about lengthening their. So whether that's reducing their expenses, as you mentioned, some layoffs that have occurred, many of the companies here are not immune from that.

Also thinking about things they can be doing to cut other expenses to optimize where they're delivering. So if they're in multiple markets, they're trying to sell to consumers directly and to health plans, pick one that's gonna be the most promising for the near term. Cuz we're gonna have this downturn probably for the course of the next.

Maybe 18 to 24 months.

Yeah, it's when people ask me, I say it's 24 months is what we're gonna see cuz we're continue to see raising interest rates. Then you're gonna have adjustable rate mortgages go up. Then you're gonna see just a, lending of things. But we do come out of 'em. That's right.

The thing I like about the downturns is exactly what you said, which is focus. A lot of the noise just goes away. It's like, you walk through some of these things like just two. And everybody was getting money. And I, in some of 'em, you'd sit there and go, okay, what do you do again? And they'd go, well, we do this and we do this, we do.

And he's like, okay. , I can't put you in a bucket. I'm not really sure what you do. But this, an economic downturn just

provides,

separates, separates the wheat from the chef. Right. And there were a number of companies, as you mentioned, that got a lot of money very, very quickly and spent a lot of money, very, very.

and this need to now focus and double down on what makes them great is where they sit right now. There will be some companies that don't make it through this time. And I was speaking with someone earlier today who said, yeah, we had what might be called a, not a soft landing, but a rocky landing, but we landed it, but valuations were not anything that we would've expected to be the case.

anything like what we saw in:

Yeah. This is this is gonna be interesting , moving through this. The companies that have a strong value proposition, what's it gonna take for. To make it through this. Is it, are we finally looking at companies and saying, look, you have to get to operating profit sooner.

Cause that didn't used to always be the the case, right?

No. The marker was, for many years it was all about growth. It was about how fast are you doubling or tripling your revenue stream and the focus on path to profitability, at least for some companies and the venture firms that, that were backing them wasn't there.

Now the focus is on. Can you be profitable? And that doesn't mean necessarily tomorrow, but you need to have a path to profitability in the near term. People aren't gonna wait seven to 10 years to say, we'll give you that kind of time in order to build out your stake in the business , and see what happens.

We've seen money that was, I'll call it hot money that was in the market chasing a lot of those deals, pumping up valuations that's fallen away. And so those companies that are able to demonstrate three things they. A value proposition to their end user. In the case of the companies we back, that's the consumer.

It might be the provider, it might be the nurse, but what's the value proposition to them? How are you making whatever it is that they're doing better than what it was that they were doing before? You have to be able to demonstrate objectively an improvement in outcomes. So it can't be just something that's soft and and fluffy, but you have to be able to objectively measure that.

And the third thing is, is that even if you have a great experience and you're proving that you have better outcomes, if the cost to do that is outta line with what you're delivering, then that's not gonna sell either. And so you have to be able to provide a significant return on investment to whoever paying for that offering, whether that's an at-risk provider or health plan, a self-insured employer, you have to be able to demonstrate that there's value there to them that is meaningful enough that they'll.

Paying for that new offering. And the companies that can do that will be the ones that come out of this and on the other side will have very strong businesses.

th, priorities for:

Will we

still see new entrants and, new term sheets and raises going on?

So you may recall from some of the downturns in the past, this is actually a great time to build an early stage company.

You don't need as much capital. You can be building your business, you can be proving out your value proposition. And then as that market turns 24 months, As you noted, you're at a place where you can now start to raise additional capital and go into the curve as the market is starting to come back and valuations improve so you can get more capital and hopefully an attractive valuation.

ked companies kind of in that:

All right, I'm gonna put you in a different chair. I'm gonna put you in the CEO of an idn, let's say a 16 hospital idn up to what I came from.

So, how do you start to take things outside the four walls? Cause you want to compete with, you wanna partner with some of these for sure, cuz there's, thousands of companies here are doing great work. You partner with some of these, you can figure out some things that you can do yourself.

You're already the trusted provider, the. Source for health in that community. How would you leverage that to take, take care outside?

So, too often when we've seen ads for hospitals it was always about their buildings. It was always about kind of their great facilities and like, I think the point that you're making about the trust that they have in the community and leverage that to say, we are going to be with you to provide care wherever you are.

And so, Thinking about the way in which they deliver care very, very differently. That means thinking about offerings that are in the community that may be more convenient for folks. Thinking about things that they can be doing to extend reach into the home, offering more virtual care models and leveraging the understanding that they have of those individuals from their electronic health record to be able to provide continuity of care, but re.

That that care doesn't always have to be delivered in that office or in that hospital. And when you've seen those CEOs of those, 16 hospital systems, they'll say, well, we're all about care in the community, but their bonus structure and how they and their team are compensated is based on having beds filled.

I think we have to change that model, and they have to be thinking about what are they doing to be able to deliver care in the places where people are. There's ways, I believe, to expand their revenue streams from being able to provide care in a virtual sense and reach out into people in the community that they weren't otherwise reaching or avoiding some of the leakage they have out of their health system today by providing these models.

It's interesting, I mean, I'm doing the interview, but there's part of me that wants to comment cuz it's like, you're the trusted provider today, but you're fee for service. You keep raising the price. It's not hard to start to paint you as the, enemy here. When you get a surprise bill or you get those kinds of things and the costs keep going up, it's like, who should they blame it?

I'm not saying I don't want to answer that question, but from a consumer standpoint, it's like, should I blame the government? Should I blame the insurance carrier? Should I change local provider?

I'm gonna blame who's ever closest to me in that transaction. Yeah, right. Which is my.

And

so you do have to change the paradigm so that, hey, our foundation is trust. What does it take to maintain the trust of the people that we serve? No matter what. And that probably is changing the economics of care somewhat in your community.

But I, I think that, even as we talked about, what do these early stage companies that now are going through this transition have to focus on?

You started with this notion. There's some pain going around in our health systems today. They're squeezed on both sides. So they have labor shortages, right? Yeah. They're that aren't letting them fill beds, and so they're not bringing in as much revenue on the bottom side of that. Their labor costs are going up and they're stuck in contracts that they're not gonna be able to renegotiate for a while.

And so they're getting squeezed and that's why, R one. Who did a study with, CFOs across health systems and said, vast majority of them are gonna be losing money this year, not hitting their numbers. And so part of this is, well, if that's the case, where do you focus? What lines of business are you best at?

Which ones maybe are you better off letting go to another health system? And what do you do to leverage that trust to be able to provide care outside the four walls of your facility? Yeah.

In order to do that, you have to know what your.

And to do that, you need to know what your costs are. And that's a separate issue that I'm probably not qualified to talk about, but you can find the team at Strata.

Talk about,

oh, we we have. Absolutely. Lee, I wanna thank you.

Great to see you. Thanks so much for doing this.

Always great to riff with you. It's a lot of fun.

It is great fun. Thank you for thinking and doing it.

Another great interview. I wanna thank everybody who spent time with us at the conferences. I love hearing from people on the front lines and it is Phenomen. That they have taken the time to share their wisdom and experience with the community, which is greatly appreciated. We also want to thank our channel sponsors one more time, who invest in our mission to develop the next generation of health leaders. They are Olive, Rubrik, trx, Mitigate, and F5. Thanks for listening. That's all for now.

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