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H@cking Medicine at MIT – A View from the Balcony
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What MIT’s H@cking Medicine Got Right
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Why Profit Matters,
Even If Your Idea Is Sexy
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I’m at H@cking Medicine. I sit down and open a browser and the first thing that pops up is from Hacker News: a post about why hack-a-thons like these don’t work.
It’s a good post, but doesn’t apply to this event. I can safely say that H@cking Medicine avoided the common pitfalls – which is huge – for once a health care related activity is ahead of the pack, thanks to the fine organizers and participants, a markedly different experience than what typically happens when healthcare races other verticals.
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Just wait ‘till next year Financial Services and Energy!
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Most criticism of hack-a-thons poke at how they promote instant gratification, offer only token cash prizes and undervalue profitable ideas.
Now, this was an MIT thing, very selective entrance with participants like MDs who happen to write for the Atlantic, uber hip and slick UI designers and artists and faculty from Harvard along with more PhDs and MDs than you can shake a stick at, so undue emphasis on instant gratification was the last temptation for this audience. These folks know hard work and if anything naturally lean towards delayed gratification.
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“Look, a new coffee-maker!” – Jessica Hagy – indexed.com – http://goo.gl/DJzF9
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Other typical critique is about cash prizes being too small to provide substantial help. Likewise, this didn’t apply here. Sure there were prizes, more than enough for pizza, beer and coffee. More importantly, winning the competition opens doors for the project – to things at MIT, to start up incubators like Blue Print Health and to various venture folks floating about ready to identify the next big thing and groom the people behind it.
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“Some people, you squeeze them, and they focus.”
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It’s the point on profitability I’d like to dwell on a bit.
Often, what comes out of hack-a-thons is sexy but not substantial – cool ideas get chosen over profitable ones.
In health care, it’s doubly true, especially with pure technologists unfamiliar and uninterested in the decidedly unsexy parts of the health care system – either it’s administrative details…
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This is nothing; you should see the paper work.
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…. or the financial mechanics underpinning the system.
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Best odds of any game in the house
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My job was to join conference organizer Zen Chu as a grumpy old hermit in the balcony and ensure that the various sexy ideas had the potential to be financially viable and that the participants carefully considered this ‘detail’ at the same time as they worked through the technical designs.
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Zen (left) and Josh (right)
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So to do that we did some 101 on the health care system. First up, a general picture of the health care space from an entrepreneur’s perspective:
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And they said a degree in French Renaissance history wouldn’t be relevant
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The space is littered with health 2.0 companies that have failed, are failing, or will fail – often because they failed to understand the basic business dynamics of a truly unique system.
Not just little start ups without basic business plans, but well-funded VC-backed folks (most often with investors new to the space). Heck, even big tech companies that are really smart have failed to crack it.
Generally this is because people, especially engineers, look at the health care system, see it’s screwed up and assume it’s a technology problem.
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Actually, it’s not a technical problem, but a business error
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As of late, the trend is to try to fix the system and create behavior change not through better engineering, but through snazzier design.
Right now we’re in the middle of a design bubble and the story goes something like: even though Google and company failed to do it with better pipes, we’ll do it make it with pretty pictures and faster loading graphics. Uh, right. Good luck with that. If only behavior change were that easy – but that’s the subject for another discussion.
(Okay, since you asked, I just pounded a half gallon of pistachio ice cream and didn’t bother to upload the pics to my social health tracker app – and the reason had nothing to do with the color of the mobile app’s skin.)
Further contributing to the cluster is the ubiquitous ‘health care expert’. They will be espousing various silliness, from inside the system, giving credence to different sorts of insanity.
The key thing to remember is that a) they are often speaking as a vested player in the space with a series of perverse incentives and b) they have been wrong for decades.
Which isn’t to say dismiss them, but to read them sort of like listening to the mainstream media – the news isn’t in the content (worthless) but the unintentional editorial they lace into it as a barometer for their position (golden).
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Speaking at a major health care conference near you
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Now this isn’t just specific to health care. Plenty of other spaces have their hidden dynamics – education comes to mind. But health care is a different beast. Not just the polar opposite of Direct To Consumer in some sense but a different sort of Business 2 Business system with very specific perverse incentives.
Here Jamie Heywood, founder and CEO of Patients Like Me, set the stage, explaining how players in the health care system often don’t make money from things like performance and outcomes but do from quantity and inefficiency – in other words there are actually reasons why your experience with the system is the way it is – and simply building an idea to fix part of that experience will fail, unless you address, or at least recognize, the underlying dynamics of perverse incentives.
Now Jamie is an MIT engineer with an incredibly powerful personal story in the space behind his company. And frankly, no one does a better job on perversity than Jamie – and he puts on quite a show:
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Jamie Heywood on hacking social systems
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This was a bit mind-blowing for some of the MPH folks in the space, who have traditionally seen the health care system as an entity of public good, perhaps misguided, and their work sort of like a modern day Peace Core effort to first world American medicine.
“So , wait – our ideas have to make money?” “This isn’t a business competition, is it?”
Actually , yes it is – sort of. It turns out even the old Department of Health and Human Services and the Centers for Medicare and Medicaid Services as well as the Institute of Medicine and even the are more and more interested in financially viable innovation. That is, creating companies that do social good but are also financially sustainable.
It turns out HHS/CMS/IOM have a lot on their plate. We talk a lot about commercial insurance but the bulk of the real action is in Medicare and Medicaid – and that trend will increase with both social-economic and demographic trajectories. In other words, we already have a single payer system, but that’s a story for another time.
For our purposes here, rather than give more and more hand outs, they’ve worked hard to create an infrastructure to support profitable innovation, even making their data available. Even CMS is in the game. Heck they’re even the ones giving out the cash prizes at H@cking Medicine, administer by Health 2.0.
So yes, profit is important and it not only can, but must co-exist with any do-goodism. So we had a bit of a crash course on making money and doing social with an engineer’s guide to financials in health care…
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An Engineer’s Guide to Exit Multiples
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… and sketched out some of the perverse incentives that Mr. Heywood referenced…
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Source: Dartmouth Atlas for Unwarranted Variation
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… as well as explored problems with DTC health apps and business models from a behavior change-based perspective (it turns out that people don’t like to pay out of pocket for what they don’t like to do or don’t want to know).
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If this isn’t a real app, it should be
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Then we launched into a Mad Libs approach about how work through turning your product idea into profitable businesses.
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Seriously, we even used crayons
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The upshot? Virtually every pitch had a credible business case behind it – with reasonable thought and effort put into the financial feasibility and sustainability – and this up front business work helped inform the actual product design and in turn even technical underpinnings.
So here’s the point. Hack-a-thons are great but suffer from some specific challenges.
You can deal with the tendency towards instant gratification by getting first class participants (the folks joining in the fun at H@cking Medicine were the best I’ve ever seen, hands down).
And you can address the reward of winning the competition with a cash prize but more importantly by working with a fantastic organization (in this case, MIT and Health and Human Services).
But with the focus on profitability over sexiness it gets tricky, partially because of the particularities of health care.
Yes it is tricky, but profitability is really, really important, especially now, in health care. With finite resources, even the folks solely interested in changing the world would do well to have a sustainable if not highly profitable business.
It’s easy to make money doing questionable things… just as it’s easy to simply file for non-profit status. The real trick is to do something profitable that creates value and fits within, then ultimately transforms, the perversities in a well-established system.
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Turns out greed is good
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These are crazy times in health care – and periods of turmoil and upheaval are a fantastic time to start a business in any space.
Specifically, we’re seeing a massive movement in the way that health care organizations make money, and drive profit. A seismic movement from a fee-for-service model to a cost-plus-performance-based-profit, not just for providers but for payers and therefore everyone in between. That means new winners and new losers. Scan your papers and virtually all the M&A activity in the space can be explained by the various entities positioning themselves to navigate and even exploit this model – including the half a dozen $1BB deals in the past few months.
When it comes to hacking anything, there’s no time like the present and with healthcare, it’s never been more true than now.
Get hacking.
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