Category Archives: Healthcare – Insights

2019 Healthcare Prognosis

For the third year running, our smart friends from across the healthcare industry helped us take the pulse of the health IT sector. Our respondents have correctly called both the survival of the Affordable Care Act (even without bugging Justice Roberts’ chambers) and the lack of tangible progress in drug pricing. This year, we re-checked on startup health, technology adoption and regulatory issues while also taking a look at new topics including blockchain and diversity.

Our commentary and the most interesting findings can be found here.

2018 Healthcare Prognosis

Last year we all sought to adjust to a new normal as the Trump Administration settled in, with the Affordable Care Act (ACA) in its crosshairs. But as our smart and sophisticated 2017 survey respondents predicted, the ACA lives on. For this year’s Healthcare Prognosis, we revisited some topics, like drug pricing and startup health, and added some new questions related to current issues and trends. Once again, we relied on the opinions of a few hundred of the smartest people we know across healthcare.

Read our key findings here.


2017 Healthcare Prognosis

The state of US healthcare delivery has certainly been top of mind in 2017. With so much potential change, we are frequently finding ourselves in discussions about how policy will change and impact our ecosystem. While never short of opinions, we also have a lot of questions ourselves. Rather than relying on our Magic 8 ball, we decided to crowdsource (a few hundred of the smartest people we know across healthcare) predictions on the future. We covered the impact of the Trump administration on the ACA (Affordable Care Act), how various healthcare IT subsectors will fare going forward, valuation sentiments, amongst other topics.

Our key findings are presented in the Venrock 2017 Healthcare Prognosis. You can read it here.

Ten Healthcare Predictions for 2017

By Bob Kocher and Bryan Roberts

At the start of 2016, we made 10 healthcare predictions for the year ahead. Overall, we were 50% right, which is either a failing grade in high school or a great average in baseball.

In the win column, we predicted that the Federal Trade Commission (FTC) would block a major hospital merger, and they did just that with Advocate and NorthShore health systems in Chicago. We predicted that the technology-enabled insurance startup craze would be a bust, and Oscar promptly lost a ton of money. Finally, we were correct that employers would become more engaged in healthcare cost management with many adding “frozen carrots,” or financial incentives to drive usage of services that lower healthcare costs.

Our biggest bust was on the PCSK9’s—we predicted these new cholesterol drugs would be blockbusters. Thus far, they have been a total flop. We were also wrong when we predicted wearables would become medically useful treatments. And, to our surprise, there were more setbacks than breakthroughs in continuous biosensors, devices such as glucose monitors for diabetics.

We’re hoping to bat above .500 this coming year. Here are our 10 healthcare industry predictions for 2017:

Obamacare will change less than Republican rhetoric suggests
While “repeal” has been the mantra of Republicans for the past five years, a desire to keep popular provisions of the law—such as the requirement that people cannot be denied access to coverage based on their medical condition—and to avoid extreme angst from 20 million American voters by disrupting their existing coverage, will make “repeal” symbolic and not substantive.

Instead, changes will focus on items like loosening insurance market regulations to enable selling across state lines, greater cost sharing, larger age-based variations of premiums, and fewer essential required covered services like maternity care. Various unpopular provisions like the Independent Payment Advisory Board, the medical device tax, and the Cadillac tax will be eliminated to great fanfare.

Drug prices continue to rise uncontrolled
Despite the public shaming of Valeant and Mylan, little is done by Congress to curtail or rollback price increases that far outpace inflation. While Congress may occasionally hold hearings to put pressure on drug makers, it will not be enough to prevent collusion of the entire drug delivery ecosystem to improve their bottom lines at the expense of the commercial employers funding healthcare.

Emblematic of the entire care delivery ecosystem being stacked against employers, when drug prices go up, everyone who touches the drug, including the drug makers, pharmacy benefit managers, pharmacies, and in some cases, providers, all make more money. Additionally, patients continue to be desensitized to super expensive drugs through copay coupons and out of pocket maximums well below the price of their drugs. And we can’t imagine any new legislation being passed to allow re-importation of drugs from countries with lower prices or to enable Medicare to negotiate prices.

Accountable care organizations finally start to drive meaningful savings
Driven by an influx of doctors motivated by new Medicare Access and CHIP Reauthorization Act incentivizing participation in new Medicare payment models, accountable care organizations (ACOs, which are physician organizations that agree to participate in payment models that reward cost savings) shift from early adopters to mainstream. And after two years of learning, ACOs really begin saving money by decreasing hospitalizations and redirecting specialty referrals to lower-cost specialists. This puts pressure on hospitals’ main source of income: patients in beds.

Hospital bed days will fall
The success of new payment models like ACOs; benefit design changes by employers and health plans; and the rise of capitated primary care groups—which accept budgets for each patient and manage risk if costs exceed budgets—in Medicare Advantage will take a toll on hospitals by offering viable alternatives. This will result in better access to same-day appointments (like the Cleveland Clinic’s track record of over 95% same-day appointments) and home care for patients, which are far cheaper, and often as effective, as a night in a hospital. These delivery system changes will fully offset the 10,000 new retirees per day and their ever-increasing healthcare needs.

Insurance premiums will spike
Regulatory uncertainty, coupled with little interest by Congress to deal with hospital market power or rein in drug prices, will lead to double-digit commercial insurance premium increases. Hospital prices will be the biggest driver, as they try to offset falling bed days and grapple with ACA changes that may disrupt more patients’ health coverage and leave them unable to afford medical care.

Single cell genomics goes mainstream
Medical breakthroughs make it possible for researchers to sequence and analyze thousands of individual cells at a time, rather than the average of a large population. This will result (over time, but not in 2017) in far more accurate diagnoses and more effective treatments.

Gene therapy cures a common disease
After decades of promise and glimmers from its use treating a few super rare diseases, gene therapy will show proof of concept in clinical trials as a viable cure for more common diseases like sickle cell anemia.

Point solutions begin to consolidate
Employers will cry uncle at the disjointed, complex array of point solution companies tackling narrow aspects of total healthcare costs, with each trying to make employees healthier and lower expenditures. Companies will demand that point solutions be integrated into a few platforms. This will lead to M&A by a few winners and better services for customers.

More retail pharmacies will close than open
As with other brick-and-mortar companies, retail pharmacies will take it on the nose from online retailers and stop opening stores on every corner or every strip mall. We predict that more retail pharmacies will close than open in 2017, driven by the massive shift toward online shopping.

Carbohydrates will become scarier than cholesterol
Americans will discover that they can lose weight, have more energy, and feel less hungry by eating more protein and fat. This will lead to a resurgence of Atkins-like diets.

Venrock 7: Looking Back & Forward

Last week, we completed the fundraising for Venrock 7, a $450 million pool of capital to deploy as we partner with some terrific entrepreneurs to build great technology and healthcare companies. The establishment of a new fund feels like one part cause for proud announcement and 99 parts assumption of a decade or more of responsibility to relentlessly strive for excellence for our two crucial constituencies – the founders, entrepreneurs and teams in whom we invest and the limited partners who have invested in us.

Venrock got started, depending upon how you look at it, either 76 or 45 years ago.  In 1938, Laurance Rockefeller started doing what we would today call venture investing when he provided the initial capital for both Eastern Airlines and McDonnell Aircraft.  Laurance continued making a new investment or two each year for the next 30 years, at which time the financial construct of venture investment vehicles led to the creation of some of the iconic early venture firms, Venrock among them. “Fund” numbers in this case are a bit misleading in terms of history as, in addition to 30 years of Laurance’s checkbook, Venrock 1, whose portfolio included companies like Apple and Gilead Sciences, was an evergreen fund for the Rockefeller family that invested in new companies over a 30 year period, rather than the 3 – 4 year new investment period that is typical today.

While our core mission and values – to generate great returns by partnering with world-class talents to build businesses that change the way we live – have remained remarkably consistent, most everything else has changed over time.  The areas of compelling investment, the depth of partnership and involvement with entrepreneurs and the competitive dynamics of the ecosystem are nearly unrecognizably altered.  With each of these Darwinian “opportunities” to evolve (and the terrific legacy of Laurance Rockefeller and the early Venrock partners as the standard to which we aspire), we reinvented the Venrock culture and investment team over the last 10 years.  Change and continuous improvement will absolutely be an ongoing effort, but today we are a cohesive, “do the right thing” focused team intensely committed to our partner entrepreneurs and LP’s.

We’ve enjoyed some recent success, though certainly not as much as we hope to create in the future. We have been an investor in eight companies with $1B+ exits over the past five years and, in 2014, have had five IPOs and five M&As, including Castlight Health and Nest. The current portfolio holds promise across a variety of industry sectors – AppNexus, Ariosa Diagnostics, CloudFlare, Dollar Shave Club, Grand Rounds, and Intarcia to jinx only a few.

Going forward we are really excited about what’s happening at the intersection of healthcare and technology, as the opportunity to dramatically remake our healthcare system attracts a quality and breadth of entrepreneurial talent that is truly staggering.  We have doubled down in New York to take advantage of the increasing opportunities in the very fertile, growing New York startup ecosystem. We also see data-driven solutions bringing true value across a spectrum of use cases as massive amounts of data are finally corralled and synthesized to produce real insights and ROI. And we are always trying to keep an eye on what’s around the next corner, experimenting and exploring to latch onto the next interesting area for innovation and growth.

I like our odds, but building companies is hard work. We will catch some breaks and will definitely lose some.  We will make mistakes and do our best to minimize their repercussions – that’s a lot more productive than trying to avoid them all together.  But most of all we will devote ourselves to partnering with really passionate, visionary entrepreneurs and serve them in any way we can to give them an unfair advantage on their road to success.