by David A. Jones, Jr.

Originally appeared in Healthcare Musings

September 2012 - When the 900-page-plus Affordable Care Act (ACA) was enacted in March 2010, my first reaction was simple relief that the exhausting, incoherent, multi-year political spectacle had finally ended.  My second was that implementation of this committee-bred camel, representing the largest health system overhaul since the 1960s, would be a fiasco.

As wave after wave of incomplete draft regulations came out, about ACOs, medical loss ratio provisions, state exchanges and so on, I concluded that reform – whatever its substantive merits or defects – would fall of its own weight and fail to prod the elephantine healthcare-industrial complex to change in meaningful ways.

I may have an extreme perspective on the importance of disrupting the status quo. I am a venture capitalist … read complete article

Once you have about 20 employees, meetings are a fact of start-up life. Here’s how to make them worth your time.

Most entrepreneurs’ stories have a “refugee from Big Company” angle. As a venture capitalist, I often hear liberated entrepreneurs discuss their escapes from the treadmill of eye-rollingly lame meetings. In their start-ups, they marvel at the absence of meetings–they just have high-energy “huddles” before they “go get things done.”

This “no meeting” model is necessary to survive the early, infant-mortality phase of your company. When I was an entrepreneur, there was nothing as invigorating and productive as gathering and mobilizing my team like a guerrilla army, probing to find paths to conquer the world. Having made it all the way to the other side as a Big Company CEO, though, I can see that you need to get rid of the “no meeting” model if you want to grow beyond the start-up phase.

I’m not making a case for report-driven, Big Company meetings. But at some point–usually around 20 employees–businesses need actual meetings with scheduled times and agendas. The reality is that, despite celebrated efforts by Zuck, Larry, and Sergey to purge them, you can’t grow and avoid lots of meetings.  

What you need to do, then, is remove the Big Company parts of meetings (“bad bureaucracy”) and add critical entrepreneurial elements (“good bureaucracy”). Here are five ways to make your meetings both useful and tolerable.

1. There are two types of meetings. Founders should be at only one of them. “Sausage-making” meetings are operational, detail-oriented gatherings required to execute specific tasks. “Taste-testing” meetings are where decision makers evaluate options and set plans that others execute. The former make entrepreneur/CEOs want to stick pencils in their eyes. The latter, you can handle–at least for a while.  

2. Meet individually with staff members before every meeting. This is the single most important thing a founder/CEO can do to create a culture of good meetings. You need to do this when your company is fewer than 10 people and when it’s more than 1,000 people.

Here’s why: Every key executive wants to be heard, but it’s impossible to hear everyone to his or her satisfaction in a group setting. As the founder or CEO, you need to listen to everyone individually, so each employee knows he or she has had his or her say with the Big Kahuna. After the individual meetings, you then have a brief follow-up interaction–a quick call or stop by the person’s office–to communicate the plan you want to advance in the meeting. Yes, that’s two mini meetings in advance of the actual meeting. Though this seems unnecessarily redundant, it absolutely works because of the next point.  

3.  Meetings are for getting leaders on the same page, not for making decisions. All human beings–even your handpicked, egoless management team– are susceptible to groupthink and face-saving behavior when their pride and credibility are on the line in front of their peers. Your job is to get your team’s honest and best efforts. The most reliable way to do this is to discuss all employees’ private thoughts, concerns, and vulnerabilities outside of and before meetings so you can get to a consensus and unified position inside and during meetings.  

The result is that in the actual meeting, each executive will not feel the need to fight for airtime and get in his or her nuanced 2 cents, because he or she has already had his or her full say with you. With all that need-to-be-heard energy out of the way, you’ll spend the meeting on the most important parts–deciding who is responsible for which deliverables and in what time frames. This is getting your people’s best efforts on the things that matter most so they can leave that meeting and “go get things done.”

Do an experiment. Try your meetings the old way and then try one this new way. I’ll bet you’ll reduce the common let’s-take-this-offline-later defense mechanism that mucks up the agility and focus of your management team.

4. Founders should attend or lead meetings only when absolutely necessary. Remember this: You’re the Big Kahuna, and despite your best efforts to be egalitarian and just another member of the team, you’re the founder. Your opinions carry more weight simply because they’re yours. When the founder or CEO leads meetings, the leader is inevitably going to exert a gravitational pull to his or her unconscious positions and undermine the team’s independence and authority. That won’t get the team’s honest and best efforts. Let others lead the meetings–you do your work before and after the meetings. When you are leading a meeting, it should be a morale-boosting, vision-setting, charge-the-hill meeting.

5. Don’t be in any meeting with more than three topics. Otherwise:

•It’s a sausage-making meeting, and you shouldn’t be there.
•The later topics are not really important and should be managed without the meeting.
•Anything after the third topic will get short shrift and be poorly addressed or require another meeting.

You want your team to know that meetings will be short, sweet, focused, and about important things. If meetings become the kitchen sink, where you address every single thing, you’ve got one foot in the grave of the Big Company bad bureaucracy you so hated.
 Take control of your critical cultural infrastructure by establishing good bureaucracy through good meetings. Good meetings won’t guarantee success, but bad meetings will guarantee failure

By: David Jones
July 23, 2012 09:25 PM EDT

http://www.politico.com/news/stories/0712/78854.html

Texas Gov. Rick Perry has pledged he won’t create a state health insurance exchange or implement the optional Medicaid expansion — both components of the recently upheld Affordable Care Act. So far, only 16 states have begun creating insurance exchanges. Eighteen are considering it, four have pledged not to and 13 have yet to announce their intentions.

This is a shame, because health insurance exchanges are a great idea. As a venture capitalist focused on health care information technology, I’m always looking for ways to create efficiencies and cut costs in our health system — and exchanges are a promising way to do this.

Exchanges create a transparent, easy-to-shop place for consumers to purchase health insurance from competing plans. Exchange rules standardize the “models” that participating plans can offer, calling for bronze, silver, gold and platinum levels that correspond to price and benefit levels. This allows for apples-to-apples comparisons between insurance offerings, instead of the murky confusion that plan selection involves today.

Increasing transparency and choice for consumers is likely to make exchanges popular. More important, exchanges will most likely save money by driving inefficient, antiquated practices that have nothing to do with medical care out of the health insurance industry.

This is because distribution of health insurance to individuals and employees of small companies remains extremely expensive. Insurance carriers spend $25 billion per year solely on sales and distribution — that is, getting health insurance plans into the hands of consumers before a single medical claim is filed.

This is far more than in other financial sectors, on a relative percent of premium basis. Commissions for sales agents range from 8 percent to 12 percent of the premium in the individual and small group markets — for which exchanges are designed.

Expensive, inefficient distribution persists because IT innovations that have revolutionized markets for everything from stock trading to car buying to taking out a home mortgage loan haven’t yet transformed health insurance. Only 5 percent of consumers, according to PricewaterhouseCoopers, have bought health insurance online, compared with 17 percent for car insurance and 45 percent for airline tickets.

The reason change hasn’t come to this market is clear, if complex. Before the health care act — which limits how much carriers can spend on sales and administration and outlaws medical underwriting starting in 2014 — insurers faced a “prisoner’s dilemma.” Any carrier that aggressively cut commissions could expect not just a reduction in sales but an increase in the percentage of new high-risk (and thus, high-cost) members steered by independent agents. It’s easy to see why no health insurer has established itself as the “low commission” leader.

Though health insurance carriers still make money off of this antiquated process, its value is beginning to fade. First, the market for individual and small group health insurance has shrunk, as rising costs push more customers from the ranks of the insured to the uninsured.

Second, communicating with customers through an old-fashioned, paper-based intermediary inhibits the sale of health insurers’ most innovative, and potentially cost-saving, products. These include wellness solutions, chronic-care-management programs and behavior-change-incentive programs — all of which require carriers to know their customers more closely than today’s distribution model allows.

In the end, all these distribution inefficiencies — intermediation by brokers, complicated products and low technology adoption — filter down to the customer in the form of higher costs. A system of well-constructed state exchanges can radically streamline this process and, more important, generate significant savings across the industry.

An example of just such an exchange already exists on the Medicare.gov website, where millions of seniors each year select the prescription drug plan that best fits their needs from dozens of competing offers. Costs have come in far below estimates of both Congress and the executive branch at the time (2003) prescription drug coverage was added to Medicare.

Given the fiscal pressure created by ever-increasing health care costs, it is imperative to find ways to reduce costs throughout the system. Simplifying product complexity and reducing industry sales expenses is an easier way to decrease national expenditures than restructuring the U.S. medical delivery system — something we must ultimately do but which will take far longer.

The economic case for exchanges is clear and relatively free of ethical and moral ambiguities. We should get these exchanges online, tweak them as necessary and move on to the harder issues that are worthy of our passions.

The technology is here and ready. Finally, the health care system has the opportunity to rise to the occasion.

David Jones is chairman and managing director of Chrysalis Ventures, a venture capital firm that invests in health care IT companies. He sits on the board of Humana Inc. and served as its chairman from 2005 to 2010.

http://www.inc.com/alan-ying/getting-to-scale-four-essentials.html

Get these four things taken care of, and you’ll have everything in place to help your company grows quickly.

When I hear entrepreneurs say they wear many hats, I sympathize, remembering my days as a CEO who also took customer support calls.  Now, as a venture capitalist, I focus on entrepreneurs’ paths from chief-cook-and-bottle-washer to the head of a company that’s rapidly scaling. Most of the time, entrepreneurs don’t have a mental framework to support this evolution.  

The process of scaling your company generally means doing all the things necessary to go from small to big. That may mean changing the revenue model, employee management, technology, operational processes, or customer support. Every industry and business model is different.

One particular challenge relating to scale is common to growth businesses in any industry: expanding beyond the founder or the founding team. Luckily, there is a template for achieving this.

Let’s start with the realization that there are only four basic functions needed to propel any organization:  Judgment, Ideas, Glue, and Execution.  I call this the JIGE framework (with apologies to Will Smith, it’s pronounced “jiggy”).   

• Judgement refers to strategy and decision-making, usually fulfilled by the CEO. That person may be a founder, but isn’t necessarily one. The person who has this role gets to make the tough calls that separate the urgent hair-on-fire-now problems from the supercritical-but-results-won’t-be-seen-until-later issues.  

• Ideas involve creativity and problem-solving. This is usually the province of a company founder who may not be the CEO.  This role addresses products, but also marketing campaigns, operational improvements, and strategic direction. It’s the magic inspiration that solves business problems. In the worst case, this is a mad scientist with ADHD. In the best case, it’s been Steve Jobs.

• Glue makes everything work together. Like the “glue guy” on a sports team, this role is unglamorous, but essential for a business to win. The prototypical example is in product management. This is the person who needs to get the engineers, marketers, salespeople, support reps, senior management—everyone—to produce something customers want, all without having direct control over any of them. It’s kind of like getting a room of cats, chickens, and toddlers to perform Swan Lake.

• Execution is easy to understand. It’s getting things done.  The person in charge of execution gets a team to run through walls to complete a specific job, whereas the “glue” person makes sure different parts of the business run through the right walls. Execution gets coders to deliver the next update on time and without a glitch. Glue determines what the update is, gets it to market, and figures out the pricing, documentation and training.  

To scale a business, each of these functions has to evolve from the founders to a senior team of non-founders. That team then has to replicate this JIGE framework throughout the organization.

Of course, the founders may actually be able to do all these functions better than anyone else, at least while the company is small (all entrepreneurs should be nodding about now).  I’m not saying you should abdicate power. Rather, parcel out parts of the JIGE you’re least good at, and give yourself a chance to scale.  

There may be more than four jobs on a team, but there are only four core functions.  Everyone else should be a “do-er” who extends these functions into specific areas of execution. If an entrepreneur is lucky enough to have a growing market and great product, the core JIGE functions are the building blocks that scale any company so it can win.

By Tim Mullaney, USA Today            6/29/12
http://www.usatoday.com/news/washington/story/2012-06-28/health-care-insurers/55902744/1?loc=interstitialskip

Insurance companies hailed the Supreme Court’s ruling upholding the Affordable Care Act, saying it gives them certainty about the rules they’ll face as they push to cut administrative costs and reward doctors who contain health care costs by emphasizing preventive care.

The law’s requirement that most people buy insurance or pay a tax penalty if they fail to get coverage was the essential trade-off the industry sought in exchange for the law’s requirement that coverage be offered to people with pre-existing health conditions. Now that the court has upheld the so-called individual mandate, the industry will move ahead quickly with new incentives to boost the quality of care, executives said.

“The good news is that more people will be covered,” said Michael McCallister, chief executive of health insurer Humana. “Affordability is a complicated question that we’ll have to work our way through.”

While most people will keep insurance they already have, the way their insurance companies act will change under the new law, said David Jones, a Louisville venture capitalist. “You’ll buy health insurance the way you buy an airline ticket now,” he said. “There’s way more efficiency on the administrative side, and there’s lots more efficiency to come on the medical side.”

Companies are spending hundreds of millions on technology already to cut administrative costs, he said. Instead of buying individual health policies through agents who take up to 10% of the policy’s cost in commissions, consumers will buy coverage online or on the phone, he said, to help meet the law’s requirement that insurers spend 80% of premiums on health-care services.

The most important efficiencies will emerge as insurers rework payments to doctors and hospitals, giving them incentives to promote primary care, avoid hospitalizations and slash mistakes that lead to hospital readmissions and longer stays, Cigna Chief Executive David Cordani said. The idea is to emphasize preventive care, especially for patients with chronic conditions such as diabetes or asthma, he said. In return, providers will be able to share savings with Medicare, which is implementing so-called Accountable Care Organizations of doctors and hospitals provided for under the law, and with private insurers.
Cigna is working with about 25 ACOs, which are responsible for managing the cost of their patients’ care, Cordani said. The most effective groups have let Cigna cut premiums for the ACOs’ patients by 8% to 10%, he said.

Over time, the law will lead insurers to freeze out doctors and hospitals that spend too much on care, said Arnold Milstein, director of Stanford University’s Clinical Excellence Research Center.

One reason: The law’s hefty tax on expensive “Cadillac plans” will force insurers to weed inefficient providers out of their networks to keep premiums below the taxable threshold, set initially at $27,500 a year for a family policy. “The Cadillac tax is an underappreciated element of the Affordable Care Act,” he said.

Some people who have insurance now may see lower premiums because of subsidies for universal coverage, said Les Funtleyder, a fund manager at New York hedge fund Poliwogg. Charges for uninsured people who use emergency rooms and receive free care at hospitals won’t be passed along as often to people with insurance, he said.

But Funtleyder was skeptical that ACOs, electronic claims processing and software-based medical records will deliver savings soon. Studies by the Congressional Budget Office have concluded that evidence for the claims is thin, he said.

The insurance industry wants some changes in the law, either by a new act of Congress or regulations interpreting the 2010 bill, said Karen Ignagni, president of America’s Health Insurance Plans, a trade group. In particular, the industry wants to lower a 3% excise tax on health insurance premiums that doesn’t apply to companies that self-insure, she said. That provision especially burdens customers of Medicare Advantage plans, McCallister said.

By Joanna Glasner, PEHub.com            6/28/12
http://www.pehub.com/157522/a-healthcare-vcs-take-ruling/

Overall, David Jones, a healthcare VC and self-described “recovering lawyer” is pleased with today’s Supreme Court ruling on of the healthcare reform bill.

It’s not the just the contents of the decision, which will let stand the controversial individual coverage mandate. It’s also the fact that the case is closed.

“The biggest value is not that they’re right, but that they’re final. Now we know what the law is and we can get on with our business,” says the Chrysalis Ventures managing director. Jones adds that he had expected the court would  uphold the individual mandate, but was somewhat surprised at the legal reasoning justices employed in the majority ruling.

Jones says the ruling, though generally a positive outcome for healthcare services and IT startups, probably “is not a huge big deal” for the firm’s portfolio companies. That’s because insurance companies and healthcare providers, mandate or not, face pressure to cut costs and improve productivity and care quality. Thus the areas in which Chrysalis and competing VCs tend to invest – in healthcare IT and analytics, new care delivery models and consumer health education and preventative services – were already growth areas. Moreover, more than half of the mandates in the healthcare bill have already come in force, he says.

That said, there will be a psychological impact from the Supreme Court ruling, as health insurers and large care providers may have put off some new initiatives and investments as they awaited a decision. That means that now, “for the big customers to whom our little portfolios sell to, the decision will probably shorten decision cycles in purchasing.” Jones says.

Jones says one portfolio company – Connecture, a provider of web-based sales and service automation tools for health insurers – will probably see the biggest boost from the court’s ruling, as the healthcare law involves setting up state-regulated healthcare exchanges, which would be a new customer base.

The demand for healthcare services and information technology will be the main drivers for deal activity

By TAMIKA CODY, Mergers & Acquisitions Magazine    June 28, 2012
http://www.themiddlemarket.com/news/US-Supreme-Court-ruled-in-favor-of-The-Patient-Protection-and-Affordable-231484-1.html

On the morning of June 28, 2012, the U.S. Supreme Court ruled in favor of The Patient Protection and Affordable Care Act, 5:4.  Observers say the decision to uphold the Act, which was initially signed into law on March 23, 2010, will spark healthcare M&A activity.

Several million Americans will need to have some basic healthcare insurance and coverage. This will only lead to an increase in demand for healthcare services, says Paul Hastings’ healthcare senior associate, Paul Gomez. “This can only have a positive effect on healthcare merger and acquisition activity.”

Venture capital firm Chrysalis Ventures holds several healthcare assets in its portfolio. Koleman Karleski, a managing director at the firm, points out that healthcare M&A activity took off two years ago when the law initially passed. “Anytime there are regulatory changes with economic implications, they affect organizations differently. Ultimately, the strong swallow the weak in big industries like healthcare,” says Karleski.

Most of the consolidation is taking place among providers. “You are seeing pretty direct M&A activity associated with reform because it changes the economic playing field and the type of payment changes that are coming through care organizations,” says Karleski. “That’s one big bucket of M&A that’s already been unfolding and will continue as this is implemented.

Health insurance companies are also shifting their focus to other types of business activity, particularly healthcare information technology (IT). Aetna Inc. (NYSE: AET) and UnitedHealth Group Inc. (NYSE: UNH) both made enormous bets on healthcare IT and made large acquisitions over the years as they are trying to transform their own businesses and differentiate themselves from risk based-insurance services, says Karleski. “You are going to see a lot of M&A activity associated with these companies pivoting very quickly to buying new platforms to help drive their new strategies in healthcare IT.”

March 30, 2012

http://www.inc.com/alan-ying/there-are-only-two-kinds-of-problems.html

Entrepreneurs often find conversations with venture capitalists to be somewhat schizophrenic. In a blink, the questioning can veer from, “Why would anyone use your product?” to, “How do you scale when everyone uses your product?” This can easily make a confused entrepreneur answer, “Um… what’s most important?” For me, both as an entrepreneur and a venture capitalist, there are only two types of problems: Problems you want to have, and problems you don’t want to have.

I recently met with a terrific entrepreneurial duo. Theirs was the classic partnership: one of them was the charismatic sales and business leader; the other was the technical and visionary brains of the operation. Their product was a web-based software application for health insurance companies. They met while they were both working for an insurance carrier, and instantly connected over their mutual aggravation with the same problem.

Their frustration spawned an idea, and then a company. They toiled away for a year, bootstrapped the product to life, found a first customer, and made that customer deliriously happy. Sales force? Development strategy? Support organization? Investors? They had none of that. A product that a customer loved? That they had.

Until this point, their work had been hard: They were coding 24/7, trying to convince others to help for free, selling the product, and pretty much giving up on eating or sleeping. But their decisions were easy: Nothing else mattered if they didn’t have a product and a customer.

Now they were coming up for air and realized that their problems were getting harder to prioritize. Hire sales people or developers? Pursue investors or customers? Customize the product or insist on the cookie-cutter model? Provide high-touch or self-serve support?

In the urgent “now-now-now” frenzy of an early-stage/high growth company, problems fly around like trucks and cows in the eye of a tornado. This is when judgment matters – how does the entrepreneur approach these whirling problems? Which do you avoid, which do you embrace, and when?

Entrepreneurs who succeed eliminate the problems they don’t want to have – a bad company culture, lack of focus, tepid user response, a small market, or a lousy revenue model. Once those are gone, they’re hopefully left with only the good problems: the market’s too big, there are too many customers, not enough employee talent, too much demand for new features or services, and often, copycat competitors.

When confronted with competing problems, I focus on just two things:

1. Eliminate the “don’t want to have” problems first, and in the right order, so you’re not wasting time and money;

2. Be honest with yourself on whether you’ve actually eliminated the problem or are just caught up in your own passion.

Ultimately, staying disciplined and self-aware is easier said than done, but worth the effort.

by Alastair Goldfisher

A couple of weeks ago when Norwest Venture Partners announced its investment in health care cloud provider ClearDATA, the firm said it was the third time it had worked with CEO Darin Brannan. His previous startups Verio Inc. and Website Pros both resulted in IPOs.

So here’s a question for VCs: Do you prefer working with entrepreneur that you’ve worked with before?

I asked that question today during a panel I moderated at Partner Connect 2012 on How to Find a First Class Entrepreneur. The panel featured Jeffrey J. Bussgang, general partner of Flybridge Capital Partners; David Jones Jr., chairman and managing director of Chrysalis Ventures; Scott Kupor, partner and COO of Andreessen Horowitz; and Edwin Poston, general partner and co-founder of TrueBridge Capital, which is an investor in Flybridge and Andreessen Horowitz.

“Great entrepreneurs fail,” said Bussgang, but past failures are not a deterrent to backing an entrepreneur again. “What matters most is whether that entrepreneur has the humility and blueprint to do it again.”

The panelists agreed on that note, and Jones added: “I’ve made money off of those who previously failed.”

Poston pointed out that some of today’s highest valued VC-backed companies, such as Facebook, were started by first-time entrepreneurs.

In terms of geographic preference, the panelists agreed that good entrepreneurs can be found anywhere. Kupor, whose Silicon Valley-focused firm is based in Menlo Park, Calif., says geography doesn’t matter as much as whether there’s a supportive ecosystem and entrepreneurial culture.

That was a refrain echoed by Poston: “We have a big belief in California. It’s easier to acquire talent there and achieve an exit.”

Jones, who acknowledged that he invests in health care and tech companies in the “flyover state” of Kentucky and in surrounding regions, said there are pluses and minuses to investing based on geography. But what matters most is whether the entrepreneur has the right skills set. ”Proven entrepreneurs have fire in the belly,” he said.

“The question is whether the East Coast can generate a mega winner,” Bussgang said. Bussgang, who teaches a class on entrepreneurship at the Harvard Business School, said that although, entrepreneurs can be found anywhere, the next hot spot for entrepreneurs may be in the Big Apple, where his Boston-based firm has already opened a branch.

“In my class, a third of the students want to go to New York to be entrepreneurs. Not hedge fund managers, but entrepreneurs,” he said. “They used to want to go to Silicon Valley or Boston, but New York is a becoming a talent magnet for entrepreneurs.”