Wednesday, May 25, 2016

Pricing, Product and Audience: Theranos and DTC Blood Testing

Is the Population Health Blog due for a meal of humble pie?

In this prior post, the PHB was "long" on Theranos' prospects.  Since that was written, Medicare has alleged that a company lab was a "jeopardy to patient health and safety," a peer-reviewed study showed troubling test inaccuracies, the Securities and Exchange Commission (SEC) has opened an investigation, higher ups have left the company, years of test results have been "voided"  and founder Elizabeth Holmes faces the prospect of a ban from doing business with Medicare and Medicaid. And to add injury to insult, Walgreens has bailed out.

In this well-written Viewpoint published in JAMA, Stanford's John Ionnidis composes a Theranos requiem that ultimately questions the virtues of the company's low-cost and direct-to-consumer blood testing. He argues that while the solution of self-diagnosis and early treatment only sounds revolutionary. That pales in comparison to the far larger problem of misdiagnosis that leads to the reality of overtreatment.

Good point.  But, while Theranos' prospects are clouded, the PHB is still long on the underlying three point business model.  Theranos got one right, and the other two are within reach.

To wit,

1) The pricing is uncoupled from opaque insurer-based fee schedules and based on rational consumer-driven price points.

2) The product is health insights, not blood testing data.

3) The audience of buyers/regulators need to understand the value-based outcomes  
The PHB explains:

1) Theranos stumbles over internal quality control and regulatory compliance issues will play out, and, after a sufficient number of heads roll, will be addressed.  Once that's settled, consumer interest in being able to circumvent insurance and "buy" transparently-priced and OTC blood tests should remain considerable. Medicare's fee schedules are ultimately "cost-plus" which includes the costs of a highly inefficient care system. Think about that $500 stitch and it's little wonder why consumers are so willing to forego the sticker-shock and co-pay hassles to beat a retail path to Theranos' door.

2) Consumer insights about screening blood tests come from combining the test results with pre-test odds, sensitivity and specificity.  While a smart physician can certainly help patients navigate an abnormal liver function test or a high cholesterol, distance technology combined with consumer-friendly machine intelligence (here's a simple example) can also. It's simply a matter of industrializing and democratizing what we've known for decades. And once consumers can understand tests' imperfections, things will rationally equilibrate between under and overtreatment

3) For many reasons, healthcare is a different business. Among the many reasons for that is that "success" is particularly dependent on the need to understand the short and long term outcomes and costs (i.e. value) of any new care model. That means committing considerable resources to study, document, internalize and publicly report what was achieved at what price. An audience of scientists, regulators, providers, insurers, buyers, politicians, physicians and bloggers want to know: does open-range testing for Hepatitis C paired with education on true and false positive test results reduce the incidence and costs of cirrhosis or liver cancer?  Does consumer self-ordering blood glucose levels combined with post-test odds reporting increase awareness of otherwise undiagnosed diabetes and increase claims expense? Does DTC pregnancy testing.... oh, wait, we know that one. You get the picture.
If not Theranos, then some other company will profit from putting patients in at the center of lab testing.  The genie is out of the bottle.

Since first posted on May 25, there have been update modifications.


Fred Goldstein said...


Sorry to disagree, but if the underlying technology doesn't work, all the transparency, fixed pricing and insights are meaningless. I'm long on the idea, but short on Theranos, they have so bungled their operations and in essence sold snake oil to millions of people that they should be shut down. Here were three prior posts I wrote on this issue in chronological order:

Startups, Hype and Theranos – Some Musings

Unicornius Gorus – Theranos and Zenefits

Unicornius Gorus: There’s More to the Theranos and Zenefits Story

Jaan Sidorov said...

Well said (or written) in the three posts above.

I too am troubled by Theranos' hype and unwillingness to be transparent about its technology, and agree that with or without the technology, the blood tests are a commodity. Bundling aside, however, the idea of DTC health monitoring outside of the mainstream insurance arena is a value prop worth investing in. Maybe a TheranosTwo?