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.

Talk about CEO humble pie.

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.

The Personalized Healthcare Ecosystem of the Future: Welcome to the Year 2030

Against your better judgment, you've just checked your contact lens-enabled news feed. You're annoyed, because President Meghan McCain has just used the Trump Doctrine to "fire" Medicare's lead administrator over the botched roll-out of the Agency's block-chain claims payment system.  The mild spike in sweat stress chemicals detected by your clothing sensors prompts a boost in the transcutaneous dosing of the blood pressure pharmaceuticals from the networked skin patch on your thigh. 

 

It's the year 2030, and personalized "eDxTx" (ecosystems of Diagnosis and Treatment) has arrived for a lucky few who are able to afford it. That has created political headaches for the President and her campaign promise to bring Medicare out of the 20th century. Your decision to opt out of "Medicare for All" (a.k.a "TrumpCare") has been expensive, but worth it because your Geico insurance plan includes eHealth as a covered benefit.  Geico's ability to automate all underwriting and claims handling means high service standards and keeping costs down. Plus, those video ads are still cool.

Thanks to ubiquitous wireless connectivity, cloud-based machine intelligence and mass-personalized medicine, you and your private doctor's team were able to configure a suite of customizable off-the-shelf apps that meet your goals for living well as well as long.  The first step was your $2 psychometric, biomic and genetic testing (the expense of a mitochondrial analysis was offset with an agreement with the laboratory, Theranos, to pool your data with other customers) that spotlighted the optimum mix of nutrition and pharmaceuticals to blunt your risk of Type 15 Hypertension and GAB15a-linked gastrointestinal cancer. 

As you sit down and use the heads up display in your lens to ponder the short-list of candidates to replace the fired administrator (a well-placed leak suggests it reportedly includes Elizabeth Holmes), the patch modulates your drug dosing to account for the change in body position.

You're hungry and looking forward to your specially tailored evening meal that is being drone-delivered to your patio in.... your contact lens again... 28 minutes. 

This is one of the five days out of the week that you adhere to a configured meal of calories, carbs, proteins, fats, nutraceuticals, probiotics and prebiotics that's adjusted to meet your taste preferences. It will also achieve an optimal body fat percentage, and reduce your risk of cancer and a host of other chronic conditions. The other two days use competitive gamification that is linked to your online preferences to reward you with a real burger for meeting your nutrition goals.  Not for everyone, but your behavioral reward profile suggested that that would help motivate you to stick to the diet. Who knew?

You ponder getting a burger tonight, but fight the temptation by triggering a mindfulness app through your lens.  The lights in your living space also dim and a riff made up of an pleasing artificial jazz-indie chord progression offers a well-placed distraction.

Diet and risk reduction are not the only an ingredients you use to achieve your goal of living 105 years, but also participating in next month's Goggle Spartan Race.  Come to think of it, time to tailor a set of 3D printed sneakers. You look forward to you and your personal life-drone (your spouse suggests it's more evidence of your narcissism; you've named it "Donald" to confirm her suspicions and annoy her) competing in a mix of virtual and real obstacles in a course of that includes real rope climbing and a virtual 3-D avatar obstacle course. The drone and wearables will network, monitor and heads-up display your neuro and cardiovascular dashboard for optimal performance. It will also use the same technology that they used in hospitals to anticipate any medical emergencies that could happen to you.

Naturally, your drone will use artificial intelligence to image, edit and securely post the race video for friends and family to view.

That's what you did last year, when the video also showed you twisting your ankle.  You had to go to a treatment center and be evaluated the old fashioned way, where a doctor treated you.  Some things never change, but avoiding those opaque bills and paying your deductible using virtual currency was so convenient.

As your pour yourself your recommended 1.2 ounces of bourbon (personalized by the distillery with a proprietary combination of esters and lactones to create your preferred finish), you reflect on how healthcare has changed since the days of in-home monitoring and physician teleconferencing. It worked well while it lasted, but was soon eclipsed by the cloud-based technology that combined physician intelligence ("physint") with Watson (artificial intelligence) that "scaled" in an era of fully automated care. 

Sort of like the driverless car that will take you to next month's race.

Speaking of old fashioned cars, that eDxTx medical alert last year reminded you of that old fashioned "check engine" light.  It seems a biochemical marker profile was consistent with the presence of an early stage tumor.  Based on your past medical data, the calculated Bayesian risk that the tumor was real approached 1%.  Watchful waiting using Medicare's IPAB guideline recommendations was raised as an option by your doctor, but you decided to undergo the additional testing to rule it out.  Naturally, your insurance covered most of that cost.

You finish your bourbon after you get an alert that the pizza has arrived.  You silently wish President McCain good luck. Some things never change.

Image from Wikipedia

Five Reasons to be Bullish About Theranos

Pushing back

When the Population Health Blog watched Theranos CEO Elizabeth Holmes push back during a CNBC broadcast against a Wall Street Journal report about her diagnostics testing company, it began to pay attention.

 

As the PHB understands it, Theranos is a privately held and fabulously priced biotech company built on two value propositions:

 

1) proprietary technology that enables parallel testing to be done on a weenie blood sample obtained from a single finger-prick.  

 

2) direct-to-consumer availability of blood testing outside of the dreary hassle of doctor ordering, laboratory queuing, expert interpreting and insurance reimbursing. Instead, customers can stop by their corner pharmacy, scan the menu, select some tests, use VISA or Mastercard and use the results as they see fit.

 

According to the Journal, Theranos' technology isn't necessarily ready for prime time.  It appears that while the company obtained the Food and Drug Administration approval for its proprietary technology, it's limited to testing for herpes. There are allegations that for all the other bloodwork, the results can be inaccurate and that the company is relying on the standard vein-puncture blood draws to service its consumers. 

 

The FDA is asking for more information, Walgreens has paused and super-litigator David Boies has joined the company's board.  Connect the dots and this Silicon Valley start-up is starting to look a bit tarnished.

 

Rather than join in the schadenfreude, the Population Health Blog has five reasons to be contrarily optimistic about Theranos:

 

1. All medical advances follow the Hype Curve of innovation, euphoria, disillusionment and equilibrium:

 

 



Thernos' travails in the trough are not only part of the natural life cycle of a health tech company, it's also a good reminder to only go public after the disillusionment has passed.  A plateau of cash flow productivity lies ahead.

 

2. The second value proposition still stands. While the notion of letting an unsophisticated lay-person interpret the meaning of an (for example) elevated adrenocorticotropin hormone level, Ms. Holmes seems to be unwittingly arguing that this another step toward "actionable" shared decision making. While the market sorts that out, a) there is considerable consumer interest and b) educational consumer-friendly resources are becoming increasingly available. While self-testing can complicate the doctor-patient relationship, it can also help it.  And if it drives consumers to Walgreen's Healthcare Clinics, so much the better

 

3. Speaking of the second value proposition, consider an unpalatable alternative: Regional health system monopolies, where consumers can get any test they want, just so long as it's through their doctors, at their labs - and done the old fashioned way.   

 

4. In looking at its ten best practices for the boards of health care companies, the PHB is going to give these heavy-hitters the benefit of the doubt. It figures that in their interactions with the C-suite and especially with their interactions with the FDA, the directors have all the resources they need to bring skepticism, rely on dual data reporting, know about human research, perform audits and access research expertise. They should know about maintaining the right tone at the top and understand how incentives can help and hinder corporate integrity. Assuming business reporters can drop the nattering negativity (like this) and instead confirm that those key governance principles  are in place, Theranos should do OK.

 

5. And one of the Theranos board members is a physician.  While time away from hands-on practice may have blunted Dr. Frist's clinical acumen, the PHB has heard him talk in conferences: he still knows of what he speaks.  As noted by the PHB here, physicians bring a unique perspective to the boardroom, including understanding patient-centric outcomes, helping the CEO navigate the clinical side of the industry, bringing a diverse viewpoint, giving insight to the competition's strengths and weakness and helping fellow board members further their healthcare education.

 

The PHB's assessment of Theranos:

 

Hype Cycle image from Wikipedia

Wildebeest image from Wikipedia
Wall Street bull image from Wikipedia