Brailer Venture Plans Major Announcements in February

By Cindy Atoji

Jan. 22, 2008 | Former national health-IT coordinator David Brailer stepped down from his influential government post two years ago, but remains a force for progress, thanks to his new role as health care investor. Brailer now heads up the private equity firm Health Evolution Partners, which is managing $700 million in capital from CalPERS (California Public Employees Retirement System). Brailer plans to make some major announcements about his company next month as it works to support various products and services to improve the efficiency of health care delivery. Digital HealthCare & Productivity spoke with Brailer, who provided some glimpses into his upcoming news as well as his thoughts about the state of ONC funding, the progress of RHIOS, and the need for market investment in health care technologies.

DHP: Can you give us a sneak preview of upcoming plans at Health Evolution Partners?

Brailer: We are in our sixth month at Health Evolution Partners (HEP) but we are well underway in executing our plans. In February we’re going to be talking about the progress we’ve made; the funds and companies we’ve invested in; and key advisors and staff we’ve signed up. We’ll also announce separately the work we’re doing in our Purchaser’s Value Initiative. That’s part of the company that is working directly with benefits purchasers like CalPERS or other pension funds to help them make better use of new innovations. Often they don’t have the capacity to bring in these state-of-the-art ideas, and so that network of organizations and the people leading this, will be announced in February.

DHP: What sort of companies are you looking to invest in?

Brailer: We’re investing in big transformational changes in the health care industry, whether early stage venture ideas — new companies — or very large companies that we will buy, take off the market, and repackage in terms of how they offer their services.

The key proposition we’re investing in is end-user value, [in other words] companies that produce better efficiencies, higher quality care, or more empowered consumers.

We’re looking at companies in personalized medicine, new kinds of insurance products, diagnostics and pharmacogenomics, information systems, new practice arrangements. We have a broad charter across the health care industry and a broad number of companies.

DHP: You didn’t mention biotechnology companies in your list.

Brailer: Most of the capital in health care is in biotech, and I don’t think that’s the appropriate place — I think it’s misallocated. It’s not that there’s something wrong with biotech investing, it’s just that there’s lots of other things going on. But most investors don’t understand that. We’re going to be addressing some of the capital imbalances in the industry.

DHP: Some investors don’t think health care delivery is a market worth investing in since the costs are clear but the benefits aren’t and the health care delivery chain is convoluted.

Brailer: There are a lot of investors who don’t understand what’s going on in the industry. It’s very complicated. It has many regulatory market interfaces and has professional acceptance issues among clinicians. It has big overhangs with liability and lots of shifts in consumer appetites, so it’s not for everyone. It’s not like investing in financial services, which is a clear, mature market. It’s got its shifts and nothing that’s a mega-trend.

But we think there are enormous opportunities. I think health care is going through a 20-year transition, moving toward a major change in becoming a consumer-driven industry. We’ll not only be an influential shaper of those trends; we’re hoping to be a vehicle to deliver financial returns to our investors. So our investors believe that there are returns, and a firm like ours that focusing 100 percent on them is the way to make that happen.

DHP: What about making changes in the way the industry is viewed by policy makers?

Brailer: Yes, we also see ourselves having some policy impact. I watched in Washington how the policy makers looked down at the health care and had a very old-fashioned view of it. They saw doctors, hospitals, pharmaceutical companies, and health plans. They didn’t see all the other infrastructure that can be part of the future health policy solutions. We’re going to be helping to educate them as far as what’s going on in the industry, and we’ve already started a number of very hard-hitting introductory sessions with policy makers to help them really understand what’s going on. We’ve had very fruitful discussions. Health care is a $2 trillion dollar industry. It has massive industry changes going on and is way undercapitalized.

DHP: Will there be winners and losers as the market shakes out?

Brailer: Of course. There hasn’t been an industry that has been through an information revolution without huge disruption. I expect a lot of the existing brands that we trust in health care today — whether they’re health plans, hospitals, physician groups, pharmaceutical companies — to be completely disrupted by big market changes, driven in part by an information decentralization.

One case in point is prevention, which has traditionally been considered part of traditional medicine and gets lip service. There’s a whole industry that’s rising up now and saying that the traditional medical establishment has had generations to do well with prevention and hasn’t done it, so we’re going to start whole new modalities. These types of shifts are evidence of the fact that there will be major winners and losers over the next decade or two in terms of who is here to play in the next round of health care.

DHP: What is your strategy for connecting innovative products with purchasers?

Brailer: CalPERS and other big pension funds have come together to figure out how to make better use of innovative ideas. We’re going to be studying market innovations and looking at how to procure them and put them to use in a much more accelerated matter. We already have two projects underway, and we’ll be announcing this as well in February. How these can turn into actual buying practices of some of the big purchasers, I can’t tell you — it’s a little bit of an experiment. But we’re going to push it as far as it will go.

DHP: Let’s turn to ONC and your former role there. What is your take on the stagnant funding of the ONC?

Brailer: I never really looked at ONC’s funding per say; I looked at the funding for health-IT and the whole federal health line of business. That has been relatively flat, around $7 billion dollars. ONC really leverages that capital, and it’s ONC’s power, beyond the line-item that comes to ONC, and its ability to shape — behind the scenes — how that massive amount of money gets spent.

That’s one of the reasons I’ve been so supportive of Rob Kolodner (current national coordinator). Besides him being one of the legends of the industry and such a capable leader, he gets how this works.

When I was there, I obviously didn’t look at ONC funding, because as you might recall, Congress zeroed out my budget my first year. We still came back fighting very hard because of the president’s support for the agenda. But that 40 million dollar variance was rounding error compared to the overall spending on health-IT in the federal government that we influenced.

DHP: What is your perspective on health information technology opportunities and how they’ve changed?

Brailer: I think we’re mostly through the first round of the obvious electronic health record sales. Hospitals have either bought them or are buying them, and I think you’re going to see consolidation in that marketplace. I think we’re still clearly in the upswing of electronic health records in the ambulatory space but you’re going to see some shakeout there, because there are still a lot of companies that are playing here.

I think more than anything, we’re seeing the emergence of things that sit on top of the infrastructure — new information services and tools — things that make use of the “electronization” of health information. These are very young companies who are saying let’s just assume all things are connected together — what can we do with this?

DHP: What is your opinion on RHIOs and your advice on people involved in RHIOs?

Brailer: I think RHIOs are a social experiment and we’re seeing the broad contours of that kind of experiment. Some are doing exceedingly well and really getting sustainable staying power, and some are struggling. To some degree this reflects the local market place, the amount of political support they have, and how ingenious they are on focusing in on key value. From the now-defunct Santa Barbara County Care Data Exchange, which I was involved in, we learned that health information exchange (HIE) cannot be predominately funded by grants, which can foster passivity; privacy and liability issues need to be addressed from the outset, and a top-down approach to implementation is less effective than a bottom-up, grassroots approach.
DHP: What about the upcoming future political changes? How will these change the industry landscape?

Brailer: People ask me, “What’s going on in Washington? How will the next president affect your plans?” And I say, probably very little, because change in health care has been driven by sociological trends — by aging baby boomers who are taking their consumption habits into the industry; the beginning of the insolvency of Medicare, and by the restless 30-somethings who simply will not tolerate health care the way it is.

None of these are regulatory and legal factors but underlying cultural and social trends that will relentlessly move us forward. The only real question is when these changes happen? In our fund, we’re obviously betting that it will happen over the next decade.

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