The a16z Show - Devoting Your Life to Reinventing a Broken System

Episode Date: March 25, 2024

At the a16z LP Summit, we brought hundreds of our limited partners and portfolio founders together in Las Vegas.The event was truly overflowing with stories of how founders are challenging the status quo and harnessing technology to make the world a better place. Amidst these stories, it became clear that in the realms of public safety and healthcare, the stakes couldn't be higher—these sectors not only hold lives in balance but also stand as fertile ground for technological breakthroughs.In this episode, a16z General Partner Vijay Pande chats with Ed and Todd Park, the visionary siblings behind Devoted Health. Their mission? To overhaul a healthcare system they describe as critically essential yet deeply flawed. The Park brothers delve into the genesis of their ambition to construct a healthcare system from scratch, underscoring the sector's urgent need for technological innovation and the game-changing role of AI.Kicking off with an American dream story, this episode is a must-listen for anyone interested in how technology can reshape healthcare for the better. Resources: Find Vijay on Twitter: https://twitter.com/vijaypandeFind Ed on Twitter: https://twitter.com/edparkdevotedFind Todd on LinkedIn: https://www.linkedin.com/in/todd-park-3232573Learn more about Devoted Health: https://www.devoted.com Stay Updated: Find a16z on Twitter: https://twitter.com/a16zFind a16z on LinkedIn: https://www.linkedin.com/company/a16zSubscribe on your favorite podcast app: https://a16z.simplecast.com/Follow our host: https://twitter.com/stephsmithio Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

I don't care how smart you are, okay? You cannot navigate yourself through American health care. My dad had saved $50,000, which was all the money he had in the world, to send us to grad school. And we're like, we had this idea to start a company. And we need about $50,000. So could we have it? And he's like, heck no. And frankly, when you think about health care, I don't think we have a minute to waste.

So part of this is that if you actually produce a net better service, it doesn't mean that you're going to get paid. paid for it. That was actually the really sort of incredibly painful lesson we learned from the first time that we built Athena. They were really built to react to catastrophe. So they're great at acute care when the fit hits the champ, right? They're massively under-invested and under-supported and preventing catastrophe. So why is that a tech problem? Like where does tech fit into this? At A16Z's recent LP Summit, we brought together hundreds of our limited partners and portfolio founders back together again, in Las Vegas. The event was truly overflowing with stories of how founders are challenging the status quo and harnessing technology to make the world a better place. However, there are two

industries where there is no question that lives are literally on the line, public safety and health care. Yet, these are also two arenas for technological innovation that despite being so critical are also often equally misunderstood. And that is why we, we've chosen to open up two of the summit sessions to the public to really show what a better version of the future can look like, even in industries where technology is not always celebrated. So in our continued coverage of the event, today we discuss a company that is truly rewriting the rules of healthcare and why two brothers thought that this was required in order to disrupt the industry. We've said it before and we'll say it again, the US healthcare system represents

22% of the country's economy. If you'd as a separate entity, it would rank among the top four economies in the world. So in this episode, you'll hear from the founders of devoted health, Ed Park and Todd Park. Todd, by the way, previously served as the chief technology officer of the United States, and together they chat alongside A16Z general partner, BJ Ponday. The two brothers bond over their deep-seated commitment to rectify a quote, broken healthcare system because, as Todd says, it's a combination of incredibly important and unbelievably screwed up.

And in today's episode, you'll hear why building their own system from scratch may have been the only way, why healthcare is a tech problem, and how AI can reshape the system. But first, a story about the American dream. As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment. advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain

investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A16C.com slash disclosures. I have the distinct pleasure of sharing the stage here with two true OGs in the space of tech and healthcare, Ed and Todd Park, co-founders of devoted health. So Ed and Todd need no introduction, but I'm going to give you one anyways. When I think about what we've seen here over the last two days, we've seen these beautiful examples of how tech is going to really fundamentally improve our lives and change the world. And I can't think of a better standard bearer for this mantra than Todd Ned. And they're applying it to healthcare. And frankly, when you think about healthcare, I don't think we have a minute to waste. Our U.S. healthcare

system is fundamentally broken. And what they're doing is putting together a team of experts with big hearts and brilliant minds to go after what I think is probably one of the biggest problems that our country is facing, how we're going to pay for care and improve access and improve quality. So, naturally, this is not their first rodeo. They're serial entrepreneurs, co-founded Castlite Health and Athena Health. And it's our pleasure to be able to partner with you as you build devoted. Honor to be here. So thank you.

So to kick it off, Ed, why don't you first tell us a little bit about your founder's story? How did you get here? So, Todd and I started devoted six years ago together, but the story of the Voted goes back much further than that. Goes back to our parents, who came over from Korea in 1969 at the tail end of the civil rights movement in the end of the war. They came to the US in search of the American dream, life-goverity and appreciative happiness, better life for themselves and for their kids.

So my dad came over, he studied chemical engineering at the University of Utah, where in a moment of oversharing, he basically said that he and my mom, as newly white grad student, had Todd as an accident. I'm like, thanks, Dad. I didn't know that. And then he went out and got his first real job with the Dow Chemical Company, the maker of ceramic wrap

and scrubbing bubbles. I remember those products because they were a really big part of the much author and became one of the most decorated engineers at Dow Chemical created more patents than almost any other inventor.

And where he had me in Middle of Michigan as he described again in the moment over sharing, playing the baby. So good, thanks. Thanks again, Dad. We grew up in Central Ohio.

He was shipped off to a research facility in Granville, Ohio. And that's where we grew up among the cornfields and apple trees of central Ohio. And we looked up to people like John Glenn, who we both got to meet, Dave Thomas, founder of Wendy's. And we grew up with this idea, right, this conception of America as a shining city on the hill, a place where you could do anything. So after we grew up there, we both went off to out of these to Harvard. Todd was the good one. He studied economics. I studied computer science, and I still remember my advisor saying, computer science, that's a total waste of time. Of course. You shouldn't do that. You shouldn't do that. But,

After college, we decided that we were going to pursue this dream together, right? This idea of creating a company together. This was much to the chagrin of our parents. So my parents, as you might guess, were Asian. And they're like, well, one of you should be a doctor and one should be a lawyer. I don't care which is which, but one of you should be a doctor and one of you should be a lawyer. And in fact, my dad had saved $50,000, which was all the money he had in the world, to send us to grad school.

And we're like, we had this idea to start a company. And we need about $50,000. So could we have it? And he's like, heck no, right? He didn't say that because that's not the way he speaks. He basically said no, but we were quite persistent and said, could we please have it? And we still remember what you said. He said, yes, I'll give you the money because I love you guys.

But I hope you fail fast because you're my only two kids. And now both of our eggs are in one basket. So we started this company and we've always been obsessed with the idea of how do you create value by doing good. And for us, it's always been about the right care at the right place at the right time. So our first company was Athena Health, which started off as a women's health. company. The idea was that if you took better care of underserved moms during their pregnancy, you could reduce the number of NICU days on the back end. And here's the thing. The clinical model was successful, but it turns out that the business model was not for, it would take many

beers to go through exactly why, but it has to do with the Byzantine nature of the U.S. healthcare system. In the process of building that, we actually built a set of internet-based technologies to help power that network of women's health practices. And that was an electronic health record in revenue cycle management system, back office systems. That was super successful. We scaled that incredibly quickly, took that company public in 2007. It was the top IPO on the NASDAQ of that year. It was about the time that my dad looked us and said,

it's okay that you didn't become a doctors and lawyers. And we went on. I stayed on board as a public company executive for the next decade while my brother Todd went to D.C. to serve in the White House. But that's how we got started. During that time, we learned a whole lot more about exactly what's broken with U.S. Health Care. And we developed a lot of theories about how to fix it and devotes the result. Yeah. Well, and we'll get to that a second. But Todd, I'd love to double

click on one thing. So you two could have gone into so many different areas of tech. I mean, you're CTO at the White House and Obama. Like, why healthcare? Because it's a combination of incredibly important and unbelievably screwed up, right? Which for an entrepreneur is like catnip. Because what that means is if you can actually go in there and build a solution, that's helpful, you can actually create massive impact and massive value. And it's where you can both create some of those valuable companies ever, right? And in the process of doing so, and really is your core outputs, literally save lives. Like literally save lives, dramatically improve lives, end pain and suffering, protect lives, extend life.

And it's just the most exciting kind of mission to be on. Yeah. Yeah. So, Ed, you alluded to this. Could you tell us a little more, especially for the non-health care people, audience, what works and what doesn't work in healthcare? I think one of the reasons that we looked at this, right, is that the way that you hear about startups in Silicon Valley, the standard advice is find an inch and scratch it.

Go out there, find a little problem, get sort of a little bit of a beachhead and expand from there. And it turns out that doesn't work because the fundamental economics of health care make it such that if you try going that way, at some point, someone's going to kill you. So for example, if you have a working diabetes management program, somewhere along the way, I've talked to hospital CFOs who basically said, I can't fund our diabetes management program because it's actually successful in keeping people out of the hospital. I'm actually reducing hospitalizations,

but why would I pay for that when it's actually reducing my core revenue source? Yeah, you're taking money away from someone. You're taking money away from someone at any given point. And so part of this is that if you actually produce a net better service, it doesn't mean that you're going to get paid for it. That was actually the really sort of incredibly painful lesson we learned from the first time that we built Athena.

So what does work? So what works is that you actually have to find a way to get paid by delivering better care. And as we have talked about a ton, better care, if you actually deliver it consistently at scale, results in the lower cost. But it's actually better care. No one wants to go to the hospital. No one wants invasive surgeries. No one wants a lot of things. Sometimes the better care will cost more, but in aggregate, it will cost less.

And so what does work is if you're able to take the total cost of care and then do everything you can to make. make sure that you take care of folks. If you do that well, and they use some of those expensive services class, then you get to profit from. And that does work. Yeah. So why is that a tech problem? Like, where does tech fit into this?

In order to understand what the best care in the world is, you have to deliver the right care, the right place, at the right time. And that is an unbelievably complex logistical exercise. Healthcare represents 22% of the U.S. economy. As a global economy, U.S. health care alone is in top four economy in the world. if you look from a country basis, right? There's the U.S., China, right? Germany, and then you have U.S. health care as its own economy. It's an unbelievably complex logistical exercise. And the coordination that's required to make sure that people get the right care at the right place

at the right time is a sort of logistical and technical exercise on the order of the most complex logistics things that you've ever seen. The problem is that it's not set up that way. And so from our perspective, what was really important is to look at it as a fully integrated, vertical thing that you could optimize against. And so the question we asked yourselves was, what would be required to build some sort of system to make that work? Yeah. And it sounded like basically you had to create your own system. Yeah. So yeah, you have to build it all from scratch. Yeah. So Todd, how do you build something like that, especially integrating all these different pieces and pieces that sometimes don't really go together like tech and health care sometimes?

Yeah, no, that's right. It really helps to be a middle-aged entrepreneur when you do that. It's taken Ed and I about 25 years to figure out how to do it. And, and I, and I, about 25 years to figure out how to do it. and to actually have enough credibility to assemble the dream team and the partners and the resources to do something that's ambitious, which is it really is, we basically built from scratch an alternate universe, full-stack,

tech-enabled American healthcare system as a service. Because it turns out that's what you need to do if you want to deliver at scale what I just talked about, right, the right care in the right place, the right time, that basically both drives radical improvements, outcomes, and simultaneously lowers costs a ton, because, as Grandma says,

as a stitch in time saves night. If you get people who right care up front, they stay as well as possible, and they stay out of the really expensive hospital, right? So Edna and I realized at the beginning of Devote's journey that in order to actually deliver on Devote's mission, which is to dramatically prove health and well-being, have older Americans to start, eventually everybody, by caring for everyone like family, and because what you want for your family is get them the best care in the world, and that's the right care, right place, right time. We realized basically, basically, after 25 years of learning most of the hard way, that you had to build this complete alternate universe health care assistance service in order to actually hyperscale that set of results everywhere, right?

And so what does that look like? What does that really mean? Basically, we have built people called a virtual tech-enabled Kaiser Permanente, a tech-enabled pay-vider, it's a combination of a payment provider. Like, we call it a all-in-one healthcare solution. And it consists of you pop the hood of the thing of five ingredients, all of which we deeply masochistically built from scratch. We built an entire health insurance company.

But you also, because you have to, right? You have to. And so basically, and I'll kind of describe the have to as each layer, right? So five layers, right? Layer number one is we built an entire health insurance company from scratch, right? Because if you're dependent upon the legacy health insurers, you're effed. Right? They're just not going to help you, not work with you.

You're just not aligned to really support getting best care in the world to your patients. And so we built our own health insurance company so we control the funding, the data, the operations, the service to orient, to orient the muscles of a health insurance company to basically do one thing. folks on getting you the right care upfront that keeps you as healthy as possible. The green number two is we built a navigator service called Devote Health Guide,

which is a tech-enabled concierge that navigates you through the liquid ball of Roiling Chaos that's American Health Care, right? Why do we do that? Because I don't care how smart you are, okay? You cannot navigate yourself through American Health Care. No. Anyone who here has ever been a patient

or care for an aging parent can testify to this. It is unbelievably complicated. So we have a concierge, a tech-enabled guardian angel that navigates you through the healthcare system, right? Green number three is we partner with great local doctors and hospitals, and we love them all, but there's one very deep problem in the legacy network of doctors and hospitals, which is that for a whole bunch of historical reasons, they were really built to react to catastrophe. So they're great at acute care when the fit hits the chain, right?

They're massively underinvested and undersupported and preventing catastrophe. So that's a problem. So then we built in green number four, which is their own full-scale in-house medical group. the first truly great virtual care provider for seniors that doesn't replace your doctor because you generally don't want that, but rather complements your doctor by delivering 17 additional major care services

to whoever needs them, and 95% telemetically, the rest at home in person, they're collectively preventive care stitches in time save nine, concierge-like high-tech, high-touch care that basically keep as well and healthy as possible. And then finally, last but definitely not least,

and the key to the entire thing is software. Software eats the world, right? Three number five is Orinoco, a software platform that we built, like everything else from scratch. It's the first ultra-modern software platform capable of running both a health insurer and a care provider in one end-to-end system, right? And on top of that, more fundamentally, it's a right care, right place, right time machine. From thousands of different sources, it's building a complete picture of you, both clinical and non-clinical, and then analyzing you and then computing what you'd need next. And then the software platform owns its own health insurance plan. It owns its own navigator service.

it owns its own virtual care provider and just orders those levers to then do all the things and often really complicated logistical coordination exercises, right, to make something very simple happen for you, which is the next right thing. And the next right thing, including a bunch of stuff that you never thought you needed, but are collectively in the stitches in time that save nine

and keep you as well as possible and out of the hospital. So we were the first ever to be crazy enough to even try to build what I just said. Yes. We started in 2017. We built the thing. And we can't quite believe what's now doing. I feel like we split the atom.

It's like a thing that's now out of control in a really good way. So it delivers a net promoter score for members of 77. Wow. So that's Apple level. Higher than Apple. Higher than Starbucks. Higher than Netflix. Higher than Amazon.

Higher than the USAA. Companies we worship, by the way, right? Way higher than healthcare, right? Secondly, five-star quality on clinical outcomes. Clinical outcomes are our own clinicians can't believe. Actually, best in the world at managing chronic illness, best in the world, intensive home care, best in the world at so many things. And then it cuts the cost of Medicare. And if you actually

look a little bit deeper into that, what happens is we actually do more what's called primary care for people, preventive care, than what happens in the US household system overall. And that's a such a time that saves on hospital costs and specialist costs and ancillary costs. And then we actually give some of those savings back to America, the American government. We take some of the savings and we actually invest in better benefits in Medicare at the health plan level and better service. and we keep some as profit. And actually, the combination of the superior benefits, superior service all entered by superior care

has made us the fastest growing health insurance plan and medical care provider for seniors by a factor of 10 in America. We started in eight counties in Florida with 2,300 numbers in 2019, and we now serve across 13 American states 140,000 members. By the way, in our initial target segment,

which is called the Medicare Advantage Market, which is basically outsourced Medicare, delivered by private sector companies for seniors. That's a $425 billion market. Yes. It's still early. That's actually projected to grow because the U.S. population ages

to $1.5 trillion by 2035. And then the other thing I'll just say is that, look, I mean, we're starting with seniors, but everyone deserves the best health care in the world and also have begun, again, this is a little surreal in me, to get calls from other countries. Yes, wow.

Saying, can you come here and basically, power my healthcare system. Be my tech-enabled healthcare system as a service. Because they're not going to build Orinoco. They're not going to be able to build this. Look, I'm very confident that no one else can build what we've built because A, it's so incredibly hard.

B, you need to have built at a very particular point in history where you can leverage all the learnings of the decades, but where things are still early enough, right, that you have a ton of runway, right? Just thirdly, just to be perfectly honest, right, because at the end of the day, what you just learn about entrepreneurship as a people or everything, right?

No one else has my brother, right? I mean, no one else is my brother. I'm not aware of any other human being like my brother, and he'll never say this about himself, but he's like the Wolfgang Amadeus Mozart of healthcare software, right? He's both one of the best engineers on the planet. And secondly, he spent his entire life

professionally in the guts of the American culture system. And so that intersection of the two, like nothing's a mystery to him. Let me double click on that because actually what's amazing is, You were basically the first architect and coder for Orinoco, the software. Yeah, yeah. It's kind of amazing.

I don't know how the CEOs can do that. And actually, I was so jealous when you mentioned recently that you're starting to code AI with your own hands and play with these tools. I play with everything. I have horrible black boxes. And so I love just opening up and looking at things. But, I mean, good thing. I love my brother as well. Actually, like when we were growing up in eighth grade, I still remember Ty coming up to me and saying,

hey, all my other friends treat their little siblings like crap. I promised you I'm going to be the best big brother I possibly can. And he's kept his word. He's been the best big brother ever. Like, it was a little bit tough. When we built Athena, Todd literally locked me in a closet and said, don't come out until you build software. And I'm like, okay.

All great brothers do, right? All great brothers do. It's a true story. Okay, so basically, Jonathan Bush and I start Athena. Yeah, yeah. And we get into really big trouble. And so I decided to call my brother, who's like a hot shot like internet consultant at the time, making six figures out of college, right?

And we're in deep, deep, deep, do-do here. Can you come help? And so he quits his job and comes to work for $18,000 a year. And Athena Sta, which then worked out for him, right? Yes. But we need to build software to run what we're doing. So he literally, like, works in the equivalent of a closet. He literally gets him in the morning, starts coding, goes back to sleep.

Gets him in the morning starts coding, right? So he writes 250,000 lines of code himself. At a key stretch, the Cordy keyboard was designed in the early 20th century to actually slow typing down because it brought out the machines. So there's actually a format called Vorak, which is much faster. literally the rate at which he could type was the rate-limbing step on his ability create software, so he literally reconfigured his keyboard

to do VORAC, right? And built like Tony Stark in a cave in Afghanistan in the movie Iron Man, right? In a closet in a women's health practice in San Diego, he wrote the first web base it was called at the time, right? Software platform to run doctor's office. It was just like ridiculous.

And he still codes, by the way. Yeah, I know. Well, I want to get to that. What are you doing with AI? So AI is amazing. So number one, I actually think that one of the interesting things about AI and about technology in general is its leverage capabilities. I probably wrote 100,000 lines of code so far at devoted personally. And so when AI comes along, I'm looking at this stuff and you don't know, there's a bunch of hype, et cetera.

So I go into it, I'm like, oh, M.G, right? And I say this as someone who is incredibly practical when it comes to technology. Like, AI is actually the biggest advance, I think, to technological productivity in terms of the things that you would do on a practical day-to-day basis. since Mark actually invented the mosaic. And so when you look at it, I think of AI in two major buckets, right, as it applies to what we do. Yeah. The first major bucket is administrative. So somewhere between 15 and 30 percent of total healthcare cost is waste, shuffling paper around.

And so one of the first places we're looking at is how can we use AI to reduce a lot of that waste so that people can actually take – Every day we have a choice between do we actually spend this money on care? Or do we spend it on shuffling papers? I'd rather spend more money on care. So the first area that we look at it is how much we do on that side. The other area that I'm excited by AI is in its ability to help make better clinical decisions. If there's a way to make sure that you surface the right decisions at the point of care, and by the way, this works better in value-based care where you get paid for making better decisions.

And you've created the value-based rails. Yeah, exactly. So if you're in a value-based rail, right, then you're in a situation where the AI, which allows you to make better decisions, will actually pay back in spades. So we're really excited about it. We're running out of times. I want to ask one last question for you, Todd.

Let's take a quick trip to 2030, like six years from now. So Devoted has an AI-driven engine, has had deep tech from the very beginning, and you're reaching nationwide, maybe worldwide scale, to some degree. What does this mean for patients? What's the world that you're building? Yeah.

So basically, what it means for patients today, and what it's going to mean for patients in 2030. And I think as amazing as the impact vote has today is we're going to be literally 10 times as powerful. It basically means people are living and are going to live longer, healthier, happier lives, the ones who are really meant to live. It means people who are here versus not, right?

And it means families that are whole instead of broken. It means people who are fulfilled and well and not suffering. This is what really gets. It's an eye up in the morning. There's a channel on Slack at Devoted, which is called member wins. And every day, people write stories of the impact we've had on people's lives. And to see lives being so deeply touched and changed and protected and saved is the most motivating thing. It's the most profoundly motivating thing.

And we're already doing that at scale. And by 2030, we're going to do it with a depth and a breadth and a power that is way the hell. heck beyond even where we are now. Yeah. Well, let's F and go. Let's get this done. Let's do this. All right.

With that, please join me in thanking Todd, for such stimulating discussion. Thank you, everybody. Thank you. God bless. If you like this episode, if you made it this far,

help us grow the show. Share with a friend, or if you're feeling really ambitious, you can leave us a review at rate this podcast.com slash A16Z. You know, candidly, producing a podcast

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