Amanda Wilde (Host): Welcome to the Healthcare Executive Podcast, providing you with insightful commentary and developments in the world of healthcare leadership. To learn more, visit ache.org. I'm your host, Amanda Wilde. In this podcast episode, I am joined by Dr. Cheryl Pegus, Executive Chair Flight Health and Chair AHA Ventures, and Dr. Mark McClellan, Director of the Duke Margolis Institute for Health Policy at Duke University. They co-chair the recently established Duke Margolis Capital Impact Council. Welcome back Dr. Pegus as a returning guest and welcome Dr. McClellan to this discussion about a keenly felt issue, how to fund healthcare to improve outcomes.

Mark McClellan, MD, PhD: Thanks Amanda.

Cheryl Pegus, MD: Thank you.

Host: I'd like to hear from you both starting with you, Dr. Pegus. How did healthcare finance become an area of focus for you?

Cheryl Pegus, MD: Well, I think if you decide to go into healthcare, you quickly learn that the perceived high cost of everything in healthcare, from the education of clinicians and allied professionals to the provision of care in rural and other underserved communities is something that we have not yet figured out how to fund to the benefits of everyone nationally. And so you begin, I think, learning about it really early in your journey into a healthcare profession, particularly as a physician. In the US, our healthcare system is funded through a lot of different areas. We've got total healthcare spend around 4.9 trillion in 2023, and that's funded in a number of different ways.

We have public funding comes mainly from the government, Medicare, Medicaid, CHIP, which is the Children's Health Insurance Program, the VA. It accounts for about 43% of total healthcare spend. You've got private funding. This comes from employers, what people might do for self-pay. That's about 30% of the spend.

And if you're adding up the numbers that I just shared, there's a gap there in how we continue to fund healthcare. And so we have some philanthropy that funds it. But if you are sitting at a hospital today, and you'd love to use AI for bringing it into your employees to improve the experience, uh, decrease burnout, how do you fund that?

 Where does that money come from? So we have always in this country, utilized private investments to help fund innovation, and one of the things that we know is that there have been lots of positives about those partnerships. The Capital Impact Council is really interested in how do we have more positive and less negative outcomes.

It's not just about the money, it's about how we structure a health system to serve people effectively and equitably. And so that's how the interest started and I think how it continues.

Host: Dr. McClellan, can I get you to chime in on how healthcare finance became a focus for you?

Mark McClellan, MD, PhD: Yeah. And then just picking up on how, we came together for the formation of the Capital Impact Council. My own background is in internal medicine and economics. I started out on the academic side, finding a lot of my research that, as Cheryl said, the payments and financial incentives have a lot of impact on the way that care is delivered.

 Whether you're running a nonprofit or a frontline rural clinic or another organization, you have to be able to make ends meet. And that led to, many of your listeners may know I had a previous privilege of serving as head of CMS among other, jobs in government. Coming out of that, we formed the Duke Margolis Institute for Health Policy to be an interdisciplinary university-wide effort with a big presence in Washington too, to help inform and guide through evidence and, findings from research and working with experts in the private sector on the best ways to achieve our healthcare goals. We still have more work to do. But Cheryl and I connected along with a number of investors around exactly the challenge that Cheryl mentioned.

You know, we're at a time now where we're spending a ton of money on healthcare. We're not getting what we want for it. And if you look at any of the significant reforms that are needed to make it better, it's going to take new investment to get there. And the government on the public side just doesn't have a whole lot of extra spending around, you hopefully our health policies can be predictable and enable investments that lead to higher value healthcare and better results. But the private sector is absolutely critical in making that happen. And so our expectation needs to be that investment can make a positive impact financially, but also have a clear and positive impact on the value of healthcare.

And that's really the why for the Capital Impact Council. These are investors who are committed to identifying effective strategies, best practices for aligning the financial returns with the health value returns in their investment planning and the steps that they undertake to assess and modify how they're going about the investments.

This isn't a policy activity itself, it's really finding the best practices on the private sector side for supporting investment that really makes a difference in health value and meeting the challenges of affordability, access, and quality and innovation in our healthcare system.

Host: And you're both co-chairing this Duke Margolis Capital Impact Council. I know it's recently established. You've talked a little bit about the purpose and the mission of the council, Dr. McClellan. Can you describe for us, Dr. Pegus, the council uses a health value return on investment framework for investors.

Can you describe that framework and maybe give some examples of investments in healthcare that used the framework that resulted in positive outcomes.

Cheryl Pegus, MD: Absolutely. So I think Mark shared this. There are a lot of private investment work that occurs in many of the healthcare enterprises that we're all familiar with. I think people may not be aware that private investment is part of the usual funding mechanism as we continue to provide healthcare.

And so we have early stage enterprises, startup companies that are backed by venture capital, and then we have later stage private equity that enables a company to scale to really reach large swaths of the population and they all look at how are we financially sustainable. Alongside that, however, many measure improvements in affordability, access and outcomes. And outcomes, I think when we say that in healthcare has many different, disciplines within that, it could be clinical outcomes. Are we improving the measures in diabetes? It could be access outcomes. Are we enabling sites of care for people who work nine to five and have children?

And so we're making sure there's care on the weekends or in the evenings. We call this the ability to measure improvements in affordability, access, and outcomes; we call this health value returns. And many people today when they do this work, particularly when they're beginning to invest, but think of the people who give them money, limited partners, LPs, and think of the many entrepreneurs you know in healthcare who do this work. And they come to it because of lived experience, their own passions for improving healthcare. They all look at this synergy. How can we have a positive health value impact and be sustainable financially so that it's rewarding to continue to invest in these different areas.

This health value that's being measured is something that we at the Capital Impact Council and really why I'm thrilled to be working with Mark at the Duke Margolis Center because they have done this work for many years. They look at data objectively to make sure that it is improving outcomes. They develop analytical tools to help investors in this case, really be able to allow these investments to be at the early stages.

Even when you're thinking about it, you think of, okay, I have to raise money. By the way, what's the best value that I will give to a community improving their health? What we're doing is we're bringing those pieces forward so somebody doesn't have to sit down and go, I am an investment banker.

I don't really know this area well. We'd love to be able to help support that. So you feel that you're getting critical expertise and that you're getting the support that the Capital Impact Council can do. I'll just talk a little bit about this health value. There are many dimensions, as I mentioned, that you can measure.

You could look at who are the intended populations? Did we impact, frankly, the healthcare professional community? We talk about burnout. We talk about lower numbers of people being able to care for our populations, particularly as our populations age. So do we have new tools and solutions that can have an impact there?

And we look at how are you ensuring that the measures that you do? Anybody could pick that up and say, I know how they achieved those measures. More importantly, if we're successful, anybody can pick it up and say, I too want to have a health value ROI, and I'm going to use this as the model to go ahead and do that.

Host: Does that health value return address concerns that healthcare leaders may have about private equity firms investing in their organization?

Mark McClellan, MD, PhD: I think it can. Remember our focus is on what are best practices for investors to do, and as Cheryl said, we've been compiling case examples, working with investors with a lot of experience, but experience at different stages and ranging from venture onto growth and the private equity scale.

And what you can measure, at early stages is different, than what you can measure it later. Might seem like, well, if you're a company, it's hard to get these data, but, it turns out that it's very possible to do so. And I think from the standpoint of healthcare executives and working with firms like the ones that have been part of this effort; I think that the resources that we're providing, and you can go to our website, it's at Capital Impact Council, it's part of the Duke Margolis website. Just Google us. But, I think that these kinds of resources could be used by healthcare executives in thinking about their partners in making major investment decisions to ask. Well, do you have in place a, uh, a health value framework for not only how you're going to get financial returns and grow, but, how you're going to have the kinds of impact that Cheryl was describing. And we have a good framework that I think, hopefully is going to keep getting richer with more examples.

By the way, we'd like feedback from, healthcare executives on what's missing, you know, what's been their experience, that has been helpful when they choose a successful investment partner. But, I think Amanda, we're still in the early days of proving this out. We're going to find that the organizations engaged in privately funded activities, whether the early stage or the later stage; you can find predictors of how likely they are really to have health value returns alongside financial returns by using this kind of framework. Again, we're still in early days, we want to strengthen it further. But that is our intent to help make sure that the private equity or many other types of private investment that, healthcare executives are involved in is going to achieve returns both financially and from a, a health value standpoint.

Cheryl Pegus, MD: And I want to just add on that if I may, one of the things that we're really interested in here are who are the companies who are willing to share the case studies of their work. Our members today, and you can find this on the Capital Impact Council website, they will show you, here's how we're investing.

Here is how we're measuring outcomes. Here are the results, pretty transparently. And so when we think of in the future, how do we look at private investment, one of the things we want is to say, has it been independently validated? Have you shared where your investments have gone and what the health value ROI is?

If we could have every investor show a health value ROI, publicly share it; we've really made some great steps forward. And so I think when you don't know how it happens, I think you can, wonder, oh, was it good? Was it bad? If we can truly get people to be transparent with their data and their investments, and partner with an independent third credible party like Duke Margolis and this Capital Impact Council, we really feel that we can make a difference and address some of the concerns today.

Host: And really be that stalwart of integrity as we're looking into more and more private investment. As medical research funding is getting drastically cut, Dr. Pegus, do you see investors stepping into close that budget gap?

Cheryl Pegus, MD: It's such a great question. I think you know that I sit on the board of the American Heart Association and I chair our AHA Ventures group, which is a part of the Capital Impact Council. And many people know that the AHA is the largest grant funder for cardiovascular and brain health research in the country after the NIH.

Just think about that. So already funding a lot of research, basic research where they are measuring outcomes, implementation, utilizing evidence-based science. But the American Heart Association saw that there is a gap. How do you fund innovation by trusted partners for implementation and figure out is the wonderful basic science that you funded, is that now being implemented in a way that it's improving the health of a community, that it's improving the disease states that we're looking at.

And so, Nancy Brown, who's the CEO of DHA, many of you know. She's put together an incredible team to execute the AHA ventures, and it's really that link between science and implementation. I think we see this happening already where people are funding these areas to get to implementable solutions.

I think that will continue. Some of our members in this venture, Kaiser is a member of the Capital Impact Council. Just think of what they fund today for everything from research to implementation to clinical studies. So I think that's what we're trying to build here in making sure that where everyone first thought of, gosh, private investment is to fill the financial gap that we have in just providing healthcare.

We're saying that no, this type of private investment, also can help with innovation. And innovation occurs in many different areas. You've talked about, medical research, but think about AI and the research necessary there. How do we fund that? And so I think yes, private investment has always done that work.

 What we're all saying is are there good frameworks to measure health value? Are there transparent ways to share those case studies? And if we're fortunate, can we get others to adopt it as well?

Host: As you said, Dr. McClellan, it's still early days and you're having to do what Dr. Pegus has just referred to keep monitoring and measuring success. So, it being early days, I'm curious, what are the next steps ahead of you for the council?

Mark McClellan, MD, PhD: Well, we are building on the steps that seem to be working so far. We've, started out with a core group, Cheryl mentioned a, a number of the experienced investors and investment organizations that have been involved. That's grown out this year. Some of our new members include, Kaiser Permanente Ventures, TPG on the private equity side.

Sharing, again, these actual case examples, being transparent, since this has been a challenging area and one that we want to get right, we feel like our most important steps now, as Cheryl said, are to get more organizations that are investing, engaged in sharing their best practices, showing how it can work, helping to make this more the norm and the easy thing to do, when organizations are considering which firm or investment group to support and when healthcare executives are thinking about which investment partners to work with in some of their investment activities. This is a really challenging context in the, in the healthcare world right now. We're seeing some major new policy directions. We've talked about that in medical research, but also some major new policy opportunities. The new administration has talked about supporting new incentives and, new pathways for bringing in digital technology for finding new ways to deliver care through telehealth and new kinds of payment reforms to, to make it easier to deliver the best care at the lower cost.

All of that's going to require private sector investment. Whether the healthcare organizations do it themselves, you know, by working off their balance sheet or, going to the bond market if they're a large hospital system or working with private investors. And so this kind of work, especially focusing on these important ongoing areas of investment, both on the venture side, on the way up to private equity, is where we're going to continue building out resources and support. And again, we are very much looking for feedback from both the investment community and from healthcare executives who do depend on the investment community getting it right in terms of delivering on health value.

Host: So you have to remain fairly flexible and fluid. You're talking about new incentives and opportunities, particularly in healthcare. How do you expect healthcare financing to evolve over the next few years? Do you feel like you have a grip on that Dr. McClellan?

Mark McClellan, MD, PhD: Well, this is our, as our day job at the Duke Margolis Institute is to monitor, provide relevant research and analysis on how helath policy might evolve. I do see healthcare financing on the public side, continuing to shift in this direction of, paying for better health. You know, we've got a, a new, set of directions in the Republican Party that, is in control of President Trump, house and Senate, to uh, make America healthy again. And there have been new announcements from CMS and other parts of the federal government about trying to put more public resources behind strong primary care, behind digital, tech enabled, care. And that means maybe new ways of providing fee for service financing in Medicare and Medicaid, but also, new supports for healthcare organizations that are moving away from fee for service.

Or you can pay more at the person level to implement these new kinds of technology enabled care. So it's early days too for the, the new administration, but I do see some clear opportunities and also some financial challenges emerging and getting investments needed to make healthcare better and more efficient.

As Cheryl said, uh, AI has a lot of promise, breakthrough medical therapies for heading off the complications of cardiovascular and other diseases have never been more promising. But getting from where we are to where we need to be is going to take healthcare executives working with private investors to make it happen.

So, I'm really glad we had a chance to discuss all of this today. It's so, so timely.

Host: Dr. Mark McClellan, Director of Duke Margolis Institute for Health Policy at Duke University. And Dr. Cheryl Pegus, Executive Chair at Flight Health and Chair AHA Ventures. Thank you very much for your expertise and insights.

Cheryl Pegus, MD: Thank you.

Mark McClellan, MD, PhD: again, Amanda.

Amanda Wilde (Host): Both Dr. McClellan and Dr. Pegus co-chair the recently established Duke Margolis Capital Impact Council. For additional podcasts, please visit healthcareexecutive.org/podcast. And for more information about the American College of Healthcare Executives, please visit ache.org.

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