The Big Unlock podcast- episode 16

Episode #16: With John Sculley, Former CEO, Apple
“Healthcare is not a winner-take-all industry”

In this episode, John Sculley discusses how there are opportunities for many companies in healthcare to innovate and disrupt.

Unlike Facebook in social media and Google in the world of search engine and advertising, healthcare is a giant industry where there is plenty of room for many companies. Incumbents, health tech innovators, or brand-new startups they are all going to make significant investments to innovate in different aspects of healthcare – patient engagement, care delivery, telehealth, prescription drugs, diagnostics, and more.

In this Podcast, John discusses what digital transformation means and how he sees it playing out in healthcare today.


Welcome to the big unlock where we discuss data analytics and emerging technologies in health care. Here’s some of the most innovative thinkers in health care information technology talk about the digital transformation of healthcare and how they are driving change in their organizations.

Paddy: Hello everyone and welcome back to my podcast. This is Paddy and it’s my real privilege and honor to have as my special guest today John Sculley, former CEO of Apple. John welcome to the show.

John: Thank you Paddy. Pleasure to be with you.

Paddy: Thank you very much. John of course Apple needs no introduction, but I was thinking maybe we could start the conversation by asking you, how you got involved in healthcare and what are some of your current affiliations in the healthcare space?

John: It actually goes back to three months after I joined Apple. I was sitting around in the Macintosh engineering lab with Steve Jobs and Bill Gates and they were talking about their noble cause to change the world one person at a time. Steve was going to do it with a product that was to be called Macintosh that was designed for non-technical people to do amazing things. And Bill was doing it with shrink wrapped software, something that was entirely new to the computer industry. And those words, noble cause I’d never heard before in business and they stuck with me over the years. And many decades later, one of my close friends Bob Metcalfe, who invented the Internet said John, people like you and me need to reinvent ourselves when we get older. And so, I thought about it and said I’m going to reinvent myself. This was 13 years ago around a noble cause. And so, I picked healthcare and I’d been helping entrepreneurs, founders build some very successful digital health care companies. We built a company, Grant Verstandig who was the founder and I was his mentor and investor. We built a company called Rally Health, sold to United Healthcare which is now probably the largest most successful consumer engagement digital health company. I co-founded a company called Misfit Wearables which we sold to Fossil about three years ago, very successfully. And I’m involved with MDLIVE, which is a telehealth company, and I’m also part of the founding team and chairman of a company called RxAdvance which is a platform company and the prescription drug space or the PBM. And I’m also involved with a company called [00:02:40 unclear] over in London which had a real breakthrough in terms of developing a sensor technology that can do non-invasive blood glucose monitoring, that is as accurate as any true blood test. So, these are all examples of companies that are disruptive, doing exceptionally well and I just feel very lucky to be a part of them.

Paddy: That’s just wonderful. So, I will come back to the concepts of [00:03:09 unclear] and in a little bit disruption, innovation in a little bit. Let’s talk about digital transformation. You mentioned digital health company that you founded, and you sold the United Health’s. Of course, UnitedHealth has been doing some very interesting things in the market. As healthcare consumerism gains ground, digital technologies are redefining the way healthcare providers and the entire healthcare industry is relating to consumers. But there seems to be a lack of a very clear definition around what digital transformation is all about and what it means. So, in your mind what does that term mean to you, digital transformation and how do you see that playing out in healthcare today.

John: Well I’ve been involved with platform-based technology going back to the days when I was at Apple. Apple was one of the first platform companies and I’ve been in telecommunications with MetroPCS. I’ve been in financial services with Intralinks. I’ve been in a number of other consumer companies like Hotwire and so forth, from the earliest stage. So, platform technologies has revolutionized industry after industry with one big exception – healthcare. And the reason why it’s been late to the party at healthcare is because the domain expertise of healthcare is so complex, that the money that’s been made in the health care industry is so significant that a lot of people don’t want to rock the boat and their lobbyists there to kind of slow things down in terms of innovation and change. And it’s an industry that’s very highly regulated. If you make mistakes you can affect people’s lives, in very serious ways. So, for all these reasons platforms are only just becoming to be significant. Healthcare Industry platforms are probably the greatest example of digital health enablement and I think we’re going to see more and more success stories by 2020 and beyond that will demonstrate that health care will be just as important an opportunity for platform technologies as all of these other industries have been.

Paddy: Right. And I run a growth and digital transformation advisory firm that focuses exclusively on healthcare. I’ve been in the healthcare space for about 20 years. And my work with health systems in general. You know one of the things that I find, is that health care is a very traditional industry and I think you alluded to that earlier comment. More importantly from a platform standpoint they are, especially health systems, they’re dominated by electronic health records system. And we spent the better part of a decade and more digitizing patient medical records. Tens and hundreds of millions of it spent on doing that. Now you have the big tech companies including Apple, Amazon, Google, Microsoft they’re all making big investment and they’re trying to build these digital platforms of the future. My own sense is that as you rightly said it’s in early stages. What are you seeing as the impact of these companies coming into the market? And what’s the kind a time window we’re looking at for them to really become the de facto standards in terms of the platforms for the future.

John: Well I think it’s really becoming clear that Microsoft, Amazon, Apple, Google are all planning to move into the health industry and in very major ways. Morgan Stanley estimated that by 2028, that Apple’s health business could be as large as 300 billion dollars a year. And Tim Cook has even come out and said that he believes that looking back decades from now health will be the single biggest legacy for Apple and they aren’t really in the health industry. Beyond putting in you know some sensor capabilities inside of the Apple Watch. So, this will require huge growth. Amazon has already announced Alexa health. Amazon has over 100 million Amazon Prime users, who if Amazon comes up with a health service, my guess is it will be a subscription service because so many businesses that Amazon is doing, that’s subscription service model. But Amazon has the talent and the capability to build major businesses in health, their acquisition of PillPack is just one example of that. And then you look at Google. Google about eight months ago recruited David Feinberg, one of the most admired executives in the health industry from Geisinger to become CEO of Google Health. And no one is more advanced in machine learning and artificial general intelligence than Google. So, I would say look for them, to also be doing things with for example, if Amazon going to have the Alexa health voice assistance and tie that into health services. It’s realistic to expect that Google will be doing things in a similar way with Google assistant. So those are just a few examples of what’s possible. And as we all know, those of us who’ve been around the high-tech industry for some time, there is no one who has transformed a large company so successfully as such as Nadella at Microsoft. In five years, it’s like a totally different company, in terms of culture, in terms of growth, in terms of innovation. So, Microsoft also is going to be a big player in the future. The thing which I’ve learned because I came out of big tech, but I’ve been in health care for 30 years. One of the things that really captured my imagination is why I got involved with a cloud based PBM, pharmacy benefit management company called RxAdvance. That was just beginning at the time I got involved is that the founder Ravi Ika pointed out to me. He said John, by regulation CMS requires that every prescription that is written must have documentation of a clinical claims and related lab data. And he said if you could take that data and not just use it to adjudicate reimbursements, which is the traditional role of PBMs, but if you could use that data across the entire continuum of care and particularly, get it to those chronic care patients with high co-morbidities. As you know Paddy, about 5 percent of the U.S. population represents almost 50 percent of the three point six trillion-dollar health spend every year. And these patients are chronically ill. They’re killing themselves and killing the health care system and they very typically had nine high co-morbidities diseases. But there are many of these patients who are getting duplications of medication, they’re getting side effects because different physicians don’t know what other physicians are prescribing. And so, the ability just to take that data which the health plans have, not the electronic medical records that are normally captured by Epic and Cerner and others for the providers. But that the data that the health plans have from their PBMs, didn’t get that data across the continuum of care, get it out to the physician specialists, get it all the way to the point of care whether it’s in the home or point of care at retail. You can dramatically change the way we serve people. The costs of serving people and particularly the most expensive patients, the chronically ill patients. So that’s what got my attention. And that’s just one example of a very large sector of the health care industry. The prescription drug ecosystem. And if you find other examples. But that’s one that really caught my attention several years ago, we were starting Rxadvanced.

Paddy: Right. And there is there is no dearth of disruptive ideas and innovation that is coming out of the tech industry in particular. At the same time, some of the existing, the incumbents if you will, are also reinventing themselves it seems. And non-traditional players are also entering the market. A couple that come to my mind are obviously Wal-Mart, on the one hand trying to leverage their large retail footprint. But you know CVS today, just today they announced these health hubs. They’re going to turn all of their clinics into some kind of quasi healthcare facility. So even the incumbents are reinventing themselves. So, is there some kind of common ground where all of these models are going to converge? Do you think there’s going to be multiple models in play in the foreseeable future?

John: Well first of all, healthcare is not a winner-take-all industry. This is not like Facebook who dominates social media or like Google that dominates its search and advertising. This is a giant industry where there’s plenty of room for many different companies, whether they are incumbents, the examples you just gave. Whether they’re high tech innovator leaders who choose to come into this big industry or whether are brand new startup companies, like the ones I’m involved with. They’re huge opportunities and that’s why I’m quite optimistic, Paddy, that all of these players are going to be making significant investments. Hopefully some real innovation will come out of it. What we need in the healthcare industry are some role models. We have great role models in all these other industries that have adopted platforms and adopted business models that focus on the customer as opposed to the institutions. Still a relatively new idea in healthcare. And it’s inevitable in my mind, that we’re going to have as we move into the early 2020 and beyond. We’re going to have a number of incredibly successful new companies, much as we saw in e-commerce, social media, entertainment, telecommunications in prior decades. We’re going to see that in healthcare in the 2020. So, I’m very optimistic and I think it’s not a winner-take-all industry. No one company is going to dominate, its three point six trillion-dollar industry.

Paddy: I tend to agree with that as well. In health care to be successful one has to address the whole reimbursement or payment model, if you will. Health care is used to fee-for-service model for a really long time. So, for every kind of service, there has to be some kind of a medical code attached to it. So, health systems can get paid. Now of course the CMS and everyone else is trying to move the needle more towards capitated model. But all indications are that, the progress there has been a little slower than what everyone expected. So, in an environment like this, when investment dollars are hard to come by and the investments have to be justified by some kind of a tangible return, which is either through a reimbursement model or through some other self-funding model if you will. These big platform companies, do you think that their ability to make impact in the near term is going to be determined by whether the reimbursement environment changes or do you think that they’re going to be successful no matter what?

John: Well you’ve done an excellent job of outlining the conditions that we have to deal with. First of all, in 2014 when the Affordable Care Act was launched, all of the attention went towards the many mistakes that were made in its design. But in parallel to that, CMS started rolling out value-based care. And so now it’s 2019. We’re five years into it and value-based care is starting to be better understood. People are thinking about how they can adapt if they’re already in the health care industry. Their business models to be able to shift from fee for service to value-based care. There’s no way we’ll have a sustainable health care system for the nation, over the decades ahead, unless we can make that transition to value based care. The value-based care model creates a number of incentives, so there are [00:16:33 unclear] measurements, there are star rating bonuses. There are other ways in which the health plans can earn extra incentives for having good patient outcomes. But there are also penalties and probably the biggest penalty, is if a chronic care patient is readmitted to the hospital within 30 days of discharge. It could be ten thousand dollars a night penalty, for their payers and providers. So there are big reasons why the health care industry, whether it’s incumbents or new people coming in, want to find ways to treat chronic care patients, not only with a better quality of life, which is going to be possible with better technologies and innovation. But also, with dramatically better outcomes in terms of keeping those seriously ill people from being readmitted back into the hospital. And just to put that into context it’s estimated over the next five years, 40 percent of the hospital beds in America are going to be eliminated. And what that means is that, more and more of these people who are chronically ill, who would have been treated in the hospital as an inpatient are going to be sent home, maybe after having a outpatient medical procedure, including surgery. So, the ability to find ways to treat people remotely, and think what that means to an industry like telehealth. Now Telehealth, that there’s really only one success company in telehealth today and that’s Teladoc. But it’s an industry that has largely been built around low acuity care. And low acuity care is for people who only need to have someone write a prescription because they got the flu let’s say, once a year maybe twice a year. It’s hard to build an industry around that. On the other hand, as this huge chronic care patient, aging [00:18:35 unclear] society people moving from the hospital beds to being served in their own home. Advancements in technology that enabled remote patient monitoring, as these things start to gather scale. Something like telehealth, I believe is going to pivot and it’s going to pivot towards higher acuity care. It’s going to pivot towards, being more routine, where people who are not in a good way to be able to go to a hospital, go to a doctor’s office, don’t even necessarily have the money for the transportation services. They’re going to be served and more and more and a combination of in-person visits with doctors and nurses but also remotely via telehealth. And that’s going to be the sweet spot for Telehealth. And it is very likely in my opinion, that the big health insurers, the payers, over the next several years are going to be buying up the telehealth companies that have built the complex infrastructure, of how do you get doctors who can meet the regulatory requirements and who are trained and who you have to have the tools, usually platform tools. How do you get those into a much bigger system, where they can scale, maybe throughout a payer’s network because the whole focus in the payer industry is to invest in ambulatory care? Part of that ambulatory care includes telehealth.

Paddy: And I think you make some very good points especially about the over capacity of beds in hospitals. One of my guests on this podcast a month ago was Dr. Toby Cosgrove. And he said that that is something that as you said the same thing that you just did which is that this is unsustainable and you know we are an over bedded healthcare system especially at a time when the trend is increasingly towards the virtualization of care. And you pointed to telehealth which is just one of the modalities in which does virtualization is playing out. This is a very interesting cases, especially, Intermountain Healthcare and Mark Harrison and the work that they’re doing especially around advancing telehealth for rural care in Utah. And so, there’s some very interesting cases out there. Now, let me switch gears here a little bit John and ask you about the state of the digital health innovation ecosystem. Last year the numbers are that 8 billion 10 billion give or take was invested in digital health startups. And a lot of these startups have come up with some very interesting ideas but a good many of them struggle to gain the traction that they need for a variety of reasons and I study that space very close. There’s a variety of reasons, but the fact of the matter is that there is no dearth of innovation. People are coming up with smart ideas and smart companies at the same time they are unable to sort of breakthrough some kind of a barrier and very few of them are actually pushing through to the other side. And you know becoming meaningful in size. Just a couple come to mind, Livongo, HealthCatalyst you know those are the ones that are setting themselves up for IPO, maybe a Proteus. But the vast majority of them are not doing well. And we do agree with that assessment and what do you think that needs to happen for us to unleash and unlock that innovation in order to help healthcare and this transition towards the future.

John: I very definitely agree with your assessment. But let me give you an example from my own experience of a digital health company that was started by a very talented young founder who when I first met Grant Verstandig, he was 21 years old. He dropped out of Brown University and he had this vision of wanting to start a consumer engagement health tech company and it was called Rally Health and the thesis behind Rally Health was that if you could get people engaged, at that time there were other consumer engagement companies that but they were only getting single digit adoption whereas with Rally Health we introduced a health risk assessment model that was very simple, 40 screens divided A and D on either side of the screen and we would ask 40 questions. Are you like this or are you like that. And by building up those answers to 40 questions just looking at screens we were able to get incredibly detailed digital profiles of the respondents. We use that data to set up self-organized groups. These are women almost entirely. Turns out women were the largest online gamers at that time because they like Candy Crush, they liked Angry Bird, they liked New York Times puzzles. Not video games, but these types of skill games. And the result was that when we went to United Healthcare, we were talking to the Optum group. They had a real problem making money with their preventative care and their wellness patients. So as part of the transaction, they agreed to move 10 million preventative care patients from Optum which they were not making money on at that time. And another 10 million of their wellness patients they were not making money on at that time over to our digital platform. We were one of the first digital platforms. Now I’m going back almost five years and we’ve worked with them to come up with a way to get women who are the typical decider for their families as to what things they ought to do and care. We’ve got the women excited about ways in which they can modify their behavior. And they could earn discounts on co-pays and deductibles and because United Healthcare owns Optum we were able to, much like frequent flyer miles for the airlines, we were able to come up with a program working with the United Healthcare which would lower the deductibles and co-pays, which meant for the health plans improving their MLR their medical loss ratio. And it turned out to be incredibly successful, very profitable. Once united owned it and Grants Verstandig is still the CEO of that business as well as the chief digital officer for UnitedHealthcare. It turned out to be probably the best success story that I’ve seen in digital health and we were lucky enough to have sold the company for over two billion dollars. So there are examples but I tell you this story because there are a lot of things in this story that even if you are a talented digital health designer, if you don’t understand MLR medical loss ratio, if you don’t understand reimbursements on how people get paid how do you measure outcomes. You don’t understand the complexity of the health domain. You can’t integrate at scale the types of innovations I’ve just described with Rally Health. So I believe that is going to be a requirement that you have on your team, people who have deep domain expertise in healthcare but also people who understand the advantages of platform technologies and particularly consumer engagement because of the shift in power is going more and more towards patient.

Paddy: That is a fantastic story John. John we just have a few minutes left and I just wanted to ask you a pretty open-ended question to round out this fascinating conversation. If you were to look, let’s say three to five years into the future you know who you think are going to be the big dominant players in the healthcare ecosystem in the future. Especially from a technology enabled healthcare delivery kind of scenario.

John: Well I’ll just give you, it’s always easier to talk about things that I know about. So, I’ll take the example of what we’re doing with a platform based PBM. As you know prescription drugs are under the spotlight for PBM as being middlemen who are very opaque. We need to have lower costs for prescription drugs. And everyone knows that the PBM system needs major improvements from an innovation standpoint. At RxAdvance, our team has 16 years of experience building health care platforms before we built RxAdvanced. We did 10 billion dollars of contracted revenue last year and our fifth year. We will easily double that in 2019 and our aspirations by the mid 20 20s is that we can get to somewhere between 40 and 60 billion dollars of contracted revenue. And all of this is being done with platform technology. The thing that’s, I think a real wakeup call for the PBM industry is if we had the amount of revenue, that let’s say express scripts has, where they have thirty-seven thousand employees. With our platform we could serve that large volume of business with maybe a couple of thousand people so two thousand versus thirty-six thousand people. We have no call centers; everything is done through robotic process automation using machine learning. We are extremely accurate. Every time we deployed in a new market we never have a hiccup. You know it works perfectly the first time. And so, these types of changes have got to be able to work at scale. They have to be able to integrate into large systems, large traditional organizations that already exist and they have to do it with no compromises. So, it’s a high bar to meet, but it’s very definitely achievable.

Paddy: Right. Well, all the very best for the mission of the company I kind of took a look at the website seem to be a very interesting new model and John of course it’s been fascinating to hear your thoughts on healthcare and technology in general. And it’s been a pleasure speaking with you.

John: Well thanks for inviting me on Paddy.

John: It’s been great fun and you always attract interesting guests.

Paddy: Thank you very much.

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About our guest

John Sculley

John Sculley is one of America’s best-known business leaders, with one foot in the storied history of Apple technology and the other planted firmly in 21st century innovations that change the way the world does business. Drawing upon many years of experience as a corporate executive, investor, entrepreneur, mentor, and rainmaker, Sculley has become a sought-after global advisor helping experienced entrepreneurs build a new generation of transformative companies.

In his 10 years as Apple CEO, he worked together with Steve Jobs to launch the Macintosh computer, desktop publishing, and the first multimedia computers. By the end of his decade as Apple CEO, the Mac had become the largest selling PC in the world and Apple’s revenue had grown over 1000%.

The companies John has advised cover many industries: health-tech (RxAdvance, Rally Health, MDLIVE, FLEXPharma, SleepMed); fin-tech (Lantern Credit); mobile-tech (MetroPCS); and marketing–tech ( Zeta Interactive).

For 15 years, John Sculley was on the Board of Overseers of both the MIT Media Lab and Wharton Business School. He received Wharton’s highest honor, The Joseph Wharton Award for Outstanding Leadership. He was selected as marketing CEO of the Decade when he was Apple CEO. John Sculley received an honorary PhD from Johns-Hopkins University and 10 other universities. In 2015 he was awarded The Ellis Island Medal of Honor.

As Chief Marketing Officer (CMO) of RxAdvance, John is responsible for overseeing the overall planning, development, and execution of RxAdvance’s marketing and advertising initiatives. John’s primary responsibility is to generate revenue by increasing sales through successful marketing of RxAdvance’s brand, services, and platform, using market research, pricing, product marketing, marketing communications, advertising, and public relations.

John Sculley is author of “Moonshot!: Game Changing Strategies to Build Billion Dollar Businesses.” He is married to Diane Sculley who is also his partner in the Sculley Family Office.

About the host

Paddy Padmanabhan is a widely published and quoted thought leader on digital transformation in healthcare. He is the author of  The Big Unlock: Harnessing Data and Growing Digital Health Businesses in a Value-Based Care Era, and the CEO of Damo Consulting Inc, a digital transformation and growth advisory firm based in Chicago.

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