Challenging the Status Quo of Healthcare Investment with Annie Lamont

31:49So that's our goal and focus, not owning hospital systems. I will say I was on the board of HCA for a while, not as an investor, but an observer of the best hospital system in America. And if you think about that, that was a PE deal. It was done by a family, but multiple times, right? They went public, they went private, they went public again. And that is the best run hospital system in America, as a for-profit. Really? Yes. That's really interesting. The best run, the most efficient, great outcomes. And I think the way you've got to look at this not-for-profit hospital system is that every not-for-profit hospital is a for-profit hospital because every decision is made by a for-profit doctor.

32:31Right. Somewhere along the line, someone is making a decision and obviously - Yeah, that impacts their income. Right. So there's no such thing as a not-for-profit hospital in America. So what are the better known hospitals that HCA manages, if I'm not familiar with HCA generally? Well, they're going to be brands. There's Baptist. They're going to be brands all over the country. And they're going to be different in every market because they want to be local, feel local. And so you wouldn't necessarily know the brands. It's going to be Florida. And it's going to be city by city. And every hospital will have a different name.

33:07I've been fortunate to not spend a whole lot of time in hospitals. my experience at NYU Langone was kind of eye-opening. Well, first, sometimes you get advice, hey, go someplace that specializes in what you need. So they've seen every variant. And even with that, I wasn't prepared for what an amazing factory assembly line. And I mean that in the most positive sense of it. It's like, yeah, we do a million of these a day. Whatever you have, it's not a problem. We've seen it. And it was true. They had it down to like, bing, bang, bing, you're in and out. And it was really impressive to see. I'm just curious if that degree of competency, I think my whole copay for the whole experience was 50 bucks, which I guess just means my wife has good health insurance as a New York teacher.

34:03But it was really impressive. is that specifically a function of one hospital or is that a broader management approach to the whole chain? New York does not allow four broader hospitals. So you wouldn't experience it in New York State. It did not feel like it was a not-for-profit. It felt like everything was structured to get them in, get them out, move on to the next. No, we have, New Yorkers are lucky in that they've got a somewhat competitive hospital environment and excellent care here, right? So, no, I think if you sat in a boardroom of a not-for-profit and a for-profit hospital, you'd be amazed how similar the conversations are on the same problems.

34:52I don't doubt that at all. How do you think about having sat on a board? How do you think about managing problem hospitals? I just got off the phone with a friend in Florida who jokingly said, you know, if you fall and break your leg in Florida, you don't call an ambulance. You call a cab. You call an Uber to take you to the airport to fly up to New York. I think he was exaggerating a little bit, but that's not the first time I've heard things like that. I've heard it over and over again. People come from Connecticut, and people come back to Connecticut. all that they do their health care. Here, northeast.

35:28Or northeast could be their second home and maybe their domicile now in Florida, but they come back for the health care system. How does a system that has that sort of reputation, how do they address that? It seems like - Oh, in Florida? You would think that they have lots of people who are older. They do. They should be really good at this. They should be really good. it's a it's just a uh you know it's just a i'm just musing but it just seems like i i mentioned somebody i was speaking to you and they're like find out why florida hospitals are not good like i don't think she invests in hospitals well i you know and i think there's there's just a long history frankly of doctors going to florida to there's been a culture of like making money there You know, and the more specialists you have, the more it's it's amazing.

36:18The more specialists you have, more surgeries and more things to get done. Right. And so I just don't think they have the same tradition of quality that other states have had or the Northeast has had. So I can't obviously they're good HCA hospitals in Florida. But for some reason, the whole ethos there is not been the same in general. So I'm kind of intrigued by a couple of things you've said about wanting to improve outcomes, reduce costs, and enhance experiences. And you talk about five levers of change that the fund looks at. And let's go through all of these. Access, outcome, cost, speed, and friction.

37:05That sounds like everybody's combined headache in healthcare. Tell us a little bit about those five levers. Well, access, I think we all learned a lot about that during COVID. There is differential access. And it's not just minority or city-based. Obviously, the rural environment is very challenging right now. A little bit of a healthcare desert in some places. Healthcare desert. You've got pharmacies closing. You have hospitals that are an hour and a half away from people. You have challenged hospital systems. I would say in suburbia and urban environments, hospitals are actually doing quite well in making a fair amount of money.

37:47But in rural, far more challenged. So that is something that we're actually addressing in one of our companies called Main Street, which is focused on, it's a Oak Street, maybe Village MD for the rural environment. but with a different business model. And the point is for them to actually own everything in those environments except for acute care hospital and try to keep people as much as possible out of the hospital but provide a broader set of care opportunities to those in rural environments. So I have a vivid recollection of a television show called Northern Exposure. They wanted more doctors in Alaska, so the state of Alaska would pay for your medical school, but you had agreed to practice there for five years.

38:34It seems amazing that in the United States in 2024, there are healthcare deserts. Why haven't states, and I know this is not your expertise, but it seems like states should have addressed this a long time ago. How is it possible in a modern era, you could be two hours away from an emergency room? It's unthinkable, at least in the tri-state area. It's hard to imagine. Yeah, no, I agree. I mean, the fact that they should be and sending primary care, paying for people's medical school, that will go into primary care and go to rural markets. And there are some that are doing that. I think about virtualization, though, because one of the aspects of Main Street or some other models we have, CareBridge, is that virtual care and wraparound care, so much of this actually can be done virtually.

39:19You can have specialists in a network that don't, you know, your best oncologist from MSK in New York City can be advising people in rural environments, right? Memorial Sloan Kettering. Yes, Memorial Sloan Kettering, exactly. So what's the difference between virtual and wraparound? How do they differ? Well, I think wraparound may mean that you have a connectivity locally, plus you have virtual care that extends what is available locally. But wraparound could be you have, in CareBridge's case, you're managing what we call dual eligibles, which are those who have Medicaid and Medicare. They're the sickest of the sick that are in long-term services, home-based services.

40:02So they're in the home. Generally, they're sick enough to have a caregiver who's either a family member or a caregiver who's hired to help them out. And then you're supplying nurses and M.A. and others that get to know these patients, but all virtually. But they end up developing a relationship with the caregivers. that have a, you know, we have an iPad in the home with a button, essentially, you know, like the 911 button where you hit the button as opposed to all of a sudden for every issue, sending that patient to the emergency room, which is wildly expensive, right? And not constructive because often they get admitted and, you know, and then all of a sudden you have a$30 ,000 expense.

40:45The reality is that button is going to a nurse that's on, you know, on call or in a call center for a care bridge and or a main street that's taking care of that individual and actually knows the launch knows the medical records has gotten developed a relationship with the caregiver and the patient so they can walk through what are the issues to say mental health crisis which is that you know often is or get ahead of some of the challenges of wound that gets taken care of as opposed to in the ER you know by somebody going to the home or getting them to another facility. So these are the things that it's just like longitudinal care management of individuals and the chronically ill are those that end up in the hospital most often.

41:29And you mentioned CareBridge. That's a company you have an investment in. It seems so obvious. How do we get better outcomes and less expensive costs by intervening before they end up in an emergency room? Again, how has this not taken place before? Is that what care bridges, core businesses. Yes, yes. They manage the sickest of the sick, chronically ill in the home that are dual eligibles. And that is what they do. They develop a relationship, they wrap around, but it's all about, part of this is financial alignment. They have contracts with the health plans to take care of these individuals.

42:06They get paid, basically, they have full responsibility for the cost of care for these individuals. So they're highly incented to take good care of them. And preempt those emergency rooms. those emergencies the rooms the two most expensive things on health care are rising hospital costs which are up like 20 this year and drug costs so if you can manage drug compliance better and most importantly the easiest but not easy thing to do is to keep people out of the hospital appropriately right nobody wants to be in the hospital i mean this is the thing i always the hospitals always talk about utilization management you're keeping people out of the hospital well that's actually our job is to do preventative care and keep people from using the most expensive resource in America.

42:51And it's always astonishing to, when you read, I think medical errors are the third most common cause of fatalities in the United States. That's a stunning number. And I guess why none of us really want to be in a hospital unless we have to. It's dangerous to be in a hospital. You don't want to be there. It is dangerous. Think about the infection rate in a hospital. Staff, and yes, it is actually dangerous to be in a hospital, so there better be a good reason to be there. So we talk about access outcome. I'm kind of intrigued by the focus on cost, speed, and friction, because all three of those seem to apply to both healthcare and financial technology.

43:33You mentioned they both live on old legacy systems. They're not nearly as cutting edge as they should be. Is that how you ended up being both a healthcare and a fintech investor? Certainly between insurance and payments and rev cycle, we thought it was in 2002 an obvious place to go. And having gone into biotech early and then tech-enabled software, leveraging the internet in healthcare early, I just felt like payments and fintech wanted to be early. Like that was an area you could just tell the tailwinds were there. And so we came in 2002 before anybody knew what fintech was. And we were focused initially on the sort of prepaid, underbanked market.

44:18Pre-paid, underbanked market. Underbanked being 60, at that time, 60 million people in America did not have checking accounts or credit or debit cards. Right? And think about what you can't do. Okay. And you have the advent of the internet. You couldn't buy things online. You couldn't reserve a hotel room. You couldn't rent a car. All these things that change your life. So by investing in NetSpend, which is one of the first prepaid debit cards, people could actually do those things. They could buy online. They could reserve a hotel room. They could rent a car. I mean, these are game-changing things to someone.

44:54So that was exciting because we were changing people's lives and giving them access, democratizing credit effectively. So it's interesting you started in fintech in 2002, because I recall former Fed Chairman Paul Volcker said only half in jest, and I want to say it was 2011, 2012, what innovation is there in the financial space other than the ATM? Nothing's happened. And it seems like that really isn't true. There's been a ton of innovation in the financial space. Tell us some of the other fintech investments you've made. More recently, fraud. Just think about fraud as being an area of - Constant, constant battle.

45:42Constant battle. Arms race. It is an arms race. And even more so, think about what happened was in the payments world, you had card present, right? You're swiping at the point of sale. And then we had the internet come along and we had virtualization of payments. Then fraud exploded. Right. And now with Gen.A.I. and obviously deep fakes, you have person not present. So you've got a whole different level of fraud that is being experienced right now, right, where somebody's mimicking your voice for a call, right? Literally just had this conversation yesterday with my head of compliance. uh it was a i don't remember if it was gizmodo or one of those sites that talks about the fake calls you're getting supposedly from google who will never really call you assume any phone call you're getting it is a fake but the ai agent on the other side sounds so realistic um always ask them to sing a song and and that was that was the solution an AI app will sing it, or whatever silly thing you ask.

46:54But it just seems like the ability to impersonate people is just getting better and better. Who's going to win this arms race? Well, I think it's just going to be a continual battle. They'll create new ways to implement fraud, and then we'll create solutions against that fraud. And so it is, I think, will be a perpetual and continual battle. We have companies like FeedsEye and Prove that are focused on that area. FeedsEye focuses on risk management and combating fraud. Combating fraud, yes. And Prove is that when you get the pin and you're doing sort of double authentication, they're the ones that are integrated in the operating system of phones and effectively are giving you that number, that PIN, when you're typing in that second number to authorize a transaction.

47:50So we have a number of companies, probably seven or eight in that space. Other companies that do, if you think about America and where we are here in terms of credit payments, think about LATAM is two decades behind us. And so we are seeing a number of opportunities in fintech. Two decades behind. Yeah, two decades behind, which actually will probably be an advantage, and they will leapfrog us because they don't have these old technology. They'll start from scratch. They'll start from scratch. And if you look at Brazil, they've created something called PIX, which they built for$2 million, which is amazing, by their central bank.

48:33And it's real-time payments. And effectively, it's a protocol and effectively allows bank-to-bank authentication. So if you think about ACH and your cash account to somebody else's account, it is incredibly complicated in the U.S. to do an ACH transfer, your bank account to another bank account, right? This takes forever. I wanted to address that. I grabbed my phone, and I'm opening the folder with the FinTech apps on it. So Venmo is the easiest thing in the world to use just to send money to someone else. but I did something in South America, in Colombia. I had an old truck rebuilt in Colombia and I was using Remit.ly and World Remit to send as long as it was less than$10 ,000 at a time.

49:23Internationally, it was like click, click, click, done. That was an unthinkable nightmare. I don't know, five years ago, 10 years ago? I'm looking at the TD and the Schwab app. I'm looking at the Chase. I mean, just the amount of things you could do on your phone. So, A, it feels like the innovation certainly has - The innovation from the consumer experience is there. It's ironic, though, because if you think about Venmo, everything runs on the credit card rails right now, right? That's right. I mean, that's actually what's happening on the Visa rails, the MasterCard rails, or MX. And the reality is - Is that because that's so secure?

50:01It's expensive. Well, it's secure and it exists, right? And it's easy. So, I mean, think about Apple, right? If they run on, you're putting your credit card in for Apple Pay. Right. Every time I take a subway, I just drop the phone on it. And that's right. That goes right through the credit card. If you think about LATAM, that's an expensive option. And so what they've done in LATAM is created a pretty friction-free Visa-like rails, but Cheaper. Very cheap, like cents, pennies, like virtually no cost. So then that is probably taking like 40 % of credit card and debit card transactions. Really?

50:39And wasn't there a couple of things done over cell phones in parts of Africa where they didn't have a credit card system and just necessity being the mother of invention came up with some things? So my question is, are all of these various things secure? or what is the challenge building the next generation? What's going to replace? Will anything replace credit cards? Well, I think real-time payments will replace credit cards, but you are going to build costs on top of it because if you're talking about large B2B payments, you're still going to be talking about something and even larger B2C payments.

51:19There is more fraud capability that needs an identity, authentication capabilities that need to be built on top of it. There will be great opportunities for companies for us to invest in that will create B2B opportunities on top of PICS and on top of other infrastructures that are being built in LATAM or India or Africa. Really kind of fascinating. So given these two areas that you focus on and the track record you guys have put up, I just wanted to mention again, you were named one of the top 10 venture firms of 2024 and a number of other accolades last year. How does this affect the deal flow you see in the companies you look at?

52:07Do you have your own space and that's what you drill into? Or are you guys a little broader thinking about a variety of different types of companies? For example, we define fintech very broadly. That is e-commerce infrastructure. It's fraud and identity. It is payments. It is general infrastructure. so it's fairly broad in terms of how we look at it i think the as we think about um opportunity in the sector think of us as starting things or backing an entrepreneur who has started something because we have a whole thematic approach to an area and i'll talk about something we just did all the way up to a classic abc round right and and we'll even do an occasional buyout or two where we think there's huge growth opportunities if we invest in the tech portion of it.

53:06So something we did recently I think is emblematic of what we're doing more lately with the$2 billion. Our most recent fund was$2 billion. And we backed the individual, Dave Clark, out of Amazon, who for 22 years built all the supply and logistics chain at Amazon. and he brought his chief scientific officer and a number of people from Amazon and others that he's worked with. And when we announced this company, 1 ,200 people that day submitted resumes to them. It was extraordinary. It speaks to his reputation. And the idea is that we will build a Gen.AI software, native AI software platform that will incorporate some of the supply chain software boutique, best of breed software systems that are out there that constitute the supply chain.

53:59Because if you are an Amazon or someone else, you're working with 20 different vendors to complete your supply chain. And the reality is you really want that integrated in one infrastructure. And so their plan is to basically build the supply chain infrastructure. End-to-end one company from when it leaves this place to it ends up that place. And all the quantitative metrics and tracking and everything that goes with it. Huh, really, really interesting. Yeah, so we committed$100 million to that. Oh, no kidding. Oh, so that sounds like a pretty big bet. Yeah, we're all in. But yes, we're doing more of the$100 million plus investments,$70 million investments, because we want concentrated bets in the areas that are most exciting to us with the best entrepreneurs.

54:46So I only have you for another 10 or 15 minutes. And before I get to my favorite questions I ask all of my guests, I got to throw a curveball at you. Okay. Which is, you know, normally at this point in a conversation with a VC, we talk about you've had 70 exits and 15 IPOs. But you're also the first lady of Connecticut. You're married to Ned Lamont, the governor of Connecticut. kind of an unusual role for first ladies being a VC. Tell us how you juggle these two roles. It's you're the first VC I've spoken to who's also in a state house. It is unusual. The great news is that there is no expectation for the first lady of Connecticut.

55:37There is no established role. And so I'm really just a partner to my husband as I would be. in terms of just their support and guidance. But I do campaign with him. I go on weekends. We do things together. But he's very much running the state of Connecticut. Well, I am doing my thing, you know, during the week. And then we come together in Connecticut and Greenwich during the weekend. But it's been, I mean, it's fascinating. He loves the job. It's, you know, I'm biased, but I think he's done a great job for Connecticut as a businessman himself. but somebody who has a social conscience. So it's been fun to watch because he does love the job.

56:22Really interesting. All right, let's jump to our favorite questions that we ask all our guests, starting with, since you mentioned you like to spend the weekends with your husband, the governor, what do you guys do on the weekends? What are you watching, listening? What's keeping you entertained? All right, let's keep this there. UConn basketball. I can't wait to have it back. So women and men are going to be amazing this year. And they have been. Obviously, the men have won two years in a row. Huskies have a great team. They've been winning for a long time. And the women's team has done really well also the past few years.

56:59Gino is incredible. I mean, the fact that they had five injured players and got into basically the final four was incredible. So between Gino Oriyama and Dan Hurley, two of the best coaches in the country. So that's been super fun. And we go to games and we watch on weekends. But we're, I don't know if I'm an athlete, but I love sports. We love sports. We play golf and tennis and hike. And it's being out ski and being outside as much as possible. And he watches and, you know, he's been a long-suffering Jets fan. We're hoping the Jets are back. And I happen to be a Packers fan being from Wisconsin.

57:35So we compete. Really interesting. Tell us about your early mentors who helped shape your career. Yeah, there was an individual, Jerry Gallagher. I'm from Wisconsin. He was from Minnesota. And he ran for a prior firm. He ran the retail investing and was a brilliant investor. I mean, it was somebody at Donaldson, Luffin, Jen Ratt in the early days. He was the retail analyst. And he actually invented the same store sales metric. Oh, no kidding. If you can imagine, people were just saying, oh, that company's growing 100 % a year. They didn't know if they'd added a hundred stores, you know, double the number of stores.

58:14But yeah, so he actually invented that. He joined us and invested in, well, it was a filings basement, Whole Foods, Amazon, Whole Foods, which we sold to Amazon, Dick's Sporting Goods, Office Depot. It was just a lit, P.F. Chang, Jamba Juice. I mean, just an unbelievable track record, the best retail investor in the country. and he taught me a ton so he was the first person when I was 27 years of age who said to me you're focused on the idea you're not focused on the CEO enough you're not focused on the people like you have got to raise your bar on CEOs and and of course it's of course it's I mean it's so obvious it's all about the people but I think people you do get enamored with trends secular trends and ideas and ultimately it's it was the most important advice anybody ever gave me because it's all about the CEO at the end of the day and the team they can attract and how they treat people.

59:15And I think it was very much golden rule. You know, he was, some might have considered Jerry old fashioned, but the reality is that that old fashioned message just cycles back and every crazy cycle we have with entrepreneurs. And that is, you know, just obviously do the right thing, you know, and treat people like you'd like to be treated and be kind and yet, you know, be direct I don't remember which VC it was that said the same thing that you just said about backing the team and the entrepreneur, not the idea. But to drive the point home, hey, each of these companies that have had a successful exit, they've pivoted five times.

59:57And however it works out, it's never the initial idea. It's always the person. And I never really thought about that until. 100%. Right? If you're betting on the idea, you're three iterations away from where it's going to end up. Yeah, and the general idea and secular trend may be right, but actually the business model is wrong. So getting the business model is so right, is so critical. Really interesting. Let's talk about books. What are some of your favorites? What are you reading right now? Well, original favorite was To Kill a Mockingbird. And I would say that that influenced my sense of social justice.

1:00:38And then it's probably the Robert Massey books. And I've never been to Russia, but I've been fascinated by Peter the Great, Nicholas and Alexandra, Catherine the Great. I mean, one, it's so, if you look at what's going on in Russia now, same exact, like you understand cultures, right? I mean, it's sort of like understanding history and culture. It doesn't change that much, right? I mean, that is a country that understands suffering and likes autocrats, basically. And it seems like not a coincidence, right? Yeah, yeah, not a coincidence. So, yeah, and then most recently, The Money Trap, written by a friend of mine, Alok Soma, is a fascinating book.

1:01:18He was the head of SoftBank during the crazy period in North America. Yeah, and he actually had never written a book. He went to the creative writing program, got his visa, was able to stay in America, went to the creative writing program in New York City and wrote this book. And it's absolutely beautifully written and it's fascinating. So I highly recommend it. Money trap. I'm going to put that on my list. If you're – you mentioned books about Russia and I know you're talking more historically. If you haven't read, read Notice by Bill Browder. I did. I know Bill and, yes, I read it. Yeah. Astonishing.

1:01:54Unbelievable. It reads like it's fiction and it's such a page turner. All right, our final two questions. What sort of advice would you give a recent college grad interested in a career in either venture investing, healthcare, fintech? How would you advise them? They have to go work inside companies. And they should go work in a startup, in an early stage company, and maybe mid-stage and definitely a larger legacy company because they need to understand business. I mean, when I read the New York Times business section now, I think these people have never been in business. And obviously Bloomberg specializes in it.

1:02:39Right. So it has a lot of reporters that deeply understand it and respect it. But I think that you can't write about something you haven't actually lived at all and truly understand what is. There are obviously things that are very flawed in business, and it's often, particularly in the early stage, extremely chaotic. But it is what drives our economy, which provides jobs for people and employs people and allows them to pay their bills and support all our great social programs. So it's important to understand. And our final question, what do you know about the world of investing today you wish you knew back in the 1980s when you were first getting started?

1:03:18it? It's an interesting question because I, you know, and maybe because I have a Teflon memory, but I feel like I only remember the good things. I think, you know, knowing that large secular changes are the most important thing that drive investment waves and ultimately build great companies, just focusing on those. But I feel like I ended up actually doing that well, picking the secular wave that made sense and getting ahead of it, but not too far ahead of it. I was going to say you did that well, but you were also early in a lot of big secular trends. Yeah, so I would say that ended up working out well.

1:03:59Being too early is the killer in investing. So that worked out well. But I would say, in general, don't sweat the small stuff. you know get the large things right and the rest of it will take care of itself so i i would only caution those that are starting out now in the investing world or frankly in any career to just you that you all those things that seem so important that are so small during the day like just remember that you know think about yourself 40 years from now like what's going to matter what will have mattered to you what will matter to your success and just focus on those things and don't focus on all of the petty small things that may have gone wrong or the people around you.

1:04:46You know, and then otherwise just like stay away from toxic people and make sure you carefully work with people you love and respect. And I think in general I've done that, but I think there are times where I would have walked away. I would have started OKHCFT so much sooner. That would be like the one change in my career that I would have made. Really interesting. Thank you, Annie, for being so generous with your time. We have been speaking with Annie Lamont, co-founder and managing partner at Oak HCFT. If you enjoy this conversation, well, be sure and look up any of the previous 500 discussions we've had over the past 10 plus years.

1:05:24You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever you find your favorite podcasts. And be sure and check out my new short form podcast, At The Money, conversations with experts about your money, earning it, spending it, and most importantly, investing it at the money in the Masters in Business feed or wherever you find your favorite podcasts. I would be remiss if I did not thank the crack team that helps me put these conversations together each week. Anna Luke is my producer. Sean Russo is my head of research. Steve Gonzalez is my audio engineer. Sage Bauman is the head of all podcasts at Bloomberg.

1:06:08I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

1:06:20Thank you.