Marc Andreessen: Can Tech Finally Fix Healthcare?

0:00Healthcare is like a fifth of the American economy and growing. If this process continues, it will eventually be half the economy and that entire economy. We have some of the best doctors in the world, we're the best technology in the world, we pay the most and we have the worst outcomes. How is that possible? Ultimately, is it a policy regulation issue or is it a technology issue? It may be the curing cancerous lighties or the pack of the suitcase. I think what we're really providing patients is agency and I think that's what was kind of missing. The healthcare industry has captured the attention of America, and it's no wonder the confusing and complex glasses makes up about 20 % of GDP and growing, clocking in at an over $4 trillion industry.

0:42People seem to agree on problems, but rarely the solutions. But as we kick off 2025, it's hard not to wonder whether the latest platform shift may offer some answers. I suspect that this is the dynamic that's going to play out in healthcare. The more abstract intellectual knowledge driven, data driven, the task, the easier it is to get the AI to do it. The more applied, the physical, messy, unpredictable sort of all the human elements are probably the hardest thing. So who will finally crack this code? And what's really driving up prices? Good competition, flip that dynamic on its head, and what will finally catalyze change?

1:17Plus is the technology even there yet? What do you each perceive as still being too hard to apply AI to? Joining us to discuss and answer all those questions today are A16Z General Partners, Mark and Dreson, Vijay Ponday, and Julia. Let's get started. 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 company's discussed in this podcast.

1:56For more details including a link to our investments, please see A16Z .com slash Disposers.

2:07Let's actually start with our quick taste on whether we believe it will be a healthcare native company that finally cracks the nut on how technology will transform our industry, especially AI, or do we think it will be a foreign body and outsider and non -healthcare company that will actually end up making the biggest play in our space? I think it's going to be a startup. I think it's going to be really hard for an incumbent outside of healthcare to come into healthcare. It's going to be really hard for healthcare to move into AI. So startups are a natural thing, and especially how that company is going to be built is that they will have to be AI native and and healthcare native from the beginning.

2:42And that's something that's really hard for incumbents. It's just a straight down the middle to book a disruption story. Yeah, so I think the counter argument to start by saying I'm usually on VJ side on these topics, and obviously we're eventually capital firm, and so our day job is to try to fund exactly the kind of company that VJ is talking about. So the easy thing to do is to just agree, but just for the purpose of conversation, here would be the argument on the other side, which is new technology entering healthcare up until now has been tools, right? You go into an existing organization, existing healthcare company, whatever kind, and you have a new kind of tool, you basically try to get the existing organization to adopt the tool.

3:15And of course, sometimes that happens, and hospitals run on hospital management systems today, and they didn't use to and so forth. But that's a big lift. And that's the, I think, inertia of EJ that you're talking about, right? It's the mapping of the new technology into an existing organization. There's the bottleneck. The winning AI products might not come to market in that way. They might not be tools. They might be more almost like the equivalent of hiring workers, full stack. And so I guess the question would be, if the products are being delivered in a way where They almost slide into the organization as almost like the equivalent of a new employee or maybe even something bigger than a single employee Maybe as a new business unit right as a new organization in its totality Does that change the dynamics of adoption such that big companies have a chance to think about this differently?

3:52Yeah, or even as standalone businesses by the way that are powered by AI that from the outside look like a regular Provider group or a medical group that can contract with insurance companies the same way that any other traditional Medical group can contract with them and therefore get paid for what they're doing but their internal economics and efficiency and their ability to scale nationwide is 10X what any traditional provider group might be. So I think I would go all the way to say there might be standalone companies that are wearing sheep's clothing in terms of the way that they're packaged and the way they're distributed in the market.

4:22But internally look completely different in terms of the DNA of how they operate. Let's take an extreme argument. We're an open AI creates AGI. That's just say it's all the way to AGI. You've got the genius human being. What is that know about healthcare? And I think a lot of what we have to do is we have to give the AI the equivalent of that work experience. Is that something that an existing AI company will have? That's a whole bunch of data that's really hard to get. It's possible that an existing healthcare company will have that, but I think if you have to be really careful how you train that and whether they'll have the AI experience.

4:55So I think even still, not surprisingly, my bets on the startup, but I can imagine that is the way it's going to happen. But you're making the point also that the startup has to be both healthcare native and AI native, not one and the other. The other interesting thing about the way that Mark articulated this is this notion that one of the reasons I would argue that technology adoption in healthcare has been so slow in the past is that the allocation of revenue within healthcare enterprises that goes towards technology or IT as they would call it has been in order of magnitude smaller in healthcare than other peer industries.

5:28And what's super interesting right now about these labor units that are how AI is packaged is that I've actually heard organizations now talk about, oh, can we actually just tap into our labor budget? We have literally like 1 ,000 open rats for nurses that we cannot fill through the existing human labor pool that is out there today. Why not just allocate that one FTE's worth of budget towards hiring the equivalent of like 100 nurses using these AI tools that can do subclinical things, but still things that are immensely important and critical to the workflows of these organizations. Based on what you guys are both observing across broader problem spaces, whether it be creativity, education, law, software development, all the things that you mentioned earlier, what do you each perceive as still being too hard to apply AI to within the healthcare domain?

6:15Yeah, I think we're going to see the specialties probably be the last thing. I think maybe the first thing would be the subclinical nursing and primary care, then I'm inching into clinical primary care. I think it would not be that crazy to imagine. Essentially AI could be a great router. And especially you think about like what primary care physician has to do, they have to ingest all this data and make a diagnosis and then send to a specialist. That's increasingly literally becoming a data science problem. So I think that's where we're next. The hardest thing is gonna be like, you take the extreme case of let's say brain surgery is the canonical hard thing to do.

6:49That's something that sounds like it could be really hard for AI, but actually as surgeons use more robotic devices, as other specialists use more digital things, you can imagine a way for it to creep in, but that's probably the furthest out. Mark, a twist on that question for you is as you think about any industry where there's like a frontier, some boundary of what technology can do and not do, especially when it comes to AI, do you think it's mainly the question of data or are there other factors that you think we need to consider when it comes to how this might work in healthcare? Yeah, so there's this famous phenomenon on an AI research called Moravex Paradox, and it's named after this AI researcher, Hans Moravex.

7:25And Moravex wrote 1988, it is comparatively easy to make computers exhibit adult -level performance on intelligence tests or playing checkers, and difficult or impossible to give them the skills of a one -year -old when it comes to perception and mobility. The matter of version of that is very striking, which is sitting here today. We have Chatchee PT and its analogs, and they will paint art for you. They will compose music for you. They will debate like abstract philosophy for you, they will explain quantum physics to you, but they can't pack your suitcase. They can't clean your toilet, they can't cook you lunch, they can't do anything that a normal person operating in the world can do.

7:57There's actually a real evolutionary theory underneath more of X paradox, which is the parts of us that are physically embodied, the parts of us that basically involve functioning in the world, and then the sort of sensory skills and motor skills required to navigate in the world, and then the ability to process unusual situations. It's like the classic, you see the demos of the robots, humanoid robots, making coffee, and it's It works right up to the point, the coffee pot, the pot gets jammed to the coffee maker, and the robot doesn't know what to do. All of the sort of motor sensory skills, all that stuff took many millions of years to evolve, billions of years to evolve.

8:24And then at the peak of human cognition, the cortex, the system two reasoning, was a relatively recent evolution. And maybe let's even say it's 500 ,000 years versus 4 billion years. And this is the exact reverse of what is intuitively, you would feel like back in the suitcase is a lot easier than curing cancer. It may be that curing cancer is a lot easier than packing the suitcase, like for this reason, right? I expect that this is the dynamic that's going to play out in healthcare. It's going to be the more abstract intellectual knowledge driven, data driven, the task, the easier it is to get the AI to do it.

8:51The more applied, the physical, messy, unpredictable, the sort of all the human elements are probably the hardest thing. I think a tweak on that is that AI loves the digital world. It does really well. And if AI can't be in that world, it has nothing to learn from. And so to degree, there's telemedicine and things that are virtual, whether it be a fun call or zoom. That's something that actually is a world that AI could play in right now. And I think it's not a shock that we're seeing that as a natural first application. What is interesting is as medicine itself becomes more digitized through robotics, in other words, driven by people, then AI could be in that world too.

9:28So it might be that there's a parallel path of building up the digital side of medicine that AI could be in. But yeah, I mean, I think it can do quantum mechanics, but it can't unpack my dishwasher. It makes It makes sense because it's trained all those Guamagangs has never seen a dishwasher, right? The Tesla self -driving car might be the reason for optimism here, right? And Tesla learned this the hard way because they tried different approaches to AI and it turned out the thing that worked was basically put a neural network in the wild, embodying the form of a car and in fact embodying the form of a million cars.

9:55And then let those cries drive around and collect the data and learn about reality. The more you take the rules out of the system and the more you just expose it to the real world and let it gather the data and let it build up the neural network, the better it gets the self -driving. That's another form of leapfrog opportunity in the sense that the primary reason and why hospitals exist are because the level of complexity of the equipment and the workflows and all the operations that need to exist have to be centralized. It's nearly impossible today to unbundle the entirety of that and make it available to people in their home environments or in their communities, but you can imagine perhaps that's another lever here where if we are able to atomize the physical components of the hospital -based experience that you could actually centralize all of care delivery and make it available in different sites that are much cheaper with a lower cost structure.

10:39Yeah, so there's two related concepts that are very important. So one is economic growth, as you said, and you generally measure economic growth through things like GDP, right, or, you know, an company, it's amount of revenue. But there's this other very important concept, right, which is productivity growth. And productivity growth is basically the economic question of basically, can you do more with less? And so if you have an economy that has high productivity growth, basically what you see over time is that economy is able to produce more output with lower inputs. And by the way, the sort of story of the growth of Western civilization overall and economic growth globally over the last 500 years has been a story primarily of productivity growth.

11:10Basically, the industrial revolution, figuring out ways to apply machines and then new management methods around the machines to be able to do more with less. And therefore, the world we live in, which in the old days, 99 % of people worked in agriculture and yet people were still starving because there wasn't enough food. Whereas today, 3 % of people work in agriculture and we're producing so much food that everybody's getting obese. Right? And that was the result of productivity growth. right? And so then you go into kind of the micro economics of the healthcare industry and basically what you see is either flat or negative productivity growth.

11:38By the way, the industries that are like this are the healthcare industry education housing and then let's say law and government. Those four basically if you measure them they have flat or negative productivity growth. And so basically they're getting less efficient over time, not more efficient over time. And you see that directly as you said you see in the graphs for all four of those industries where you're spending more and more money over time and you're getting less and less output, less and less results, which is precisely the opposite of what you want. By the way, the economic growth that follows from that, the fact that you still see revenue growth in these industries is in part a consequence of another principle of economics called Balmose Cost Disease.

12:09And Balmose Cost Disease has to do with the fact that in the healthcare industry, you are trying to hire people who have options to work in other industry sectors that are high productivity growth. And so those workers have alternatives that are able to be higher paid in working in more productive industries. And so they charge you the same labor rate even in the lower productivity industry. and so you see this massive cost inflation, even though you're not getting better results. And so that's been the state of affairs for a long time in the healthcare industry. Like I said, there are these other major sectors of the economy that have that characteristic.

12:37At the end of the day, there are really only two things that can happen. One is that process can continue indefinitely. And if that process continues indefinitely, then at the limit, you eat the economy. And by the way, that's what's happening with healthcare, we're sitting here today. Healthcare is now like a fifth of the American economy and growing. If this process continues, it will eventually be half the economy and then the entire economy without necessarily better results. and that may be what happens. Or you can break those cost curves by introducing technology and then using that technology to dry productivity growth which then lets you basically do more with less which then lets you get better results and spending less.

13:08In addition to technology, I think the big question is how we're using medicine and how medicine's applied. If you think about it, it sounds weird that we have some of the best doctors in the world, the best technology in the world, we pay the most and we have the worst outcomes. How is that possible? I think part of it is to really recognize is that there's two aspects to healthcare broadly. There's acute care, which our system is amazing. If you're in a car accident or you have stage four cancer, I think you want to be in America. But for chronic care, that's something that I think we, for the most part, treat as if it were acute.

13:40We wait for things to get bad and then we get into it. So imagine a world where our house doesn't have smoke detectors, doesn't have extinguishers, doesn't even have circuit breakers. So I said, any little thing will cause a problem. And then you wait for the house to be on fire and then you call the fire department, I guess what? It's going to be more expensive and you're going to have worse outcomes. Ultimately, is it a policy regulation issue or is it a technology issue? Because absent changes in our payment regulation and payment policy about how we align incentives for paying for these therapies and whatnot.

14:11Is there any hope? What is our source of optimism given the fact that all the industries that you mentioned are so highly regulated? That's what's really in the way of us making big changes. Yeah, so it is that they're regulated, but it's not just that they're regulated. And here's what I mean by that. Healthcare, education, housing and government. They're regulated in a very specific way, which is they have constraints apply and then subsidized demand. They just take housing as an obvious example. There's a message shortage of housing in particular where there's lots of economic opportunity. This is an example.

14:37Analyst generally think that the California Bay Area is missing like two million houses. Right? This is a giant gap. In other words, you have two million people who could move into the California. They could all become economically more productive. The whole region would benefit and grow. The country would benefit and grow. But all of the constraints around housing development and zoning laws and environmental regulations and everything prevent those houses from getting built and so they don't get built. So you have constraints apply. What happens in a market where you have constraints apply and increasing demand is of course prices rise.

15:02But it's not just that. You also have subsidized demand, right? Because what happens is you're in a market with constraints apply, prices are rising and then there's political outrage because in this take housing, people can't afford it by houses. And so politicians respond to that, not by deregulating on the supply side but by subsidizing the demand side. In theory, that helps people buying a house in the moment because they have more money to spend in a house, but because you have constrained supply of housing, what that will just do is drive up prices more. And so demand subsidies have the paradoxical result of driving up prices, which then makes those demand subsidies inadequate, which then causes politicians to subsidize demand more.

15:35Same thing has happened with universities, tuition and colleges' universities has been arising far faster than inflation for now for several decades. The price of a four -year private college degrees up to $400 ,000 is on its way to a million dollars. Why is that? is because you have constraints applied, there's only so many universities to get access to federal student loans, which you need to do, because they're so expensive. If you want to start a new university, you need to get accredited. Who are credits new universities are the existing universities, which of course, they run the accreditation bodies, and they have no intention of causing there to be more universities, which would be more competition, so that doesn't happen.

16:05And so you just have a fixed number of seats in good colleges, universities, and then you have the federal student loan program, and as the constraints apply, drives up prices, you have more and more subsidies in the form of federal student loan subsidies, and then that drives up prices. It turns out healthcare works exactly the same way. There's just a certain number of hospitals. You have to get accredited as a hospital. There's only a certain number of doctors. And by the way, legitimately so, you have to go to medical school and get licenses of doctor. There's only so many nurses. There's always this kind of tension around the nurse practitioners because there are arguments that maybe you should liberalize that a bit.

16:34And I think those arguments are actually pretty good, but there's only a certain number of nurses. And so you just have fixed supply and then you have increased population growth and you have increased percentage of people in the economy who are old and sick. And then you have subsidies. And you have all of the programs. And look, I wouldn't want to live in the country without some set of these programs, but you've got all the Medicare, Medicaid, I want to care all these programs. So again, restrict supply, subsidize demand prices, go to the moon. And so left on check, economically and evadably, what's going to happen.

17:00The political system seems like completely unable to deal with this. And as a consequence, everything in these four fields will get to be infinitely expensive. This where I come out as a radical on this is the only way to break those cost curfews through technology. Like the only way that you can get in front of this phenomenon, I think political system is completely unable to deal with it. It's an answer that has to come from the private sector and it has to come from the introduction of disruptive technologies. You think about the cost to compute, the cost of TVs, cost of anything like Tronic, the cost of tech, that feels like it's the reverse exponential that has to hit into this inflation and is one exponential against another.

17:32I mean, I'm curious Mark, how do you know which exponential is gonna win? Yeah, you know, it's human choice, right? It's choice. It's the things that we choose to do. We know for a fact we have technologies, a tool. By the way, technology has done what I'm describing in many other industries. What television sets are like a case study of the opposite direction. The price of television sets has crashed as the quality has exploded. The line that I use is you're going to have a flat panel TV and 32K resolution that's going to cover your whole wall. It's going to cost $100 bucks. But yet it's going to cost you a million dollars to send your kid to college, right?

18:01That's a result of tremendous technology, innovation, and productivity growth in consumer electronics, which is, by the way, consumer electronics, unregulated, no restrictions on supply. and anybody can build a TV factory, at least in theory, and then no subsidized demands. You don't get money from the government or anybody else to help you buy a TV. And so as a consequence, the economics drives low prices and high quality. It's a societal level choice and then a company by company and individual by individual choice as to whether we want that to happen in healthcare. Along the lines of what we're talking about here with these fasterized supply and demand curves, one of the big trends that we're thinking a lot about and we've written about as well is this notion of consumers as the new class of payer, where there are a number of movements in the healthcare space to empower individuals with not only the ability to shop for their own services, but actually lift shift budget from these monolithic health plan products that uniformly treat everyone the same to individual budgets that they can go use on their own accord to shop with agency.

18:54Can you guys talk about that? Is that a way for us to blow up at least a portion of kind of the way our insurance system works today? It's interesting if you think of the world in maybe a bit of a simplistic way, but as this chronic care and this acute care system. The current insurance is really thinking about the acute side. It's covered well. But if you're generally healthy, you could imagine having a high deductible plan to handle that, and that might save some money for something else. In a world where there's choice and things like Icra where consumers could put together a plan that they want, you could imagine them choosing other types of providers that are thinking about the chronic care side, and that they could put together a plan that includes both an acute care side and a chronic care side.

19:35and this way it's still being paid by their employer, but that they're not having to pay it out of pocket. Or I think up to a certain point, even people will pay out of pocket, not for brain surgery, but for chronic care, 500 a year, a thousand dollars a year, I think is imaginable. And the reason why is that in the end, the consumer is the ultimate payer, right? Not just in dollars, but the ultimate price. And so we are a long -term payer insented for care. where we will care about chronic in a way that insurance companies just can't based on the nature of incentives. Yeah, and I'd say some of these other industries that we're talking about that have the same kind of cost curve problem.

20:13There's some, I would say, green shoots. We're looking for basically signs that there's basically breakpoints happening or to VJ's point. There's elements of consumer choice that are coming in that didn't use to exist. And so I'll just give a couple examples. One is education. So education in the US historically has been a K through 12 monopoly, right? So the government runs K through 12. And there's always been a small homeschooling contingent, but it's not been a mainstream activity. In general, in the past, it was often a specialized religious communities that are separated out from the broader society.

20:39And then higher ed has always been a cartel through the accreditation process of colleges, universities. And really, in the last basically, five years, hope schooling is rising as a percentage of students in pretty significant numbers. As far from the majority, it's still single digit percentages, but like homeschooling's way up. And homeschooling's way up in particular, not just among religious communities, but in general. And in fact, among higher income levels and higher class levels, the numbers are particularly striking. And then look, there's an industry around it's forming up and there are companies and startups and there are people running microschools and there are companies doing matching and teacher training and recruitment and all kinds of things known activities to be able to enable this.

21:11And so that's an example where you're starting to see consumer choice entering a market in which previously everybody just assumed you're just doing what you're told top down. And then housing, housing is still all screwed up, but you know, the interesting thing on housing is remote work, right? Up until COVID, the rule of geography and work was very simple, which is you had to move to where the work was, right? Because employers didn't hire remote. And in fact, historically, like in tech, for example, this was one of the main reasons for people to move to Silicon Valley and, you know, take this as an extreme case.