Dr. Lawrence Kosinski is the Founder and Chief Medical Officer at SonarMD. In this exclusive interview, Dr. Kosinski said what needs to be said. It’s an urgent wake-up call to the GI industry. The topics we cover range from starting up a GI-tech venture to private equity, valuation concerns and what in the end has value in life.
If you have time for just one insight, let it be this one: risks of basing PE valuations on vulnerable assets. The right thing to do would be to make time to watch the entire interview. Each minute of this interview has insights that would save the industry enormous time and money.
Do not miss this one (25+ mins).
◘ “I’m still helping people. Except I’m not helping one person at a time, I’m helping a lot of people at one time”
◘ “No one would build a business and be a one trick pony and ride that pony till it turned into a nag”
◘ Dr. Kosinski reflects on private equity in gastroenterology
The Transcribed Interview:
Praveen Suthrum: Dr. Larry Kosinski, thank you so much for coming to this conversation and having this chat with me. I want to welcome you first.
Dr. Lawrence Kosinski: Thank you very much for asking me to be part of this interview. I look forward to it.
Praveen Suthrum: So, Dr. Kosinski I want to start by asking you how your life has been in a full-time or near full-time in a digital health startup as the Chief Medical Officer of SonarMD and how does that differ from being in private practice GI?
Dr. Lawrence Kosinski: Night and day! It’s a totally different experience. I love being a gastroenterologist. I spent my entire adult career as a practicing gastroenterologist. I loved the patient interaction I loved the interaction with all my colleagues. I felt so good that I was doing something meaningful for people and helping people in their everyday lives. But I always had this burning desire to do something more. I’ve always been a problem solver so it was an easy transition into this. But my transition from clinical practice to Chief Medical Officer of a startup company was a very easy one for me to take. That move was not difficult at all and I transitioned through it over the course of a few years. And last year when I finally ceased practicing, it was almost anticlimactic. I finished my last procedure which had 15 polyps! Supposed to be an easy procedure but the last procedure I did as a gastroenterologist had 15 polyps! And since then I’ve been extremely happy in my role. I’m still helping people except I’m not helping one person at a time; I’m helping a lot of people at the same time.
Praveen Suthrum: So, I want to ask you to go back a little bit in the history of SonarMD. Why did you start the company? What was the trigger?
Dr. Lawrence Kosinski: Well, I have been starting companies for 30 years, but this one specifically has a unique story. I was involved heavily at the AGA and have been involved since… Oh god! For 15 years now! And I had sat on the practice management and economics committee for three years and they asked me to chair the committee. So, I came on as chairman of the practice management and economics committee for the AGA back in the fall of 2011. And something that I had always struggled with in GI is the lack of diversity in revenue streams of gastroenterology. So much of it comes from CPT codes that surround colonoscopy and so when I took over the committee I said, you know, I want to do something more than just put in my three years. I’d like to accomplish something. And if I could help my colleagues diversify their revenue stream and build new lines of business, I would accomplish something. And since value-based care is something that’s in vogue, I said okay, “What are the most significant illnesses we take care of as gastroenterologists? It’s inflammatory bowel disease those are our sickest patients, our most expensive patients, the ones that wind up having the most morbidity. So, I went to Blue Cross Blue Shield, Illinois, and used every chip I possibly could to get in the door. Because all I wanted from them was – What does it cost to take care of Crohn’s disease? That was my question.
So, it took a few meetings of begging before they realized this guy’s crazy. He doesn’t want more money, he just wants data. So, they gave me an enormous data set – every claim on 21,000 patients with Crohn’s disease for two years. It was an enormous file! Excel crashed, I had to build a SQL database out of it which took some time. And we analyzed it and in the analysis, I got my first ‘aha’ moment for SonarMD. Because there was a 17% hospitalization rate in this patient population which is consistent. We’re seeing around 14% in our BHI database analysis today. So, 17% and the doctor may say, “Well geez! What could have been done to avoid those hospital admissions?” And so, I went into the 30-day period before each of these hospital admissions, created a query so we could see what CPT codes came out in those 30 days, and in over two-thirds of the patients there wasn’t a CPT code. That was my first ‘aha’ moment because I thought these are symptomatic patients that have relationships with their doctors and they go over the cliff without realizing it.
And then the light bulb went on in my head and I thought… it’s true! I’ve stood next to the bedside of patients for years in the emergency room and I would ask them, “Why didn’t you call me? And what the patients will tell you is…” ah doc I have this all the time” “oh I thought I had the flu” “oh I thought I ate something wrong” or they’ll tell you that “I’m busy with my kids or my job or my family” whatever. The bottom line is patients with Inflammatory Bowel Disease… we look upon them as Crohn’s patients or Ulcerative Colitis patients. They’re human beings who have lives and this illness is just one component of their life. So, I said I’m going to see if I can do something to help people present earlier in their deterioration. And I was home that night and I was watching the Hunt for Red October. And as Sean Connery says, “Send him one ping, captain” I said I need a Sonar system! I need a way to ping these people in between their face-to-face visits. So, a medical professional can decide when they need an intervention that was the beginning of SonarMD. After our first year success where we showed we could lower hospitalization costs by over 50% and lower emergency room costs by over 70% Blue Cross then said, can you put this in other practices? And that’s when I needed to form a company and that’s when I formed SonarMD so that was in 2016.
Praveen Suthrum: That’s an amazing journey. I’m curious whether Blue Cross paid you that first year? Or did they want you to show success before?
Dr. Lawrence Kosinski: No. I have to give Blue Cross Blue Shield, Illinois a lot of credit. They paid us they gave us upfront per member per month, we had to bill it, and they created a code. The Blue Venture Fund which is the investment fund of all of the Blue Cross plants… they pool their money together and they gave it to a company that at the time was called Sandbox industries in the Fulton Market district here in Chicago. And so, Sandbox came in… to Matter and did a Shark Tank. And so I said, “I can do this!” So, I was the oldest person there. The only one in a suit and tie and I pitched SonarMD. They liked it especially because I had revenue, I had a contract, I was a business, and I wasn’t just a concept, I was a business that was generating money and building and it was in their space. So, they agreed to invest. March 1st, 2018 when we closed on this thing, I think it was March 6th; I was the only employee of SonarMD. I had the investment money, I was the sole employee of this company, and we had to build it and now we have 20 employees and we’ve gone through Series A and you know we’re rolling.
Praveen Suthrum: Yeah. Congratulations on the success so far. It beats me why more GI doctors aren’t starting entrepreneurial ventures like you have?
Dr. Lawrence Kosinski: It is myopia and blindness, we get myopic. If you talk to gastroenterologists, and I love my colleagues and I was doing this myself, you get pigeonholed into colonoscopy. You’ve got your endocenters; you’ve got all your revenue streams coming out of the endocenters; you live and die over those cases. You have myopia. You have blinders. You can only see this… you can’t do this.
Praveen Suthrum: In your interview in the book Scope Forward, you had referred to GI practices as “colonoscopy factories” and some thought it was harsh, but for some… you know, it woke them up. And I know for a fact that it changed people’s mindset… that single interview. So, I want to ask you, what you were referring to when you said that? And I want to tie it also to your recent article where you call for a dramatic change in gastroenterology?
Dr. Lawrence Kosinski: Well, it referred to the same myopia I just spoke about. It’s wonderful to be able to go to your endocenter that you own, work with employees that you employ, and basically do the same thing over and over and over again and you get really good at it, and everybody tells you how good you are at it and it brings you a wonderful income. So, then there’s this crazy guy, Larry Kosinski, telling you that you know, you should be doing something else. Well, it’s like buying a stock. The day you buy a stock… that decision can be made but when do you sell it? Or it’s like with retirement. When do you retire? When do you bring in a new product line? Do you wait till the product you currently have has fallen apart? Or do you take the profits that you have from your successful product and reinvest them to expand so that by the time your current product starts declining you already have one to take over or two or three but you’ve diversified yourself.
So, the reason I said that, is because we have created factories! We make widgets! We do the same thing over and over and over and over again. My point is I think we should invest some of the money that we’re profiting from on making these widgets to do something else that the market needs. And the market is screaming for solutions, patients are screaming for solutions. And why don’t we give them to them why don’t we use this intelligence we have and why don’t we create them? And so you know the entrepreneurial side of me is always looking for something else. It’s just this itch. But from a business point of view, no one would build a business, be a one-trick pony and ride that pony till it turned into a nag. We have to invest so we can diversify.
Praveen Suthrum: But wouldn’t your colleagues argue saying that it is the gold standard and there are so many people out there who still aren’t screen and you know there’s only more need for GI care so you know why shouldn’t we be serving all of these millions of people who need GI care, stomach cancer or GI-related cancers are on the rise so shouldn’t we be doing, in fact, more colonoscopy? And you’re suggesting to do less, why?
Dr. Lawrence Kosinski: I’m not suggesting to do less. That’s not what I was saying what I was saying was diversifying and build. But take a look at cancer registries I’ve done this. I looked at the cancer registry data in Illinois from 2006 and compared it to the cancer registry data from 2016. Now what this cancer registry data tells you is what stage patients are presenting with colon cancer. It hasn’t changed despite the thousands and thousands of colonoscopies done in Illinois in the 10 years between 2006 and 2016. The Illinois cancer registry data is unchanged. So, yes it would be great if every human being came in for a colonoscopy, that would be great but human nature is not that. Human nature is telling us that at least a third if not more of our patient population doesn’t want to have anything to do with a colonoscopy and has their head in the sand and those people are getting colon cancer. And like my Crohn’s patients in SonarMD, they’re not presenting early.
So, what we can do if we really did care about our patient population we would be looking at what other mechanisms we can use to screen patients. And the big fear everybody has… “Oh well if we have them do FIT or something like that then they’re not going to have colonoscopies and we’re not going to make money and it’s going to be bad for our business.” I would contend you’re actually going to build your business because and I’ve run spreadsheets that show that if you could get that 32 to 35% of the population that isn’t being screened to come in for a screening of any kind you will capture the patients in there that have the positive screening tests and they’re not only going to be screening colonoscopies they’re going to be surveillance colonoscopies that you’re going to be able to survey over the years. So, let’s not be pennywise in dollar-foolish here, and let’s do things for the right reason. If our passion is that we want to eliminate colon cancer then let’s figure out more ways to do it. You know that’s the way I look at it.
Praveen Suthrum: Excellent! I want to switch gears and move to private equity. Now you successfully transitioned your practice to a PE platform and then you retired from private practice, you moved on, and during the course of our interview, this was last year in 2019, I asked you – What are your concerns about private equity? And you said, “LOTS!” and that ‘lots’ was in caps in the book. And you started with culture. So, now fast forward to almost the end of 2020, we have seven GI platforms and maybe one more I hear before the end of the year. So, how have these concerns played out?
Dr. Lawrence Kosinski: Well, you have this little thing called COVID-19 that was overlaid on top of it, and probably the worst thing any of these platforms could have feared to happen to them was to initiate and then get slapped with a pandemic that cut the revenue stream out of that one procedure they do and 80% of their revenue depends on and it’s an elective procedure that people don’t necessarily have to come in and get. So, this has been challenging for the private-equity-owned practices and most of my colleagues have done their best, they’ve really worked diligently to try to maintain their staffs, the viability of their endocenters, to continue to get a return on their assets, and the investors are equally probably suffering as well. We’ll see…we’ll see how they come out. I think that’s yet to be determined. Now, there may be seven platforms but they’re not all the same.
And I like some of the newer models that are being deployed. My big problem with private equity… and I was part of the process that caused IGG to sell to the GI alliance and you know we went through this laborious process where we interviewed 20 different companies. We had multiple rounds of interviews, and we chose the GI alliance and I would do the same thing again with the way the process went through I’m not second-guessing what we did. But as a senior guy in the leadership of IGG who stayed on an extra year of practice just to help them do this, I was going to retire from practice in 2018, I put off my retirement to 2019 so that I can help the group make the final decision and go through all the legal ramifications it took. And just for the record, I retired ahead of the closure. I received no funds from that purchase. I retired with zero from that. I had altruistic reasons for why I helped my partners with the process but I was not doing it for any personal gain because I knew I was destined to run SonarMD.
So, anyway, my biggest challenge in the current private equity structure is that this is an LBO buying perpetuity. They’re using other people’s money largely to purchase the assets of the practices in hopes that they can build that business and then get out in several years. The practice, on the other hand, you could be a 40-year-old doctor; you are giving up a percentage of your income forever. That’s been my struggle is that you’ve got a short-term investor using somebody else’s money, buying perpetuity of your income forever and the only way it turns out as a positive for the doctors is if it allows them to continue to practice as doctor putting the patient number one in their focus and that’s a challenge. And secondly, they continue to get payouts from the transfer of this ownership to other entities, over the years. It’s not been done before in GI. There are no second bites of the apples yet in GI. We don’t know how that’s going to turn out. That’s the thing I struggle with – Can you maintain that culture? Can you maintain the fact that you are still a doctor and that your major focus is helping patients and generating an income in the process but you’re a doctor taking care of patients? Can that be preserved? Or is all the other noise involved in the financial aspects of this investment going to interfere with your ability to do that? That’s what I was referring to when I said culture. That’s the culture I hope we don’t lose.
Praveen Suthrum: Yeah. So, there’s a PE question that I’ve always wondered and I’ve asked this to a bunch of people and I want to ask you the same. Now all the valuations have been based on adjusted EBITDA and the adjusted EBITDA is based off of physician productivity or rather future physician productivity, normalized compensation of physicians, and so on. Now that future productivity and I’m connecting the dots to your earlier point today which is that productivity currently is tied largely to certain procedures and going back to that point on procedures…that procedure itself or the revenues from that is a vulnerability rather than an asset. So, if I have to connect those two dots, we’re actually basing a valuation on a vulnerable asset and I’m probably making broad assumptions and connecting the dots here but you know this question I do have. So, you know, what happens when those EBITDA assumptions don’t come true? Am I thinking correctly?
Dr. Lawrence Kosinski: You are. You are thinking exactly the way I’m thinking because it would be better I mean if I was an investor I’d look at that and say, “Oh it’s a single revenue stream, and oh that colonoscopy reference revenue streams driving the pathology revenue stream, it’s driving the ASC revenue stream, it’s driving the anesthesia revenue stream.” So, if something happens to that colonoscopy procedure the other revenue streams fall off too and it’s vulnerable, it’s a significant vulnerability plus it’s an elective procedure it’s not like people are clamoring to get in. We have to send them their reminders and you know I’ve looked at the data across the country and a lot of the practices and I don’t know that some of the best practices are getting 50% of their patients to actually come back for the repeat colonoscopies.
So, it is vulnerable and I’m concerned about what’s going to happen a few years down the line here. We saw a five percent cut in colonoscopy professional revenue this year with the new Medicare fee schedule. It has cut five percent! So, you know I don’t think we’re going to see that stop. I think that’s going to continue over time. And it’s clear that the Robin Hood concept that’s happening inside CMS taking from the rich and giving it to the poor… they’re taking money out of procedural services and moving it into cognitive services and I don’t see that stopping. I also don’t see the payors stopping to find less expensive ways so that they can maintain their star ratings for screenings without overpaying for certain procedures. We’re not practicing on an island. You can’t build a wall around colonoscopy. Colonoscopy has to be able to handle the competition that’s coming from Exact Sciences, other technologies, we now have the liquid biopsy, and we have all this technology that’s being developed to identify who is at risk for colon cancer. And so that goes back to my initial thought – you’ve got to have a diversified revenue stream
Praveen Suthrum: Yeah. If you were to get a bunch of practices together or a bunch of doctors together and start over and build a future-oriented GI practice what would that look like?
Dr. Lawrence Kosinski: I’ve given this a lot of thought. I do believe that we are at a point in time where we can virtually integrate GI practices based upon acceptance of risk and provision of value. If we’re given the data from the payors, if we have that data, we can change…that’s mandatory. We can’t do it without the data. I have learned so much over the course of the last five or six years about where the costs of care lie. I have access to claims data all the time and claims data that my colleagues do not have access to and I can tell where the drivers are for the cost of care and look at the levers that can be moved. So, well-run gastroenterology practices that are factories, that’s a good thing, okay? They’ve got the process down. I think there’s value-based care revenue streams that are there for the taking if we construct it the appropriate way. Just think about this in a medical practice, not just a GI practice but any practice patients call with symptoms, with needs, and you have a human being taking care of that. Means answering the phone if they can’t deal with it, it gets sent to a billing person, if that can’t be done it gets sent to a clinical person, if it’s really serious it gets to a nurse, and if it’s really bad it gets to the doctor. It’s repetitive, there are hundreds of calls coming in every day in a practice… those are automatable processes. Those are places where you build an automation platform and you allow AI to refine it and make it better.
Praveen Suthrum: Yeah. I want to conclude our conversation with the final question, Dr. Kosinski. A couple of weeks ago I was in a conversation with somebody and then you came into the conversation and I think the context was being successful in gastroenterology and you know doing investments or building technology and so on. And this individual said you are one of the most successful gastroenterologists in the world and he meant every bit of it. And it was amazing. So, my question is you know let’s roll back the clock a little bit at the same time bring it to the present. If you were starting over today as a young gastroenterologist seeing everything that’s happening, and seeing the risks, seeing the opportunities, what would you do? And I would translate also that to what advice would you give the younger GI community that is coming out to practice in this field?
Dr. Lawrence Kosinski: Well that’s a complicated question, multiple moving parts to that. Given where I was in the development of technology for the course of my career I don’t know if I could have done it much differently. I embraced technology at every stage it was presented to me. I think, first… embrace technology. Number two, follow your passions. Don’t give up your passions but the only way this works is if you master what you are doing. So, you better learn to do that colonoscopy, learn to do it really well. Maybe you don’t need to do an ERCP, maybe you don’t need to be the guy that’s doing barracks master something and master maybe more than one thing but master it so that you can now say, “I know that… I’m going to go follow my passion for this.”
Build yourself time to be able to follow your passions and stay ahead of the rapidly advancing core of knowledge that becomes so challenging for all of us. Keep your personal life in order, okay? Don’t get divorced. I mean, keep your personal life in order. Keep everything in line so that you have the time, the intellectual space, and the energy to pursue things. You know, a career is a long thing. I’m 68 years old I’ll be 69 in February and every stage of my career has given me something that the previous stage didn’t give me and I lose something in each one. So, be willing to change, adapt to change, embrace technology, follow your passions. I’m not the wealthiest gastroenterologist. So, whoever gave you this praise of me…. The one thing I can tell you… I’m doing exactly what I want to do at this stage of my life and that has value.
Praveen Suthrum: Awesome. Dr. Kosinski, thank you so much for sharing your wisdom. I’ve really benefited, I’m sure people listening or watching would tremendously benefit from this. Were there any final words or anything that you wanted to say?
Dr. Lawrence Kosinski: Stay well. We’re almost there. This is like a marathon. We’ve hit the wall at mile 21 we just got to get to the end!
Praveen Suthrum: Thank you so much.
Dr. Lawrence Kosinski: Thank you.
By Praveen Suthrum, President & Co-Founder, NextServices.