“Healthcare isn't working for anybody,” says Cityblock Health’s Dr. Toyin Ajayi | Term Sheet

Key Concepts

• Market-based Healthcare: The US healthcare system's reliance on market forces and privatization.
• Economic Drivers of a Healthy Market: Information symmetry, regulation, and effective competition.
• Healthcare System Failures: High costs, poor outcomes, lack of price transparency, and misaligned incentives.
• Fee-for-Service: A payment model where providers are paid per encounter, incentivizing volume over value.
• Value Equation: The ratio of healthcare benefits received to the cost incurred.
• Moral Injury: The psychological distress experienced by healthcare professionals when their actions or inactions conflict with their moral beliefs.
• Medicaid and Medicare: Government programs providing health insurance to low-income individuals and the elderly, respectively.
• Social Determinants of Health: Non-medical factors that influence health outcomes, such as housing, food security, and social support.
• Artificial Intelligence (AI) in Healthcare: The potential of AI to improve efficiency, access, and affordability.
• Scarcity vs. Abundance Mindset: The shift from viewing healthcare resources as limited to seeing them as potentially abundant through technology.

Summary

This episode of the Term Sheet Podcast, hosted by Alli Garfinkel, features an interview with Dr. Toyin Ajayi, CEO and co-founder of Cityblock Health, a primary care provider focused on Medicare and Medicaid populations. The discussion delves into the fundamental problems plaguing the US healthcare system and explores potential solutions, particularly through technology.

The Broken Healthcare System: Economics and Outcomes

Dr. Ajayi begins by stating that the US healthcare system is fundamentally broken, failing patients, payers, and providers alike, while simultaneously being excessively expensive. The US spends over 20% of its GDP on healthcare, a figure that has been growing unsustainably. Despite this massive expenditure, the US lags behind other developed countries in health outcomes, with lower life expectancy and significant disparities between the healthiest and least healthy populations. Out-of-pocket costs are higher, and healthcare is the leading cause of personal bankruptcy in the US.

The core of the problem, according to Dr. Ajayi, lies in the flawed application of a market-based approach to healthcare. While the US excels at innovation and capitalism, the healthcare market lacks the fundamental economic drivers necessary for a healthy system. These drivers include:

• Information Symmetry: Consumers lack clear information about the quality and cost of services, making informed choices impossible.
• Regulation: Insufficient regulation allows for bad actors and prevents effective competition.
• Effective Competition: Patients cannot effectively "shop" for healthcare due to opacity and lack of price transparency.

This leads to a situation where patients, even those with employer-sponsored insurance, have little visibility into the cost of their care and cannot discern high-quality providers.

The Role of the Doctor and Misaligned Incentives

Dr. Ajayi defines a "good doctor" as someone with the time, training, and right incentives to understand a patient's needs and guide them towards better health. However, the current system often prevents doctors from fulfilling this role. They are frequently forced into a "fee-for-service" environment, where they are paid per encounter. This incentivizes seeing as many patients as possible, leaving little time for in-depth patient interaction, risk assessment, or comprehensive counseling.

A key example is a doctor prescribing medication. Even if the patient doesn't pick up the prescription due to cost or lack of understanding, the doctor is still paid for the encounter. Similarly, health systems, which profit from procedures and hospitalizations, are incentivized to treat acute illnesses rather than invest in preventative care and chronic disease management, which are often more complex and incremental. This creates a system that favors reactive, high-cost care over upstream, preventative interventions.

The Impact on Vulnerable Populations and the Genesis of Cityblock Health

Dr. Ajayi's experience as a doctor in a safety-net hospital serving mostly Medicaid patients highlighted the systemic failures. She observed patients repeatedly returning with the same complex conditions, realizing that patching them up in the hospital was insufficient without addressing the underlying social determinants of health. These include lack of food, housing insecurity, transportation issues, and difficulties understanding complex medical instructions, especially for those with limited English proficiency.

She identified three critical questions that predicted a patient's likelihood of doing well:

1. Do you have a person in the healthcare system you know and trust? (A consistent point of contact who recognizes you.)
2. Do you have a personal friend or family member you can call 24/7? (Social support network.)
3. If given written instructions, can you interpret and understand them? (Health literacy.)

Too often, patients lacked these fundamental supports. This realization, coupled with the high rates of physician burnout stemming from a sense of futility and "moral injury" (working hard with little perceived impact), drove Dr. Ajayi to seek a different approach. She recognized the need to "follow the dollars" and understand how healthcare is financed, as this dictates outcomes.

The Challenge of Medicaid and Policy Shifts

The conversation then turns to the impact of potential Medicaid cuts. Dr. Ajayi explains that the "one big, beautiful bill, act" includes significant cuts to Medicaid, aiming to reduce the number of beneficiaries by introducing work requirements and co-pays. The Congressional Budget Office estimates that around 10 million people could lose coverage. This is particularly concerning for rural hospitals and safety-net providers who rely heavily on Medicaid funding and are already operating on thin margins. These cuts could lead to reduced services, staffing reductions, and a ripple effect on the labor market, as healthcare is a major employer.

The Promise of Technology and AI

Despite the grim outlook, Dr. Ajayi expresses optimism about the potential of technology, particularly AI, to address these challenges. She argues that AI can be a "deflationary force" in healthcare costs and expand access by moving from a mindset of scarcity to one of abundance.

AI can:

• Improve Access and Efficiency: Reduce wait times for appointments and streamline patient throughput.
• Enhance Provider Capabilities: Provide doctors and nurses with tools to be more efficient and productive, extending their reach through follow-up calls and lab reviews.
• Personalize Care: Move beyond treating everyone the same and tailor interventions based on individual needs and social determinants.

However, she cautions that this is not a given. The current economic incentives in healthcare often favor inflationary practices, such as helping hospitals bill more or insurers engage in antagonistic relationships with providers. Making money by serving low-income populations, like those on Medicaid, is perceived as "really hard" and less profitable.

Conclusion and the Path Forward

Dr. Ajayi emphasizes that while healthcare is an economic issue, it cannot be solely driven by economics. It requires leadership, strategy, policy, and innovation. The current moment, with widespread acknowledgment that the system is broken and the rapid advancement of AI, presents a unique opportunity. The challenge lies in creating a market that works, ensuring the conditions are in place to deliver desired outcomes, and incentivizing solutions that prioritize patient well-being over profit. The interview concludes with a reflection on the complexity of hospital revenue models and the critical need for entrepreneurs focused on solving these deep-seated problems.