My Brutally Honest Interview on AI's Place in Healthcare: A Critical Need or Just an Efficient Automation Solution?
I talk trash (constructively, of course 😉) about the healthcare cartel, EHR, Epic's monopoly, primary care crisis, Walmart's failure, the death of telehealth, VC "pump & dump" scheme & the AI bubble.
Welcome to AI Health Uncut, a brutally honest newsletter on AI, innovation, and the state of the healthcare market. If you’d like to sign up to receive issues over email, you can do so here.
I talk trash (constructively, of course 😉) about the U.S. healthcare cartel, the financialization of healthcare, EHR issues, Epic’s monopoly, the primary care crisis, Walmart Health’s failure, the death of telehealth, startups falling prey to VC “pump and dump” schemes, and the AI bubble.
If you’re here to talk politics, this ain’t the time or place. For politics, head over to X (formerly Twitter) or wherever you get your bias-tailored news.
This is the spot to talk healthcare and how we’re going to fix it, honestly and unbiasedly. If you’re not ready for the no-nonsense truth about healthcare, stop now and go spend time with your family. Every wasted minute counts.
For those ready for a hard-hitting discussion on U.S. healthcare, here’s my interview, complete with a summary and best quotes.
I sat down with the renowned digital health expert and podcaster, Alex Koshykov, on his ‘Digital Health & Tech Innovation’ YouTube channel.
We covered a wide range of topics: the U.S. healthcare cartel, the financialization of healthcare, EHR issues, Epic’s monopoly, the primary care crisis, Walmart Health’s failure, the death of telehealth, startups falling prey to VC “pump and dump” schemes, and the AI bubble.
Companies and individuals mentioned: WellAI, Dr. Jeffrey Funk, ChenMed, Doximity, hims & hers, Teladoc, Amwell, Tempus AI, Epic, Cerner, UnitedHealth, Cigna, Aetna, CVS, Walmart, Amazon, One Medical.
Here’s Alex’s and BeKey’s succinct summary of the interview from LinkedIn:
🔍 Ever wondered what’s really going on behind the scenes in digital health?
Our latest episode of Digital Health Interviews with Sergei Polevikov is a must-watch! 🎙️
In this brutally honest discussion, Sergei shares:
🔹 The surprising state of healthcare expenditures and why higher spending doesn’t mean better care 📉
🔹 Why doctors are frustrated with their EHR systems and the hidden risks involved 🏥
🔹 The harsh reality of primary care and why so many companies are making the same mistakes over and over again ❌
🔹 The truth behind the telehealth struggle 📞
🔹 The shocking strategies of VCs and how startups can avoid the pump-and-dump trap 💰
🔹 The AI hype: Is it the next big thing or just another bubble waiting to burst? 🤖
Don’t miss out on these eye-opening insights!
One of the primary issues in healthcare is the scarcity of truthful information. People often refrain from sharing their honest opinions, which is understandable.
As a founder in digital health, criticizing the major EHR systems is risky since integration with them might be necessary in the future. Similarly, if you’re seeking investment, it may not be wise to openly critique venture capital business models.
This is why I am deeply grateful to Sergei for his brutally honest interview and his insightful posts and research on digital health.
By discussing these challenges more openly, we might accelerate the development of effective solutions.
Click the link to watch now:
Here is the outline of the interview:
00:00 Sergei’s selected quotes from the interview
01:49 Sergei’s background
03:01 What is WellAI? https://wellai.health/ What is AI Health Uncut? sergeiAI.substack.com
09:13 How satisfied are you with U.S. healthcare?
15:45 Healthcare spending in the U.S. is projected to rise to $7.2 trillion by 2031, larger than that of all EU countries combined. Yet, the quality of care isn’t improving. Why?
21:20 Why are physicians not satisfied with their EHR?
26:30 Can a startup build a competitive EHR system?
29:56 Why do so many large companies venture into primary care and fail repeatedly?
36:53 Despite the rising adoption rates of telehealth services, why is the telehealth business not doing well?
40:45 What is the VC ‘pump and dump’ strategy, and why are startups falling into this trap?
51:55 Are we in an AI bubble? Does this remind you of the dotcom bubble?
56:53 Sergei’s advice to digital health startup founders
Here is the full transcript of the interview. I hope you enjoy it!
00:00 Sergei’s selected quotes from the interview
Sergei’s selected quotes from the interview:
🗣️ “It’s not that the industry needs AI necessarily. It’s just that AI often helps automate those processes that need to be automated in healthcare.”
🗣️ “Standalone telehealth is dead… But telehealth as a whole is a very growing area with a future.”
🗣️ “The big picture is that helping patients is not only about financial outcomes.”
🗣️ “We have this paradox: you have great people willing to do the work, and then you have this bureaucracy, these monopolies that are controlling the industry. So, the question is, what do we do about it?”
🗣️ “Physicians should be the final decision makers.”
🗣️ “Why innovate, why invest in system updates and technological advances if, in their mind, providers have nowhere to go?”
🗣️ “AI is turning things to gold if you’re a big tech company. AI is a kiss of death if you’re a startup trying to become a public company.”
🗣️ “We’re gonna take over the industry. We’re gonna help everybody. It’s gonna be great.”
🗣️ “The UnitedHealths, the Cignas, the Epics, the Cerners are reaping the benefits of the system at the expense of the patient.”
🗣️ “The moment the industry financialization started, the objectives and the goals became very misaligned with the social outcomes of healthcare.”
🗣️ “The problem is that there’s so much fragmentation in this country.”
🗣️ “Once somebody has monopoly power, the incentive is to keep the monopoly power.”
🗣️ “When you look inside Epic, you don’t see innovation.”
🗣️ “It’s Epic, Epic, Epic getting bigger, bigger, and bigger.”
🗣️ “78% of all new EHR customers are Epic customers. That number is inevitably getting bigger. And that’s the definition of monopoly.”
🗣️ “Monopolies don’t like innovation because that disturbs their monopoly power.”
🗣️ “If you question the board, you may not end up in a good place. So a lot of CEOs are just basically Yes men or Yes women.”
🗣️ “Healthcare is a lot of aspects. It’s emotional. It’s community. It’s social.”
🗣️ “Healthcare is local.”
🗣️ “Walmart Health failed because Medicare patients like their own doctors, not Walmart doctors.”
🗣️ “Initially, there was commoditization of telehealth, and now it’s become more streamlined.”
🗣️ “In venture capital, it’s not about the idea. It’s about how you market the idea.”
🗣️ “There is a vicious cycle of artificial price inflation in venture capital.”
🗣️ “Venture capital is all about the exit.”
🗣️ “This is not legal. They cannot do it. Why the regulators are not looking into this I have no idea.”
🗣️ “Believe in your vision and don’t let anybody, including venture capitalists, change your vision.”
00:58 Greetings
Alex: Hi and welcome to our digital health interviews. Traditionally, I’d like to remind you to subscribe to our channel to find out more about digital health. Today, in our episode, I want to talk about some really complicated, often controversial, and bipolar topics. The best person to do this would be our today’s guest, Sergei Polevikov. Hi, Sergei.
Sergei: Hi, how are you?
Alex: Good. How are you?
Sergei: I’m good, Alex.
Alex: I really have lots of topics to discuss, so let’s not waste time and let’s get to our interview. But before I start asking my questions, tell us a bit about your background. What are the main insights into your professional journey?
01:49 Sergei’s background
Sergei: Absolutely. Thanks for having me. My background started many years ago with my deep interest, I would say, in math and statistics, just playing with numbers. My dad is a professor, so from early years I was interested in formulas, how things work, and mathematical proofs. Back in my home country, Belarus, I did some formal training in mathematics and statistics, and later got into AI and machine learning. When I came to the U.S., the applications of my knowledge were in fields like economics, finance, and fintech, where there are a lot of great people using mathematical and machine learning models to enhance the industry, to make things better. In the last few years, almost five years, I wandered into healthcare and digital health.
03:01 What is WellAI? https://wellai.health/ What is AI Health Uncut? sergeiAI.substack.com
With my partner, we started a startup called WellAI, which is still going strong. The idea was just to help patients and customers get direct information from medical literature on topics that interest them, which most of the time are the daily problems they have – the symptoms, the diseases – and so we actually have an app. I can actually show you a little bit, which is functional, and customers use it. Initially, it was an app that was direct to consumer, but it’s a very difficult area. There are a lot of issues like legal ones and questions of who we are really reaching. Are people going to use it at face value? And so now we’re working with businesses, providers, and clinics, but initially, it all started with this simple app that accesses the database and essentially gives you answers back. It’s in an interactive form. So a simple app where I can start talking to it.
[Sergei starts interacting with the WellAI app.] “Hi, I woke up this morning and I have a terrible headache.” “Here are symptoms I heard you are experiencing: headache. Is everything correct?” So it reads through a lot of information and basically just focuses on the problem area, like a headache in this case. I’m saying yes. Then it starts asking questions. Now, questions are targeted based on the dataset of medical studies. So if I say headache, it kind of knows with high probability what other symptoms or questions are useful to ask. And after 10-15 questions, it narrows down to a particular probable diagnosis.
So, as you can imagine, when you are coming out 5 years ago and we were at the time the only ones doing this particular work, there were a lot of questions. The medical community is very proud but also very sensitive to newcomers. They were like, “Who are you guys? What data are you using? Is it all legal? Is it not? Is it HIPAA compliant?” And so it was interesting to learn, communicate, and get, for example, doctors on our board to develop this project. Right now, the part that I showed you is still a big part of the triage process, but now we have so many other things, including telehealth and scheduling, and helping the reception with some administrative automation. So it’s kind of like a full-blown IT service.
So this is where we are with the company. I also like contributing my knowledge through my writings and my articles [sergeiAI.substack.com]. So this is kind of my hobby, as you probably know. This is kind of a long story, but that’s my story.
Alex: Very interesting. So the outcome of this app should be either the algorithm would redirect you to a doctor or try to schedule an appointment or schedule a telehealth visit? What should be the outcome?
Sergei: Exactly. After this, there is the workflow that, for example, you can schedule telehealth, you can chat with a nurse, or you can schedule an office visit. So there are some options based on this information. So again, the idea is: AI helps aggregate and summarize the data. But at the end, it’s a lot about automation. Doctors are burned out. The reception desk, especially during peak times, is completely overwhelmed. As you know, phone calls go to voicemail. So now, by having the system - and again, we’re not the only ones obviously but just in general - having some kind of automated system helps doctors, helps front desk, nurses, patients, the whole ecosystem to streamline the process. So phone calls don’t get unanswered because it’s in the app. It’s all within the app. It’s automatic. You don’t sometimes need to call the office. So the idea is that the office is not as overwhelmed, and patients are happier. So this was the original idea. Again, in our vision everything was perfect.
“We’re gonna take over the industry. We’re gonna help everybody. It’s gonna great.” —Sergei Polevikov
The reality was a little different. First of all, there’s competition. There are a lot of innovators in the space, as you well know. Digital health is full of great ideas, gadgets, discoveries. And so at the time we still were pretty unique in how we do things, you know, algorithms. But obviously there are so many ways to automate things. And again, I’ve said this before in my articles and in my posts on social media, it’s not that the industry needs AI necessarily. It’s just that AI often helps automate those processes that need to be automated in healthcare. So this is my story.
“It’s not that the industry needs AI necessarily. It’s just that AI often helps automate those processes that need to be automated in healthcare.” —Sergei Polevikov
Alex: One of the reasons you started your newsletter is to explore how healthcare works in this country, and your newsletter is called Brutally Honest Insights on AI and Digital Health [sergeiAI.substack.com]. And I do hope that we’re going to have a brutally honest interview today. But before that, I want to ask a different question from a different perspective, as a patient.
09:13 How satisfied are you with U.S. healthcare?
Alex: How many years have you been living in the U.S.?
Sergei: Oh, I came in 1995, so it’s been 29 years.
Alex: Almost 30 years. But for a person who has not been living here for their whole life - and you’ve probably experienced other health systems around the world - as a patient, are you satisfied with the care that you receive in this country?
Sergei: So, first of all, I came to America for a reason. I was escaping the regime that was far from free, and I’m obviously thankful to this country for what it provided to me. I’ve raised my family here. My two daughters were born here, so there’s nothing against the democratic system per se, or especially the freedom it gave my family and so many other immigrant families. But since you mentioned healthcare, yes, I have the privilege of comparing the system we have in the U.S. versus Europe versus, you know, Belarus that I had years ago. I’m surprised at how much progress has been made in this country to develop the technology and train the best doctors in the world. But the system itself, in terms of how you get care and how easy it is to get access to care, fails in comparison to other developed countries. That bothers me a lot. That’s one reason I started this startup with my partner. It’s also the reason I started my newsletter. As you mentioned, as a patient, I experienced that firsthand. I think I told you about a month ago I ended up in the ER. It kind of brought me back years because I hadn’t had this experience in a while. The whole experience, the wait, and how everybody is so burnt out - from the nurses to the admin staff - how hard they work but seem to get nowhere. The particular hospital I was in was completely overcrowded. They had beds outside of the rooms. I was actually in this temporary facility they set up there. I was there overnight, so I guess I wasn’t the most serious case. But it's interesting how great and hardworking the staff is, but then how bureaucratic the system is. They have to make sure that the insurance accepts the claim. They don’t accept it right away. There’s almost this thinking in the medical community that prior authorization is magical, that it gets denied at first, but then they look at it and approve it. It doesn’t have to be like this. In other developed countries, at least from my experience and conversations with people who live there, the physician should be the final decision maker. It shouldn’t be a clerk at Cigna or Aetna who decides, “Oh, this patient had this care. Well, I don’t think he or she needed this care” - even though a live physician just looked at you, looked at your medical tests, made an educated decision based on their training, the symptoms the patient has today, and the tests the patient just received. The fact that some person in an office, often with no medical education, just following some predefined rule by that insurance company, can deny it makes no sense to me. This doesn’t happen in any other country in the world. That bureaucracy is what triggered me to speak up and write the newsletter. There are a lot of great things in this country’s healthcare. Doctors are great, nurses are great - the most hardworking people in the industry. But the system is set up against them, against the doctors, against the nurses, against the patients. The system benefits the most. It’s the UnitedHealths, the Cignas, the Epics, the Cerners. They’re reaping the benefits of the system at the expense of the patient.
“The UnitedHealths, the Cignas, the Epics, the Cerners are reaping the benefits of the system at the expense of the patient.” —Sergei Polevikov
That really bothers me. When I’m not doing my daily job, I’m trying to investigate why that’s happening and how we can help. I’m actually involved with, or trying to be involved with, some Congress people. Sometimes I think maybe it’s the regulation. Sometimes I think regulation has nothing to do with this. Maybe it’s some other parties that need to decide what to do with healthcare in this country. There are a lot of questions. I pose these questions in my newsletter, in my posts, trying to involve people - policymakers, economists, data scientists, physicians - everybody who has any good idea. I’m always listening. I’m happy to receive criticism. It doesn’t matter. As long as at the end of the day we help the system, we help our healthcare, we help patients - that what matters.
15:45 Healthcare spending in the U.S. is projected to rise to $7.2 trillion by 2031, larger than that of all EU countries combined. Yet, the quality of care isn’t improving. Why?
Alex: So, sort of to back up your previous answer. By 2000, health expenditures reached about $1.4 trillion, and in 2022, the amount spent on health tripled to $4.5 trillion, according to CMS. Healthcare spending in the United States is projected to rise from $4.7 trillion in 2023 to $7.2 trillion by 2031, growing by an average of 5.5% per year. So, and you sort of talked about some of the problems, and yet I don’t think the increase in spending correlates with the quality of care. So, my short question to you would be, what is going wrong?
Sergei: So, if you look at the United States healthcare system 50 years ago, it was much simpler. There was no waste or minimal waste, minimal bureaucracy. You know, in the 60s and the 70s, basically the system was: you get a symptom, you become sick, you go to a doctor, you pay for a service, you go home. I feel like it was at that point where the financialization of the system started in the early 70s, with the health insurance companies and later with PBMs, with TPAs - all these acronyms. But essentially, in a big picture, they’re middlemen between the patient and the provider. And the problem started when they became so big - and you mentioned the numbers - that they’re actually the biggest part of healthcare, which is ironic. You know, you have doctors, you have patients. Where do all these other parties come from? So, the moment this financialization started, with objectives and goals right now completely, I feel like, or very misaligned with the social outcomes of healthcare.
“The moment the industry financialization started, the objectives and the goals became very misaligned with the social outcomes of healthcare.” —Sergei Polevikov
That’s the problem. So, the incentives of these middlemen - of PBMs, of health insurance companies, which is often the same group of companies - misalign with the patient’s needs and with the doctor’s needs. And that’s a problem. You mentioned those $4.7 trillion now going into five or six trillion. A big part - I think the number is like 25% - is waste. And it was documented so many times, in so many studies. It’s the paperwork these companies create, it’s the additional technology that has to be created. For example, what I’m dealing with right now in my company is to have access to EHR records of the patients that we’re serving, which is, you know, ridiculous. But the system makes it so difficult, so bureaucratic to have this access that it’s actually become a huge part of this healthcare spending. So, the patients are paying out of their pockets, and a big part of it is not only paying all these companies, all these executives, but also paying for unnecessary bureaucracy. And that bothers me. In an era where we have great progress with AI, with all sorts of technology, with innovations, I feel like healthcare is left behind compared to other industries like tech and manufacturing and finance. And I think a big part of the reason for this monopoly is the huge spending that they create and that they benefit from at the expense of the rest of the industry, of all of us. It’s a very unique problem to the United States. As far as I know, none of the other certainly developed countries have this problem. And so you have this paradox: you have great people willing to do the work, and then you have this bureaucracy, these monopolies that are controlling the industry. And so the question is, what do we do about it?
“We have this paradox: you have great people willing to do the work, and then you have this bureaucracy, these monopolies that are controlling the industry. So, the question is, what do we do about it?” —Sergei Polevikov
And that’s what I’m trying to think about. Not always do I have all the answers. But this is what I’m addressing in my newsletter [sergeiAI.substack.com], in my posts, and in the interviews. So hopefully, together we can find a solution.
21:20 Why are physicians not satisfied with their EHR?
Alex: Talking about the newsletter, well, first of all, we’ll definitely add the link. I highly recommend subscribing because it’s literally one of the best newsletters in healthcare I have personally found so far. Over the last few months, you’ve covered a lot of topics, news, and scandals. I would definitely want to talk about pretty much every one of them, but we would need days or weeks to do that. I decided to choose just a few of your recent posts, and I’d like to start with something on Epic EHR. Your prediction is that potentially by the end of 2024, Epic is going to be hacked. Considering that it’s the biggest EHR system in the country with over 305 million patients, it would be catastrophic. But I would like to discuss Epic from a different angle. I’ve been in the U.S. a little over one year, and I’ve talked to around 30 physicians. I haven’t met a single one of them who is satisfied with the EHR system. Not all of them are using Epic, but none of them are satisfied. So doctors are not happy. Potentially, it has a lot of security breaches. It doesn’t help to solve the problem of interoperability in this country at all. So the question is, why do hospitals continue using it, and some even switched to it recently?
Sergei: It’s a great question. So by law, first of all, providers and hospitals are required to have a system that is not only HIPAA compliant but meets all sorts of compliance issues and parameters to store and access patient data. This is where this whole industry started. In terms of why everybody uses Epic, or why Epic has so much control, it comes back to the conversation we had. Basically, for the last few decades, for better or worse, we’ve established a monopoly, or to be more precise, an oligopoly in this country. Basically, it’s a cartel, a group of companies controlling the industry. So EHR is no exception. The EHR industry, and Epic is the biggest player there. First of all, I want to say that there are people who would disagree completely with what we are talking about here. There are people on both sides, I guess. I feel like, just in my conversations, if you’re already in partnership with Epic, you usually have more positive views on Epic. In other words, once you’re part of the club, you kind of feel good about it. For example, you mentioned interoperability. Apparently, I was told that within Epic it’s great. So if there’s a hospital using Epic and the patient was there for some procedures, and then in a different hospital that also uses Epic, two Epics talk to each other.
“The problem is that there’s so much fragmentation in this country.” —Sergei Polevikov
The problem is that there’s so much fragmentation in this country that once it gets outside of a certain system, we have a real interoperability problem. And that’s, I think, the major issue. But you’re right, Epic is no exception here. It’s, again, going back to the monopoly.
“Once somebody has monopoly power, the incentive is to keep the monopoly power.” —Sergei Polevikov
The way you do it is to either prevent innovation from coming, or if you see some innovation coming and you think, “well, that’s inevitable,” you either partner or acquire that startup or company. This is what Epic has been doing. It’s not as many acquisitions, although they’ve had some, but it’s this partnership. They have four partnership levels, you know, whatever it’s called. It’s almost like gold, silver, bronze, or something, which they call it differently, but it’s kind of interesting. And so they have these partners and they’ve created this illusion that they’re very innovative because “hey, look we work with this startup, with that startup.” But when you look inside, and you mentioned providers who actually work with the system, they don't see that innovation.
“When you look inside Epic, you don’t see innovation.” —Sergei Polevikov
So something happens in between, which is hard to explain. But at the end of the day, again, because Epic is such a monopoly, there’s no incentive for them to make their system friendlier for providers.
“Why innovate, why invest in system updates and technological advances if, in their mind, providers have nowhere to go?” —Sergei Polevikov
And providers also are tricked into this idea that “well, this is what we’re left with. There’s nowhere to go.” It’s because the same EHR companies keep saying “well, try building all these systems from scratch. You need to have it by law, right?” You know, we have all these laws, the High Tech Act of 2009, the Care Act a couple years ago that kind of explain what providers should do with patient data. And they’re like, “well, you know, try dealing with that. But we’re already there, and by the way, we have all this power.”
26:30 Can a startup build a competitive EHR system?
Alex: Sorry for interrupting. Let’s say, well, I’m personally, my team and I are confident we can build the best EHR out there, which is going to be user-friendly, efficient, and super secure. But building the tech would not do it for me. Do I need connections in Congress who would lobby for the adoption of my EHR? What would a startup need to do in order to make this new EHR, that’s going to be much better than the previous ones, be adopted in this country?
Sergei: Many have tried to build such systems, and actually many have. ChenMed, for example, is one of the more well-known ones. They have their own system. I don’t have all the answers, but the bottom line is that it’s very difficult to sell this new EHR system when you have this monopoly control of Epics, of Cerners of this world. Obviously, lobbying wouldn’t hurt. In my opinion, lobbying has prevented innovation in digital health also. Again, for the reasons that, who are “Who are the main lobbyists?” It’s the same group of companies. You know, Epic has one of the biggest lobbies. United Health, I think, has the biggest lobby in healthcare. They’re the ones that are doing everything they can, including being experts on drafting the new law, because you know, when the new law is on the table, on the floor, who are they going to consult with? Congress? They’re going to the same companies because they’re the biggest experts. So guess what? The laws are drafted so that these companies keep their monopoly power. And if you’re a new company who wants to build a new EHR system, they’re going to make it very difficult for you. It’s not impossible, I don’t think. But I feel like the innovators, seeing the previous failures of the companies who have been trying to do it—they’re looking at ChenMed, which is a great company and actually a large company—but in terms of market weight, especially in the EHR industry, not that it’s their goal per se, but you look at EHR and it’s Epic, Epic, Epic getting bigger, bigger, and bigger.
“It’s Epic, Epic, Epic getting bigger, bigger, and bigger.” —Sergei Polevikov
I think I’ve seen the numbers that in 2023, the new systems that were installed, I mean all the new customers that EHR systems received, 78% of them were Epic’s customers.
“78% of all new EHR customers are Epic customers. That number is inevitably getting bigger. And that’s the definition of monopoly.” —Sergei Polevikov
So you’re getting more new… Not to mention the fact that they’re already controlling almost 50% of the market, they’re getting even more than 50% market share of new customers. So that number is inevitably getting even bigger. And that’s, at the end of the day, the definition of monopoly. Again, monopolies don’t like innovation because that disturbs their monopoly power.
“Monopolies don’t like innovation because that disturbs their monopoly power.” —Sergei Polevikov
That’s the definition. Again, I don’t want to discourage anybody, and obviously, I’m kind of trying my best to innovate, to bring the ideas of AI to this industry. So there is no discouragement here. But I’m just saying that’s the reality. What can be done about this is a completely different issue, and I write about this thinking extensively in my work.
29:56 Why do so many large companies venture into primary care and fail repeatedly?
Alex: OK, let’s talk about another complicated topic, primary care. Primary care is hard. In lots of cases it’s not profitable, yet so many big companies are still trying to get in and continue doing this mistake over and over again. Why?
Sergei: Well, there are many reasons. I think one reason is that if there is a big competitor that did something in primary care and failed, a new big company comes in. So let’s say you know CVS started something and they didn’t have much success. Now Walmart comes in and says, “Well, we’ve been doing great in retail, we’re the ultimate masters of scaling and reducing costs,” so how difficult could it be, right? A lot of executives have this vision that if they did something in one area this automatically translates into a different area. They fall into this trap a little bit of the fact that they think that they did something great in, you know, whatever areas of finance or retail, they can automatically do it in healthcare. So that’s one reason. Another reason is that it’s the way the corporations are structured. You know, it’s not one person who runs the corporation. You have the board. You have investors. If it’s a big investor, that investor will actually likely be on the board, but also likely to have opinions on what the company should do. So if you are a Chief Medical Officer in a big corporation and you know that primary care is hard, for a whole bunch of reasons including financial and social outcomes, but then you have the board telling you, “Oh, you know, we have Amazon just started One Medical. You know, they’re trying to conquer primary care. Why are we not doing that?” And so if you start asking questions and question the board the way it works in many corporations you may not end up in a good place. So a lot of CEOs are just basically Yes men or Yes women.
“If you question the board, you may not end up in a good place. So a lot of CEOs are just basically Yes men or Yes women.” —Sergei Polevikov
They’re going with this idea that, “Hey, you know, if Amazon can do it (or if Walmart can do it), we can do it.” There’s a lot of this going on. But at the end of day I think my personal opinion is that all these corporations look at financial outcomes. I think healthcare is different in a sense that we have to look at the big picture.
“The big picture is that helping patients is not only about financial outcomes.” —Sergei Polevikov
It’s a lot of aspects. It’s emotional. It’s community. It’s social.
“Healthcare is a lot of aspects. It’s emotional. It’s community. It’s social.” —Sergei Polevikov
When you are very one-dimensional, especially in primary care, which is the number one area - this is where people go if they have day-to-day issues - it’s hard. And again, I don’t have all the answers, but I can kind of look back and explain why certain ideas or certain projects of these big corporations failed in primary care.
Alex: Should we anticipate more newcomers in the space?
Sergei: Oh yeah. It’s like in the Wall Street movie, right?
You know greed drives everything. So there are new executives coming with new fresh ideas, and they’re like, “Oh, have we ever done primary care before?” Walmart, by the way, this is their fourth time in the last I think like six years or something where they started their healthcare division. And every time they think that they can do it. At the end of the day I think healthcare is local.
“Healthcare is local.” —Sergei Polevikov
You know, Walmart’s problem as far as I understand was that they thought they can handle Medicare patients well. But at the end of the day Medicare patients, most of them, obviously they’re elderly, they have their own doctors. So now you’re asking, “Oh no, we have this convenient location, Walmart. And by the way, we have like Walmart doctor now.” On paper it sounded great: well you get your groceries, you may as well get your care. But with Medicare patients apparently it doesn’t work like that. Elderly patients tend to like their doctors. They’ve been, in many cases for decades, with one doctor. They know where to go, and they don’t like the idea of being served, you know, in a Walmart store, potentially with a different doctor next time.
“Walmart Health failed because Medicare patients like their own doctors, not Walmart doctors.” —Sergei Polevikov
So I think there’s a learning curve, even for these big corporations that have a lot of smart people, but still seem to be learning. So it’s an interesting area, and primary care has to be solved. There are a lot of problems. You know, the system is overwhelmed, burned out, financially strapped. Even though it looks like all these corporations are throwing money at the companies, somehow it’s venture capitalists who end up with all the money at the end, which is kind of interesting. But again if we think about the solutions I think we can come up with some good solutions. When I say “we” it’s the whole community. It’s again policymakers, medical community, academics. So I feel like we need to continue thinking. We need to continue generating ideas. But yeah, corporations are gonna continue trying to expand their empire, trying to conquer healthcare, and in many cases they’re going to continue failing.
36:53 Despite the rising adoption rates of telehealth services, why is the telehealth business not doing well?
Alex: OK, telehealth is another space which looks like things are not going well and no one is safe including Teladoc, Amwell, and others. We definitely saw a huge drop after the end of the pandemic. But now what I see around the world, the numbers are actually growing in telehealth adoption. So why is the telehealth business not doing well?
Sergei: I would say telehealth is doing extremely well. It's the part of the industry that’s focused on the so-called standalone telehealth that’s not doing so well. So the original idea with Teladoc was a great idea to essentially connect patients and doctors through video calling, which is not an original idea but in healthcare I guess they’re the first ones. So at the time, yeah, it was kind of interesting, and obviously early adopters started the industry. But I think you know that was 15 years ago, probably more than that. So over these 15 years technology obviously progressed. Now I think what’s happening in the telehealth industry is the customization, it’s the way of providing telehealth as a tool as opposed to as a commercial product. So initially there was this commoditization of telehealth, and I think now it’s become more streamlined.
“Initially, there was commoditization of telehealth, and now it’s become more streamlined.” —Sergei Polevikov
So I think if anything telehealth is actually very popular, especially after COVID. Obviously that wave subsided a little bit. But there’s still like… I use telehealth. It’s very convenient. In fact, there’s a certain part of the population that prefers telehealth. You know, why go drive somewhere when for certain conditions you can just talk to a doctor and it’s very convenient? So again, the telehealth is dead in the way we remember it from 15 years ago. So we are talking Amwell, Teladoc, there are a couple of others. But the new companies, the more what I call integrated platforms, they’re the leaders in telehealth. So it’s Doximity, even Hims & Hers have telehealth platforms. So it’s actually the names, they’re not household telehealth names. But they’ve already been in the industry and at some point they’re like “well, let’s just add telehealth,” right? And again, it’s not as easy as just add it. You have to integrate it. But at the end of the day, you want to have telehealth in a place that you use every day anyway. So for providers, they use, for example, Doximity. It’s sort of like sometimes called LinkedIn for medical professionals. So they come in the morning. They open their computer. They already have certain systems. Doximity is one. Obviously they have an EHR system open because this is what they do to take their notes and to enter patient data. So I think EHR companies will be actually very big in telehealth because, again, of that convenience. So again, as I’ve been saying,
“Standalone telehealth is dead… But telehealth as a whole is a very growing area with a future.” —Sergei Polevikov
40:45 What is the VC ‘pump and dump’ strategy, and why are startups falling into this trap?
Alex: OK. Interesting. You’re one of the few who actually publicly criticizes VCs and their strategy, what you call “pump and dump.” Can you tell our audience more about what the strategy means, how startups fall into that trap, and what are the consequences?
Sergei: So let’s start with 40 years ago. That’s when this idea of venture capital and private equity became popular. In fact, private equity back then was called differently. It was actually called Leveraged Buyout, and then they renamed it so it’s not as obvious that they’re actually borrowing money to finance their deals. But in this case with venture capital, in the old days I feel like they were more progressive in the sense that they would communicate with the founders. I guess founders would reach out to them with a pitch. They’re experts in what’s happening in the industry. So they [venture capitalists] would say, “Well yeah, you know what, this idea - the industry needs it. Let’s implement it. So we’re going to give you capital. Here’s the plan.” But you know, you meet your benchmarks - and one of the benchmarks, by the way, was profitability, which is kind of interesting. They’re talking about ROI. It’s not necessarily profitability, but back then they knew that for the long-term growth of the company, for sustainability, at some point you need to turn a profit. You cannot just endlessly burn a hole in your balance sheet. And so that was the idea back then, and over time somehow it became this almost like financial trickery. So what’s happening right now, which I believe is criminal, and you know, I’ve had experience working on Wall Street, and there are obviously people going to jail for this kind of thing. It’s very simple but it’s also very subtle. So it starts obviously with the founder, right? So you’re a founder. You talk to a VC. And the VC says, “OK, we’re going to give you a million dollars, right, so here’s a million dollars and we’re going to come talk in eight months.” So they call it the next round of financing. So they may actually bring some of their venture capital, you know, friends in the next round - or VC bros, that’s right. And so what’s happening now is that oftentimes it’s not even about the idea. It’s about how you market the idea.
“In venture capital, it’s not about the idea. It’s about how you market the idea.” —Sergei Polevikov
So you give money not necessarily because it’s financially viable or even, you know, helping people, but just because it sounds great, it sounds flashy. So you give capital for this idea and because you get a certain equity in return, there’s an implied valuation, which in many cases they don’t talk about anymore because of what’s happening. And what’s happening is every next round typically, not always, they increase the valuation, right? So if you talk about public markets like stocks, it’s millions and millions of stockholders, people who buy and sell stock, who decide on the price of the stock. What’s happening in private financing is a bunch of venture bros decide on the valuation of the stock. So usually it’s by the end of the financing rounds, right before IPO let’s say, we’re talking probably like 20 different venture capital firms. So we have these 10 to 15 to 20 venture capital firms sitting at the table at every round essentially. I’m simplifying of course. But they’re the ones who decide essentially by giving a certain amount of money on what the valuation is going to be, right?
Alex: But they still need to see the trajectory in the business plan, right?
Sergei: Right, but because they never look at profits seemingly, because we look at IPOs now, I think 80 to 90% of digital health companies are now unprofitable, certainly in actual technology overall, but certainly in digital health, which is a complete reverse from 40-50 years ago when it was actually 10 to 20% that were unprofitable. So this is a complete almost like 180. So what’s happening is that, to answer your question, when you give money to a founder it’s much, much easier, and actually with the VC’s help, to buy your customer, so to speak. So whether it’s through ads, or actually those VCs, they actually know people in the industry so you go to them and say “Hey you know we have this great technology can you become our customer.” This is not organic growth. So by buying customers and burning more money than the customers bring to you, you know, is not exactly an organically growing business because an organically growing business is when you grow and as you grow, you become… especially in technology, hopefully you scale more. So you have digital health companies which are technology companies, and they don’t scale. You look at their balance sheet and they keep losing money. And so, venture capital gives you money. You increase your revenues because now you have more money to burn. So the multiple, the revenue multiple, becomes more attractive, right? And so they raise even more money. And so there is this vicious cycle of what I call artificial price inflation.
“There is a vicious cycle of artificial price inflation in venture capital.” —Sergei Polevikov
So by the time… and obviously they need an exit, venture capital is all about the exit.
“Venture capital is all about the exit.” —Sergei Polevikov
Every time I talk to venture capital, it’s like the first or the second question, like “Oh, what’s your exit strategy?” So it’s all about the exit, meaning that they usually have a 5-to-7-year runway, so to speak, runway for this one project. And after 5 to 7 years, they’re like, “Well, what are we doing now? We need to do an IPO or something.” And that’s how all these digital health unprofitable companies become IPOs. But the way they value at IPO usually is they say, “Well, look, we have all the sales, right?” Because they keep throwing dollars at the customers, and they bring in more customers like that. “Don’t look over here. Don’t look at our cost side of the balance sheet, but look at the revenues, look at the multiples there,” right? So this is, I’m simplifying, this is how they pitch. And so they have these massive valuations on the way up, and then here they are going to IPO and saying to investment bankers, “By the way, our last round was at this valuation,” right? Now with IPO, we’re going to grow even more. So the valuation should be even higher. But their reference point is some artificially created private valuation. And if it was on Wall Street, this would be called “pump and dump” because you have an incentive to pump the price because you are the original investor in the company. And so you’re pumping the price. And then you look at the financial statements: all of a sudden a lot of these VCs disappeared because they “exited.” This was their exit. It’s not that simple obviously because they have a lock-up period, etc., but there is a way to exit either through later rounds of private valuation. And what’s happening now, especially in digital health, is you have this “pump and dump.” You have pump on the way up so to speak. Then you go to public markets. Public decides on the value of the company, and they’re like “Well, the company is unprofitable. There seems to be a great vision, but…” But actually those are more sophisticated investors. They have the capacity, the resources to actually look deep down into the financials of the company. But the people who suffer are actual retail investors. They’re mom and pop investors who are listening to this VC, who are listening to the investment bankers at the IPO round who are saying, “Oh, this is the greatest idea ever, you know, invest with us.” So the trading starts. And usually you have these retail investors who are buying in because they’re listening to all these pre-IPO rounds, hearing how great the company is. But the sophisticated investors and more and more the so-called short sellers - they’re actually dominating the public markets right now - and they’re pushing the price down. And so you have this dump that not only comes from VCs right now but from short sellers and from sophisticated investors who kind of know already what’s going to happen because they’ve seen the previous pattern. So again, it’s not always the case, but it seems to be more and more in digital health. Now again, I’m a proponent and a believer that this is not legal. They cannot do it. Why the regulators are not looking into this I have no idea.
“This is not legal. They cannot do it. Why the regulators are not looking into this I have no idea.” —Sergei Polevikov
But again, I’ve done some research on my own. There are other people who are doing this. So, you know, I’m open to talking to anybody and discussing this. But to me, it should not be happening. This is unfair what VCs are doing. At the end of the day, they’re becoming rich at the expense of retail investors and actually angel investors.
Venture capitalists are becoming rich at the expense of retail investors and angel investors.
Those are the investors who come in early, taking the most risk, but don’t get the benefit. And so this is another group that’s suffering because of this later stage of what I call VC bros. So that’s a big problem that needs to be resolved.
51:55 Are we in an AI bubble? Does this remind you of the dotcom bubble?
Alex: Let’s get back to AI, what we started with. Since we don’t have much time left, I’ll go straight to my main question. So, I often go to lots of startup events, and I think around 8 out of 10 startup founders say they are an AI startup. When you start digging, most of them, not all, but most, just basically connect to ChatGPT with the API to their product. Nvidia is up 156% year to date with all the AI hype. A couple of weeks ago, a company called Tempus AI, and by the way, it was called Tempus just before they went public, and of course, they’re also not profitable going to IPO. They have only 2% of their revenues related to AI-based features. I personally truly believe that AI is going to change humanity for sure. But the question for you right now is: in 2024, are we in an AI bubble just like the dotcom bubble?
Sergei: It’s interesting because there are so many definitions I’ve heard of the AI bubble. There’s actually a good book - and the author escapes me now [“Unicorns, Hype, and Bubbles” by Dr. Jeffrey Funk] - but I’ll give you the reference. They’re actually talking about the AI bubble. I don’t think it’s an AI bubble in the pure definition of irrational exuberance, so to speak, when the price just goes up so much that the valuation doesn’t make sense anymore. If you compare with the 1990s bubble, the majority of those companies didn’t even have profits. They would just mention “www” and the stock price would go up, right?
Alex: So, as now, as you said, most of the companies go public.
Sergei: Well, let’s talk about it because it’s funny you mentioned Tempus AI. I have an article coming up, hopefully tomorrow, on this exact issue. It’s kind of funny that you ask this question. There is this dichotomy. If you want to call it an AI bubble, then it’s definitely an AI bubble that has two faces. If you look at the tech giants, basically the companies who either bought GPUs or are making GPUs, especially if you’re making GPUs, then you’re definitely on a rip. Companies like Nvidia, there’s also TSM, a Taiwanese semiconductor company that no one talks about, but they also make chips related to GPUs, and their stock price is going up like crazy as well. But definitely, Nvidia in this country, people know about it. It brought the wave up not only for Nvidia but for all of those Big Tech giants, as you know, who are using their GPUs. If you look at the multiples, they’re nowhere near… - by multiples I mean their price relative to whatever measure you want to use from their financial statements, whether it’s revenues, gross profit, or net profit, whatever - they’re all extremely profitable. They are making good margins on their AI models, not as crazy margins as for their core business of data storage and cloud computing. But they are making money. So from that definition, it’s hard to see how that’s a bubble yet. I think we may be getting there. It’s an interesting question to discuss. But again, the other side is these AI startups, and I mentioned a few of them. You mentioned Tempus AI. I identified very recent ones that went IPO. There are four companies, four startups, that either have AI in their name or in their ticker. All of them are down. They’re basically down from day one. It’s kind of funny that AI seems to be turning things golden if you’re this big tech company, already established, but AI is a kiss of death if you’re a startup trying to become a public company.
“AI is turning things to gold if you’re a big tech company. AI is a kiss of death if you’re a startup trying to become a public company.” —Sergei Polevikov
All of them are down tremendously. Tempus AI is down 30% in 6 days, as you know.
Alex: Isn’t that the first symptom of a bubble? And talking about Nvidia, you mentioned that yes, they’re making good profits, but so was Cisco in the 90s with the dotcom bubble.
Sergei: Yeah, I’m just comparing the levels. If you just look at price appreciation, yeah, it’s tremendous. I think just this year, Nvidia is up like 200%, not to mention for the last couple of years. But my point is: it’s not at the levels, for example, of the tech bubble of the 90s. We’re not there yet. But again, if you look at some of the definitions, some of the arguments people are making, I can totally see how we’re getting there. To me, the main definition of a bubble is when people hear something like “AI” and just take it at face value without checking any facts about that particular company. By that definition, maybe it’s happening, yes.
56:53 Sergei’s advice to digital health startup founders
Alex: At the very end, I ask my guest to give a last piece of advice to startup founders in digital health. What would you recommend them to do or not to do in order to be successful?
Sergei: Well, I’m going to say exactly what I say in my newsletter: be brutally honest with yourself. We mentioned venture capitalists. It’s easier said than done. But be consistent with your vision.
“Believe in your vision and don’t let anybody, including venture capitalists, change your vision.” —Sergei Polevikov
Alex: I love that. Thank you very much, Sergei.
Sergei: Thanks, Alex.
👉👉👉👉👉 Hi! My name is Sergei Polevikov. I’m an AI researcher and a healthcare AI startup founder. In my newsletter ‘AI Health Uncut’, I combine my knowledge of AI models with my unique skills in analyzing the financial health of digital health companies. Why “Uncut”? Because I never sugarcoat or filter the hard truth. I don’t play games, I don’t work for anyone, and therefore, with your support, I produce the most original, the most unbiased, the most unapologetic research in AI, innovation, and healthcare. Thank you for your support of my work. You’re part of a vibrant community of healthcare AI enthusiasts! Your engagement matters. 🙏🙏🙏🙏🙏