On this week’s episode I chat with the Founder and CEO of MARGIN, Chas Sanders. MARGIN is a tech-enabled procurement solution that helps Ambulatory Medical Centers purchase the equipment they need to operate. Apparently, before MARGIN supplies were purchased via phone calls and fax machines. MARGIN has not only put that process on the Internet, but they have also helped doctors to reduce their spend by 15-20%. That’s big bucks - in many cases that’s hundreds of thousands of dollars per office.
Chas is a veteran of the healthcare industry. He’s been an executive at Zimmer Biomet, DaVita and others. After that he stepped out of the industry to launch MARGIN.
In addition to hearing about his company and lessons learned as a founder, what’s great about this conversation is hearing a sophisticated business person provide insights into why the healthcare industry is dysfunctional. And low and behold, one of the reasons is that it’s managed in a similar way to the government of communist Russia. Enjoy.
**** MARGIN is an Interplay Incubator portfolio company.
Transcript (this is an automated transcript):
MPD: Chas, thanks for being here, man. I appreciate it.
Chas Sanders: I really appreciate the opportunity. I'm a big fan. Very cool.
MPD: So let's start at the top. How I like to do this. Can you give us an overview of MARGIN?
Chas Sanders: Yeah. MARGIN is a kind of new concept in healthcare. We focus only on outpatient facilities like surgery centers, and essentially what we do are two things.
We renegotiate the price of every line item of everything they need to deliver care to the patients. And then the second piece of what we do is we are a technology. So up to this point, hospitals, doctor's offices, et cetera, could only order by calling their sales reps. And so we've created as a platform for [00:03:00] them to manage every part of their inventory management with one platform, they can order from every vendor at one time with one purchase order.
And so that's what we do. We are completely in the supply chain space for healthcare. Okay. Wait. So
MPD: for surgery centers, those are non hospitals. So those are like the offices you go to where there's a doctor there and they do
Chas Sanders: something. Yeah. So those are the really happy places you go for care. They're usually very well-built they aesthetically look nice as opposed to a hospital that just has that old green tile.
And this is where they do procedures that you can be in and out in the same day. So there's no overnight stay no real complex procedure.
MPD: Okay. And so when you talk about not having to order from your sales rep, does that mean that people at surgery centers before. We're doing all of their supply, ordering over the phone.
Chas Sanders: Yeah, mostly over the phone, about 80%. So they would call their rep would be in a surgery covering somebody else. So they'd miss the rep. [00:04:00] The rep would call them back. Now they're in a surgery. They call the rep back and finally the reps running cross town and they write the purchase order number on their scrub pants.
The other mechanisms is they can call into an 800 number, but we all know how horrible that experience is. And in some circumstances, some individual companies might have a portal to order, but you're juggling 15, 20 different logins and trying to navigate everyone's kind of software system.
MPD: So this is a hell of a job.
Is this usually one person or more?
Chas Sanders: Usually it's one that sounds like a lot of work. It is. I'd say our average customer before MARGIN probably spends five to seven hours a week managing supplies and that's on top of a full day of surgery. So you're standing there on your feet all day. So usually it's one to two staff members, but for us, what we found is they're really highly paid staff members.
These are a hundred thousand dollars nurses or x-ray techs. They're truly just ordering supplies.
MPD: Wow. Now you said inventory management. So what [00:05:00] is, what are people doing? I'm, as we're talking about this, I'm realizing this is an environment that's probably fax machines and outdated Excel files.
Chas Sanders: A lot of healthcare is it's amazing how many documents are sent via fax and healthcare, for as innovative as technology can become to deliver care to a patient processes and infrastructure and healthcare have not changed in 20 or 30 years. So they're just really antiquated, but it isn't that, I think what happens in healthcare is whenever there's a platform, people want to build off the same platform.
So in healthcare, the first tech solutions they were getting were truly electronic medical record. But if you ever have a physician friend ask them about their experience with electronic medical records, it's just a series of dropdown screens, which are entirely annoying. And the problem is people can't be innovative.
They try to recreate or copy what's out there. But if the stuff out there isn't good, we should recreate the entire wheel. And in every other sector in the [00:06:00] world, that's done at a rapid pace and in healthcare just isn't. Yeah,
MPD: but why is it not in healthcare? Because in the same time period, every other industry I could think of has been adapting, advancing, they've been atomizing, the technology, taking these giant platforms and breaking them down to pieces where companies specialize in doing it very elegantly.
If you're talking about really outdated tech across the board, why has this industry had the brakes on it?
Chas Sanders: Yeah, so I, I would say that there's a couple of factors. One is that healthcare is very new. And so the sector of healthcare you're talking about could be very dissimilar from another and being niche.
It's also very clique-ish. So you're actually in the know, or in the group or in the, a crowd is a big feat. The other part is that the really bright people that innovate others industries just don't as a general, they don't have the reference or the framework to understand the workflows for your average health care provider.
And [00:07:00] so you could have a nice solution, but if you don't understand what it's like in the daily life for that healthcare provider, and you're not addressing the needs for the workflow, then you're at a disadvantage. And we see that a lot. There's a few competitors of mine that are trying to emerge and their technology is interesting, but it doesn't handle what the flow is for those staff members every day.
MPD: But in every other industry, as a VC, I see someone jump out of the industry. They were not in a technological industry. They realized something was weird, right? They're using Uber on their cell phone for their personal life. And then they're going into these extremely outdated technologies and they show up and they pitch us.
Why is that not happen more rapidly in healthcare, something. So mission critical. There's so many smart people around it. Yeah. It's bizarre
Chas Sanders: to me. It's a great question. I couldn't give you a clear cut answer. The reality is, I think as a general rule, [00:08:00] if you just take the life cycle of a physician, they're in school all the way through college, right?
If they're lucky they have a year off after college where they blow off some steam, then they jump right back into medical school. Then they jump into the residency. Then they jump into their fellowship program. Then they're trying to join a practice. And from the moment they hit med school for the next 10 to 12 years before they even start treating their own patients with full autonomy, everyone from every sector of their life is asking them to buy some.
They're always being sold. And so when new innovative technology comes out, it's been thrown in a bucket with all these vendors that have been after something from doctors from day one. And a lot of the times they just can't embrace the concept of change. We had some of those headwinds early on when we started MARGIN and I made a decision not to be a marketing company.
I wanted to pull customers to me by just offering great service and letting their friends talk to them about us. And so we've grown really [00:09:00] organically just from word of mouth, but I think it's that mindset of physicians that they're always being sold. And if you're always being sold, you're going to be resistant to hear anything new.
MPD: Okay. So you've got a technology solution to help with inventory management, procurement. You mentioned also the price negotiation, how much variance is there in medical supply pricing? When I think of this syringes and. The gowns and everything else. I assume all of that's extraordinarily commoditized and there's not a lot of MARGIN in any way.
What's the, how much does this
Chas Sanders: vary? It's crazy. There are some devices where I've seen a 50% swing from the east coast to the west coast in the same product, in the same type of facility with the same type of physician doing the same type of volume. So it just depends what we find.
We have a nice mix between new constructions, new centers that are opening now [00:10:00] and centers that have a historical spend for 5, 10, 15 years. And what we find is on our centers have been open for a long time. We're still saving them between 15 and 20% on their global spent. Are they surprised
Yeah. You think that you've been in the business for a long time? You've got all the good pricing, but I guess behind the scenes, someone with an Excel sheets laughing,
Chas Sanders: What it is I think everyone will focus on the most expensive items that they buy and S they buy in use, but the really expensive items you buy and use, you may only do 15 or 20 surgeries a year, whereas you could do a thousand surgeries overall.
And because you've only focused on your most expensive line items, all the smalls are bleeding you out. And so it's, for us, it's the aggregate from the moment that you buy a staple remover to the moment that you buy an x-ray machine, we handle everything in.
MPD: What kind of spend is that when we're talking about a surgery centers, I assume that's
Chas Sanders: millions of dollars.
It can be. [00:11:00] So our core customer base right now, our physicians who do procedures related to blood vessels to like plumbers for the human body and our average center with one operator. So one physician will spend about a million dollars a year. Now, if you had a surgery center that was doing orthopedics or spine, and they have three or four doctors that could be a $10 million spend per year it just depends on their volume, but I would say your average family doctor will spend $30,000 a year on supplies.
Your average doctor who does procedures will spend between 703 million.
MPD: Okay. Wait, and you're talking about wiping out 15, 20% of the cost structure. So you're talking hundreds of thousands
Chas Sanders: of dollars. Yeah. One of the recent centers that we brought on, we, they were doing 2.4 million before us. They had been open for about five years and we got them down to sub two.
MPD: Okay. So their expenses dropped more than
Chas Sanders: 400 grand and that's directly to their bottom line.
MPD: How [00:12:00] painful was that for them to go through that process? Is that easy, like flipping a switch or is it a
Chas Sanders: whole thing? A little bit of work because there's nuances. You have reps that you have relationships with for years, and the reps are paid generally on a percent commission on dollar sales.
So if they did a million dollars with you last year, and now you want them to give you the same service and you buy the same product for 700,000, you're going to, there's going to be a rub there. But many of the physicians are really excited and surprised, because maybe they think they're spending too much, 10,005,000, our average customer we're saving 2, 3, 4, $500,000 a year.
MPD: Do the product suppliers they do. They consider you an ally or a threat, right? Cause it sounds like your mission is healthy doctors. The people are purchasing the products. Here are the sellers threatened by you coming in and taking prices down? Or is there a benefit to them?
Chas Sanders: It's a [00:13:00] mixed bag because we do so many new constructions.
All the vendors are really excited to work with us because they want to get their foot in the door for these new builds, because it's all upside where some we've had some rubs as some vendors want their cake and eat it too. So they want to preserve their price point for their existing customers and get all the new business.
And that's just not a formula that works for us. And path the industry now I would say, has set pricing for my customers, meaning whether they buy one widget a year, a thousand widgets, my customers all get the same price. And with some vendors I'm still negotiating at every center and every doctor level.
It just depends. We've been very fortunate that in our industry, there's a lot of companies that are called GPS group purchasing organizations. To legally be considered a GPO. You have to get paid by the vendor. And that never made sense to me, especially when I was back in med device, Hey, I just give you really strong pricing for your network.
And now you want me to pay you 3% [00:14:00] for the luxury of selling to you. It just didn't make sense. So when we launched MARGIN, I had a different formula. My thought is I was going to provide the tech solution included in my soft and my service. And so they're going to get a nice software tech solution that they didn't have before.
And then in addition to that, they were going to pay me. So our average fee is four or 5% of whatever their spend is. So in the circumstance of the customer, I referenced a minute ago we saved them. We took them from 2.4 to 2 million. They saved a gross 400,000. They're now paying us 4% on the 2 million going forward.
So their net savings is 320,000 plus or saving about seven or eight staff hours a week. And so that's our formula. And because of that, I felt there was no kind of ethical conflict. I am not incentivized to steer anyone to any particular company I'm agnostic accompany. So the doctors tell me what they want to use and I'll negotiate for them.
MPD: So the GPS are like the financial advisors out there, right? They're [00:15:00] getting hidden kickbacks and fees. And so they're, while they're servicing you as a doctor, they're not really on your side because you're not paying them. They're not the right way to
Chas Sanders: think about. They're not part of the family, cause you're going to be aligned with whoever writes the checks to you.
That's just human nature. And so GPS we partner with the GPO and the reason why is I don't have the time to negotiate every bandaid that there is in the marketplace. So I use a GPO to help me out with all the small stuff, syringes band-aids pieces of tape, and then all the big stuff we handle all those negotiations.
So I think there's a place for GPS, but with business in general, you always got to look at everyone's Batman, what everyone's incentives are. And I think. For healthcare, everyone's had been incentivized to take something from doctors and that's why it, innovation is slow because you're not including doctors as part of the table.
You're bringing things from them.
MPD: [00:16:00] Anecdotally, I've heard in the market that Dr. PEI has stagnated. It's not what it used to be as the markets, the value of the dollar is deflated, et cetera, is that is this part of the story, doctors are making less money long-term because you get chipped away by all the different vendors and everyone else in the supply chain.
Chas Sanders: Yeah. You and I are young enough to know health care as it stands today. But if you were to ask your parents, Hey, what was it like to see your family doctor. You would go in, you'd have an hour with the doctor. They would go through every ailment, head to toe that you're facing and come up with a treatment plan.
Now healthcare is really compartmentalized. So it's a machine. Your family doctor has seen 60 patients a day to make the money that a doctor 20 years ago would do in 20. And so their machine, they have to get you in and get you out. And they really focus on the small minute kind of myopic part of healthcare that they focus on.
And, in [00:17:00] addition to that, Medicare has been reducing rates. So in healthcare, Medicare CMS sets the price point and almost every private payroll follow suit. So as Medicare keeps carving down, for example, the doctors that we are selling to currently, they just faced a 15 to 17% rate reimbursement cut in January of 2022.
So overnight they lost 15% of the revenues for the same procedures they did last year. Now for my organization. That was good for us because people are seeking us out, trying to figure out how they can recoup that 15% back. But yeah, the healthcare is being squeezed and a lot of people don't realize is say, you get a surgery done at the hospital.
There are two parts of that fee that 80, 90% of it goes to the hospital as a technical portion. So it pays for the facility only about 10 or 15% actually goes to your physician. And so what physicians realize is in the hospital, they're just a number they're being told how to [00:18:00] deliver care as opposed to choosing the care that they want for their own patients.
And if they move all their procedures out of the hospital to their own facility, now they get the recoup, the technical portion and the professional portion, and they get controlled the spent, but they're using the products they want and delivering the care they want. So we're seeing a huge migration of, procedures and doctors leaving hospitals to open up their own surgery centers.
And I think.
MPD: But when they get to their own surgery center, they're on the same reimbursement program from the government, right? So isn't that always going to limit the type of quantity, the quality of the care, the time they can spend per patient, because there's a cast.
Chas Sanders: There is, it's, interestingly enough is say you were going to get a stent put in your leg.
If you were going to have it done at the ambulatory surgery center versus the hospital gets paid twice as much more, same physician, same technology, same outweigh. It's just as the overhead, it's just the game that they [00:19:00] have in place. And so when you say
MPD: it's a game, it, do they need that money?
Is that an inherent cost? Or they're just saying, Hey, let's charge as much as we can because we're bumping heads with the insurance companies and they're trying to undercut us. So we're gonna ask for too
Chas Sanders: much, I think on an ethical level, you could argue that the hospitals treating indigent patients and that they have procedures that are lost leaders for them.
So the procedures that are profiting. I need to feed the rest of the hospital. The reality though is cost of care should be delivered at a really affordable price point where we're incentivizing our brightest to go into healthcare and Dupee doctors and our brightest scientists to keep developing new technologies and new paths forward.
And unfortunately, because healthcare is somewhat broken in the U S we're not seeing that our best and brightest, it used to be scientists and doctors, mathematicians are now going into finance and investments and sales positions because the income is not what it used to be.
MPD: And [00:20:00] so the income though, the reason why people are making less is because the government on a real dollar basis is reimbursing at lower rates through cuts or not changing it to match inflation, or is it because the cost structure has gotten.
And there's been no adjustment to, to raise the rates and reimbursement rates as well. What's the driver. Is it price compression
Chas Sanders: or cost scaling for both? I think it's both, the reality is every year Medicare takes six months in June. They put out their proposed rates for the next year. And then in December they put out their final rates and over that five to six month period, they are supposed to be looking at every dollar.
That's spent everything that's reported every cost of every implant and they're coming up with reimbursement. And the reality is they're just driving down the reimbursement for physicians. So physicians at certain points that, Hey, I don't want to be in the hospital anymore. My surgery time is not guaranteed.
I was supposed to do this procedure at two it's now 9:00 PM. And I'm finally getting the patient into the room [00:21:00] or, Hey, I've used this, company's widget for the last five years. And then today they're telling me I can no longer use it because a hospital just negotiated a contract with a different company.
And so physicians have just gotten really tired of being told how to deliver care, not having the accessibility to the labs, and they can't give the patient experience that they want. And so when you had that kind of boiling over and now the ability to have these outpatient facilities and they've been vetted, and it's the fastest rate of growth in healthcare right now, I can control everything, make more money and have a better quality of life.
And then the studies are really evident that the outcomes are better for patients in the outpatient facility and the doctors and the patients are happier. So for me, it's a huge win that cost to help to the Medicare comes down, doctors are happier, their staff is happier, the patients are happier and the outcomes are better.
And so it's a win all the way around. And that's why I've finding this space for me and [00:22:00] MARGIN was so important because everything we do is trying to help a problem. That's systemic to healthcare system in the us today. So this is a
MPD: macro shift we're seeing is that right? Like doctors are essentially moving away from hospitals or is it happening in piecemeal?
And it's not a macro shift, right? If someone was to study this, are we watching the decline of centralized hospitals?
Chas Sanders: Yeah. There's you know I, so my first hospital I ever sold into was a Honamin university hospital in Philly, big teaching center, residency programs, attached to a Drexel medical school.
Last year they went out of business, they went bankrupt. It was a pillar of healthcare in Philadelphia. I probably repped 3000 surgeries at that hospital. I spent my twenties and thirties. And so what we're seeing is there's a huge migration of physicians out of the hospital, into their own facilities.
It's much akin to the huge migration that we saw in the nineties from Sears Macy's to, the gap [00:23:00] and banana Republic in specialized stores that focus on a few things. Whereas 30, 40 years ago, you bought everything you needed from Sears Roebuck. And now Sears is just in a few locations across the country.
And so I think what we're seeing is people like having really fine tuned choice on the items that they want to buy or service and having specialized opportunities is what in the U S of what is, what the average consumer wants
MPD: and what kind of medical practices do you support?
Cause you don't support every dimension of medicine.
Chas Sanders: Yeah, I don't, we've played around with a few, but our core business right now is interventional cardiology, interventional radiology, vascular surgery, and nephrology. I would say that before the calendar year ends, just because of previous relationships in my professional life we probably will jump into pain management spine and orthopedic center.
MPD: When you get to the end of the year and you've got [00:24:00] those other practices in line, have you covered kind of 80 20 of the market or is there a lot of space
Chas Sanders: outside of that? Yeah, so there's, that's part of, for me in my, my journey as an entrepreneur and a founder, I'm finally at the point where we're positive cashflow, we're growing at a really consistent, strong clip, and I know that we're safe, right.
And that's a huge hurdle, but now that we're there now that we're there, I'm surveying my industry. Plastic surgery office called me a couple of weeks ago and topically, it sounds great. Awesome fun procedures. Everyone leaves happy. And the reality is I looked at the math of what they buy and it was not worth the effort for us.
So their annual spend was a little too low. Whereas some specialties, orthopedics and spine where I'm not in now, they can have five or $10 million a year in spend. And so every center I sign there is four or five of my current customers. For me, what I decided to do is to get [00:25:00] really specialized in one area of medicine, so we've got 40, 50,000 skews that we buy routinely.
I know every product, I know every competitive product of every other one. And so I know the classes of products and anyone that comes on, we can onboard them quickly. I'll have to recreate that wheel and orthopedics and spine and learn everyone's skews and expanding. So growth should be calculated for us.
MPD: W what are the reasons why people say no to this? What are your naysayers? What's the friction in the sale.
Chas Sanders: What I would say is we pass on a lot more customers than the customers say no to us. Because for us, our, it's easy. Hey, I'll save you more money than I charge you.
And if I don't, you can walk away. That talking points pretty easy. I think pride is a big part of it. There are a lot of physicians. And business people that, view themselves as the top negotiator [00:26:00] or, the Oracle of Omaha. And they're not, there are times where a doctor's Hey, my price is you can't beat them.
And maybe you're right, but I'll give you a free assessment. Just tell me what your products are and tell me how much you spend. And I'll tell you if you overspend. And so usually with a free assessment, they're happy to test the waters, but most people just don't think we can do any better than they have before.
And the reason why is their sales reps are telling them, oh, you got the best price in the country. And, but again, how your sales rep incentivize,
MPD: but the numbers are the numbers. That should be pretty easy to discern. No.
Chas Sanders: Yeah. I think there is a bit of work. You're gonna have to do a couple hours of work to get all your spend together and organized so I can actually assess.
And a lot of these physician practices don't have traditional business acumen. So their entire spend could be kept in a shoe box with every invoice slip that comes in the course of the year. [00:27:00] And then our hope is at the end of the year, they're going to pay an accountant to put every invoice into an Excel.
Now, also, if you're making a million or 2 million profit on your facility, you may never look at that shoe box because a million or $2 million in profit is better than the 600,000 you made at the hospital. And I think there's just varying degrees of business acumen and organizational skills.
MPD: Got it. Okay. So normal human issues, not logic-based issues. Got it. Okay. When you look at the U S healthcare, you were talking about this before a little bit about how things are trending. The thing that always gets stuck in my mind is I always hear that the U S is two to three times more expensive per capita, or maybe not more expensive spend.
Two to three times more per capita than other countries in NATO. So we're not talking countries and different economic situations or different access to healthcare countries in NATO. Why is that? What is [00:28:00] happening with the us healthcare
Chas Sanders: system? So if you think of the average Americans, just preferences and styles or what they're accustomed to in their daily life as Americans, we want choice, you always want to have choice.
And as Americans, you also want to have things done very quickly. So choice and patients are two things that are innate to be an American that you may not see in other countries. So a lot of other countries, especially European or NATO countries, they could have socialized medicine. So your healthcare will be free, but you are going to be assigned a doctor in 63 days and you have to show up on that day and you're not going to who your doctor is that day.
And nor are you going to have the ability to say, Hey, I want this. Whereas, if you take an American and they need to get a total hip done, so they need a hip replacement with today's technology, they can search three or four biggest brands. They can read testimonials, they can look at any lawsuits or anything.
They can find all those things out. They can also research their doctor. [00:29:00] Hey, this doctor went to Harvard medical school, did their internship at rush. And they have done this procedure 700 times a year, and this is the doctor I want to go to. So for that optionality, we pay up for it. And there's also a markup.
I'm sorry, Martin. There's also a markup on products because yes, the unit cost on an item might be $25 and the company could sell it for $250. But a portion of that has to go to future research and development, because if you're not going to innovate new technology, you're going to be left behind. And so the research and development budgets for a lot of these med device companies is astronaut.
Compared to other spaces or sectors.
MPD: Okay. But comparing it to other countries in the same sector, are they doing less R and D and the narrative you're telling is not the narrative we usually hear in the news scenario we hear in the news is
Chas Sanders: our system's broken. Eh, the answer, yes. There is a certain element of our system that's broken.
[00:30:00] To answer your question directly, I think we're paying up for optionality. A lot of the rest of the world are paying lower price points for items, and we may be, but they're not a lot of these companies are American based medical device companies. And so when we're creating a lot of the technology here in the U S we're eating some of that research and development cost for the rest of the world.
MPD: we're paying more for better quality and we're getting we're investing in the future. Whereas other countries may not be true, that part of the supply chain, but they might just be getting our technology and not paying the same MARGIN because it's not market there.
Chas Sanders: Yeah. A hundred percent.
And the other part of that, though, for me, it comes down to two scores. And when you talk about healthcare, I think people lose sight of the two things. There's a clinical success and there is a patient satisfaction success. And so clinically we could have a great outcome, but if the patient's not feeling like the pain has gone away, or the issue has been [00:31:00] resolved, then the outcome is a failure because at the end of the day, the patient has to be happy about it and be able to go back to their normal daily life.
And so when you look at outcomes, us outcomes are not as promising as they used to be. We still have great medical care and you're going to be with a physician that you like arguably at a facility that you like getting the products that you hope you get. But even with those options, the actual success rates are not that much better than the rest of the world.
And so it shows you that we're innovating technology maybe unnecessarily.
MPD: Yes. How does that square up? So we're spending more for better results. We're getting more optionality, but we're not getting better results. So the money is going into the fluff of picking the money is going where it's going into R and D or it's going into shareholder payouts, like where's
Chas Sanders: the money going?
I think the is being split up in so many different directions. It's not a direct linear progression of where to follow it. Some of it's [00:32:00] going to compensation for the staffs and the clinical teams that are providing care. Some of it's going to hospitals and them kind of augmenting loss leader procedures.
Some of it's going back to the med device companies, some are going to developers and marketers, so it's just, there's so much spend in the U S on healthcare that there's so many hands going into the pocket, and it's hard to know exactly where it's all being leveled out, but
MPD: someone's going to be able to do this math.
He may not know it offhand, but numbers are numbers. Yeah. McKinsey, Bain, some of the consulting firms, someone needs to go out. Dial this, and I'm sure they already have. Okay. What are the areas of healthcare that are the most dysfunctional operationally? So we're talking about, you're not implying it, but when I think of healthcare, I do assume there's a fair bit of inefficiency.
Now, maybe that's not the case. And so maybe I should start there and I think of hospitals and all that, I just assume they're wildly inefficient. If that's not the case, something's [00:33:00] different, as a business operator, it feels like chaos. When you walk in the scheduling is not right. It just doesn't feel the way I would run a company.
So first of all, do you think healthcare is inefficient in its delivery of the service? Or do you think it's efficient
Chas Sanders: overall? I think it's incredibly inefficient. Okay. I assume
MPD: that was in a sound like obvious, but the question myself there for a second. All right. So if it's inefficient where. What, where is the source of the dysfunction?
Why is it
Chas Sanders: inefficient? That's a great question. And I actually I wrote an article about that. Just recently, I think when you look at really successful organizations and let's take healthcare aside and just talk about industry, any business, those companies that are very horizontal in their organization are usually able to address chaos, pivot, shift, make decisions, and evolve much faster than those vertical organizations.
And so in healthcare, you've got this hierarchy [00:34:00] system that's developed from the time that they're a first year medical student. So the first year is, are devalued to the fourth years. And then when they become a resident, an intern year versus a residency year, there's a hierarchy there. And then there's a senior resident or chief resident as opposed to a junior.
And then as they go through their fellowship, their first year fellow versus a second year fellow and new attending versus a, tenured physician or surgeon. So you have this whole ecosystem that's based on class systems. Doctors are the top of the food chain and then there's practitioners and physician assistants and nurses and techs.
And so you have this pecking order in class system that has shown to be unsuccessful in every other area of business, but it's still the framework for healthcare. And so if you have to make a pivot or change, what happens in most healthcare societies or institutions now is you have three or four levels of decision-making they get to, until someone [00:35:00] pulls the trigger to change something.
And that doesn't work. Everyone else who runs a business knows hire great people, empower them to make choices and make sure they're incentivized that they feel the businesses as much theirs as it is the owner. And if you can do that, you can adapt and evolve and address marketplace shifts.
Healthcare can't do that. For example, I had a situation early in the pandemic where a large physician group needed hand sanitizer. And this is a time where you and I couldn't get that one and a half ounce jars from CVS and they needed a thousand gallons of hand sanitizer. And so they called me and I said, Hey, I can get you a thousand gallons, a hand sanitizer drop shipped in 96 hours.
I then had to wait three days for the final decision maker to make the yes, or to give the S so I can make place the order for them. And on the course of those three days, the thousand gallons of operated,
MPD: And it [00:36:00] was cold and there was a
Chas Sanders: shortage of everything. And I think when you run a vertical organization or a hierarchal organization, you're setting yourself up for certain systemic issues and that's all we've ever known in hell.
MPD: That's fan. That's fascinating because this is very comparable to the way we think of communist or society is functioning. Top-down lots of layers. If you've seen Chernobyl on HBO, they do a pretty good, interesting job of illustrating how decisions are made and how those types of pecking order structures break as information flows.
So we've got a parallel construct to that in our healthcare system. That's fascinating. I hadn't heard it pinned to that before. I think we all intuitively knew it was dysfunctional. I didn't know specifically because of hierarchy. I would've guessed it had to do with motivations or incentives, but I didn't realize it was stem specifically from the fact that you're trapped in a box as a level, whatever.
And you have to age in [00:37:00] to being, somebody can make a decision. Yeah.
Chas Sanders: And I think that's a big part of it. And then there's a lot of of silos in healthcare. Hey, I only do this sector of what we need. My job is to check the patient in and get them to a room to change your clothes into a gown.
Now, if that's your only responsibility, that's all, but what if you're out now, someone has to carry that part in their part is missing. So cross training of staffs and even streamlining staffing in a surgery center, we would have a doctor, someone scrubbed in with the doctor to help assist in a sterile way with the doctor, for the surgery.
And then we have a nurse work in the room in a hospital. You'd have the doctor that scrub tech that I mentioned one or two nurses and an anesthesiologist running, running the medications in the back.
MPD: But you're saying they don't need all
Chas Sanders: those people bureaucracy. Yeah. It's just, that's the way they've always done.[00:38:00]
Bring down those number of head counts. You make the cost of healthcare to deliver a lot less. And now you have a fewer number of people that hopefully are cross trained to do more things. Obviously you can't cross train a tech, a surgery tech to do the procedure. You have to be a doctor there, but certainly they can work the computer, work the room, do other things if they needed to.
So I think in healthcare, if we can get rid of that vertical organization, get rid of the hierarchy of your class system and start eliminating the silos to make sure that people are really proficient in multiple things. We could fix the system really quickly.
MPD: How do we get more of the people who are in the system now to step out of the system and become entrepreneurs and innovate?
Because I'm sure there's a lot of people who are living this who know it's nonsense. Yeah. How do they, how do we motivate them support.
Chas Sanders: Yeah. So what we're seeing is we're seeing physicians in large numbers going back and getting business degrees or [00:39:00] business training, which I think is important because it's crazy.
They go through so many years of training and never have a class on the, how. Budget your practice or look at a cashflow statement. That's insane, right? Just, it should be a one semester course at some point in medical school, right? As there should be a class on how to deal with industry, Hey, this is what to expect from and get from your representatives, their managers, the companies.
And there's no education on that. But what we are seeing is a larger number of physicians leaving healthcare to join private equity, to join venture capital, to start consulting. And what we've done for so many years is go and physicians are really talented. They're incredibly bright.
Often some of the brightest that we went to school with growing up. Their work ethic is second to none. Most of them are up at 5:00 AM finishing at 8:00 PM, five to six days a week. And I think what we've done in the past is [00:40:00] we've engaged a physician to consult with us and we've paid the physician a nice salary for those.
We got the two or three kind of bullets that we wanted to hear from them to sustain our current narrative. And we never actually changed anything. Whereas if we really empowered physicians to be decision makers and there's some great ones out there vena, DASA has something called doc social.
He's a orthopedic guy down in the Gulf. Aaron Fritz has a podcast called back table. He's sending out collateral and talking to physicians about clinical outcomes, business acumen. And so we're seeing as they, we're seeing this pivot of physicians that are really saying, Hey, we've got to fix healthcare.
It's not going to be the administrator. That's making a million dollars a year to beat the CEO of a hundred million dollar hospital. It's going to be physicians who are going to be driving things and we need to empower them to give them the education that they have that baseline to know what the.[00:41:00]
MPD: awesome. We'll link to those other podcasts in the show notes for folks listening. The other thing that I think is a need, based on what you're describing is a basic operations class, right? Operations is one of those things that no one really talks about. If you're in a, if you're an industry organization, you're used to it now, but it's not really well branded to students in academia, et cetera, but every MBA goes through it.
And it's one of those things that changes your lens, your framework for how to make process and organizations more efficient. So that's that's something we're doing for those who don't want to take a class or I'm going to do their MBA. There's a good book out there called the goal. And it's basically required reading at most of the MBA programs.
And I think it covers the 1 0 1 on operations and it's written in a nice way, like a story. I'm a nerd. So I actually liked it, but a lot of my other classmates thought it was boring, but whatever nonetheless, that'll teach you operations. Okay. But you're looking at this space. You're very close to it.
You're an entrepreneur yourself where other [00:42:00] opportunities in the healthcare market that you think founders who are listening to this should pick up and lay claim, add some value and move our
Chas Sanders: society forward. Yeah. I think the challenge is there's so many companies selling into physicians. So if you're going to enter into healthcare, I think there's a few things in here.
You need to build a voice for yourself. And so one of the things I did early on when we launched MARGIN was I decided if I wanted to have a push or pull kind of marketing strategy. And so I could have raised a bunch of money blasted the entire marketplace about us, and maybe we got a few customers, but what we decided to do is, I, as an individual became a subject matter expert.
So I sat down and I was never strong at this before, but I sat down and wrote an article about healthcare. And then I pitched it to a bunch of medical journals and one of them bit, and then there was a nice response. So then another journal said, Hey, we take an article from you. So now I'm at the point where I'm writing [00:43:00] three or four articles a year in medical journals that are all physicians.
And I don't talk about MARGIN at all. I'm just giving knowledge and suggestions to the industry that progressed to podcasts. I've now done a couple and, it's progressed that I'm now faculty on the panels with all doctors, some speaking at four meetings this year it'll be me and a series of doctors and I will be contributing from just a business analytics or operations level.
So I think an entrepreneur coming into this space really needs to take their time to build their voice and to make sure that you're delivering a product that Aleves a true problem. And the problem is that most people are not bringing physicians into that. And saying, Hey, is this really a pain point for you?
And if this doesn't, what is your pain point? And so for, founders, if I was looking at a space I think supply chain, obviously I jumped into that and we're pretty much the only true show [00:44:00] in town right now. So I feel good that I use one of my business school expressions. I jumped into pool and peed in it as soon as I did some dissuading, everybody from coming in as best I possibly can.
But that being said I think the other part of this is revenue cycle management, a lot of those companies are outsourcing it or have it outsourced to other countries. And so they will submit the claims, but if they're denied, they're not fighting denials. I, I think accreditation, if you can be an expert in the accreditation process and know what it takes to get a surgery center or an office approved in New Jersey versus.
Because every state has their own nuances and laws. I think there's a lot of need there. What we're seeing so much of a as marketing companies and digital marketing companies and all those sorts of things where they're incredibly valuable, but how are you differentiating yourself from the space? Cause there's a, I don't know about you, but every [00:45:00] morning I have five or seven emails.
Hey, we've refreshed your website. Would you like to see what it looks like? And no. I've got four times the growth of the market. I think I'm pretty good. I'm not changing anything, but if I got a question saying, Hey, I like what you're doing. You know what pain points you're having. Maybe there's a space that we overlap and we can collaborate.
That's a different approach, but healthcare there's so much money being thrown into it. These days there's so much private equity money going into healthcare. And so being able to, figure out where there's an urgent need today is really hard. I think a lot for me, what's really ingenious. Is those healthcare companies or products that are going direct to the physician.
So they're cutting out their sales forces. So you're cutting out a vice president of sales, regional vice president of sales, district managers, seven reps per geography, all the way down to the same organizational chains for marketing. And just [00:46:00] saying to the physician, Hey, I can get you this product.
That's FDA approved. It works really well. I'll send you a couple samples, try it if you like it, buy more. So I think that direct to consumer selling where you're having commodity products being sold direct to the physician without a Salesforce. I think that's really smart. We're also seeing a huge uptick right now in refurbish technologies.
So some of these instruments or things they use in a procedure might be $2,000 a pop. And then after the procedure is done, they're being thrown out. And so what we're seeing as these refurbishing companies that are actually buying that track. With engineers cleaning it, sterilizing it, repackaging it, testing it, and then selling it back to the consumer at a third of the cost.
And I think that's brilliant because there's no risk of disease, transmission it's FDA approved. And in addition to that, it's not just ending up in a landfill. On the ecological level, we're really, they're in tune on a financial metric. It's bringing [00:47:00] down the cost of healthcare and, so I think there are some avenues there that make sense.
MPD: Okay. That's a lot of good ideas for an entrepreneur. Someone who's going to go out and try to set change the system from the private sector, but I'm sure there are some levers here that can only be changed with policy. If you were king, not president, what would you change?
There's there's a beautiful thing.
Chas Sanders: And your average American would never know this. There's only as far as I understand it. There's only one disease. Of every element that a human being could have. There's only one disease state that's federally protected in the country, in the U S today. And does that mean meaning regardless of your economic status, regardless if you have insurance or not, if you have this disease, the government will pay for you to be treated.
I see. And so that only disease say right now is dialysis. If your kidneys fail and you have to get dialysis treatment, it's federally mandated that [00:48:00] after your third dialysis and treatment, you go on Medicare and Medicare will cover it forever. And
MPD: of all the
Chas Sanders: things, because once your kidneys fail, your life expectancy is, goes to nothing and you do die.
So that was a way in huge numbers of patients go through kidney failure become what we call ESR D patients end stage renal disease patients. And so when I look at that model and there's some huge companies that have grown from that, a DaVita, for example, I don't know what their market cap is today, beyond $10 billion in market cap, that started because of this new law and now they're treating patients globally.
And so I think that's a beautiful thing. If I was king, I would look at a few out of the disease states and say, Hey, these patients deserve to be treated. They shouldn't have to go bankrupt or become homeless in order to get care. And I think as a country, if we start mandating treatments for specific disease states, that make sense, [00:49:00] then we start dealing with a lot of underlying issues.
So if you are a dialysis patient you have a 30% chance that you're going to end up losing a limb your life expectancy. Once you go on dialysis, if I'm still correct, and the numbers are consistent, you've got about five year life expectancy. And so there's all these disease states that we could start looking at.
If we federally funded the treatment of them early on, then we alleviate or remove all these co-morbidities and complexities like. And so that would probably both be the thing that I would do is I would have a task force just looking at every disease state, talk to every specialty of physician and say, Hey, if we going to protect one of your patients, which one would it be?
MPD: So to hear that on the outside, though, it just sounds spend a bunch of money is the case you're making that spending money on these things will be a net savings when you get into the total. Obviously there's human lives here and there's a whole bunch of other dimension to this, but, I know the, I can hear the naysayers in my head saying the government can't pay for [00:50:00] everything.
Yeah. So how does it, is this something that ends up being ROI positive cause of future cost savings or unknown?
Chas Sanders: I think the answer from the data that's out there it's clearly. Yes. So if we take the same patient that I just spoke about those dialysis patients say they go on and they get peripheral arterial disease.
So they essentially get a clot in their leg that clot prevents the lower leg from being fed nutrients, blood oxygen, everything is. It goes on to ulceration those alterations progress. And then we go onto an amputation. If you think about how much Medicare or Medicaid will pay for that patient, that's now been amputated.
They're going to have to be transported everywhere they go. They're going to need in-home nursing. They're going to need a mobility such as wheelchairs carts, et cetera. They are going to go through depression. So they're going to need psychiatric help because they're no longer ambulatory, they're going to start getting pains and sores and other things.
So I [00:51:00] think, what we found is if you can prevent illness on the front end, by having the right systems to incentivize health, we can prevent so many come, competitive or comorbid conditions going on later. And that's the beautiful thing about being a country like the U S we have the resources to do that.
But it's no different than a huge business. I've worked with large corporations and all budgets are into these little silos. So at the end of the year, the mentality is, Hey, I still have 400,000 in my budget. If I don't use it, I don't get it next year. And so you get this wasted spend, right?
Whereas if you had one person, it just looked at the organization holistically and said, Hey, they had a lighter year in expenses this year. It doesn't mean it's gonna be a lighter year next year, but let's just take the 400,000, keep it benefits of business, or let's take the 400,000 and reallocate it.
[00:52:00] Those are the companies that can really sail through and win as opposed to this bureaucracy and the government and healthcare is that bureaucracy, your bucket is your bucket. Chaz, how'd you get here?
MPD: There's a, you've got a unique specialty, a little corner of the world. You've carved out. What's your journey been a
Chas Sanders: great question.
So I I'm from the Northeast originally we're actually located just outside of New York city now in Montclair, New Jersey. But my mother is from Ireland. So I'm first-generation, I grew up fairly poor and in Northeast and I just had a couple of things work out for me. So I won a scholarship, went to a boarding school that profoundly changed my life went to a decent college and got a degree in pre-med.
I thought I was gonna be a doctor, but I had no money. And so I started selling to doctors thinking maybe I could save a few bucks and then get an inside, look at it. Unfortunately for me, the doctors I sold to were all family doctors, and I had no [00:53:00] interest in being in that world anymore. And so I worked my way through, I had a bunch of years as a sales rep probably stood in for 5,000 surgeries pacemaker stance, orthopedic spine, and then I went and decided to go in-house.
And so I took a huge pay cut. Somehow I had to wear with all, and I probably should really, thank my wife for that because she was like, Hey, give it a chance. But I worked my way through the food chains at Zimmer Biomet. Then I went to DaVita along the way. I got an MBA and after kind of 20 years in the space, I just asked myself a question, did I want to be part of the rat race?
So I was a senior executive making very good money, but proportionally versus the money I was bringing into the organizations that I was leading, I was getting kind of nothing. And I wasn't happy. I had all these metrics and bureaucracies that we were talking about that exist in healthcare. And so I decided, I sat back with a pen and paper and said, Hey, if I was to [00:54:00] start a business, how could I be in healthcare and be fully aligned with the doctor as opposed to trying to sell to, or take from a doctor.
And this concept of MARGIN was that. I started it after about 20 years in healthcare, I went out on my own and started marching about two and a half, three years ago. Did you have any mentors
MPD: along the way?
Chas Sanders: I did. There's I was very fortunate. I had a lot of people who invested time and energy into me, but there was one person who really taught me a fundamental lesson and that lesson is, own what you don't know own your shortcomings and either design mechanisms to overcome them or find somebody who can alleviate those concerns for you.
And one mentor was a group president I had back in orthopedics and I was fortunate enough that I was invited to a longterm strategy meeting and it was a group president, the CFO, the COO, [00:55:00] and the person in charge of MNA. And I was an entry-level marketing guy. I had no business being there.
In fact, my boss and my boss's boss, weren't invited to the meeting. And so we're in this meeting and the morning's going on and now we have our lunch break and the group president comes over to me and said, Hey Chaz, how are things going? And I told him, I said, Hey, thank you for this opportunity, if it's okay with you.
I think I'm probably better served to help the organization. If I just go back to my desk and knock out the work that's on my plate at which point this guy grabbed me by the elbow, dragged me into a spare room and asked me what was wrong with me. And and he said, do you understand the opportunity you have?
And I said, I do. I said, but I'm not contributing. You guys are using acronyms that I don't know. And I'm not scared of him or embarrassed to say this, but I didn't even know what EBITDA was back then. Whatever it was 10 years ago. And I said, you're using acronyms. I don't know. So I can't really control.[00:56:00]
And I don't understand some of the concepts. And he said, get back in the room. You're not going anywhere. So we got back in the room and he stood up in front of the group of all senior leaders and said, Hey, new rule, no, one's allowed to use an acronym until Chaz knows what it means. Amazing. And so that could have gone two ways and it was a coin toss.
I could have really shot myself in the foot or I could have done what I lucked into, but what I looked into was, Hey, thank you so much, guys. I promise I'll take notes. I'll promise that I'll learn this as quickly as I can please give me that extra couple seconds. And the second half of that day in the next day was the best meeting that I've ever been a part of.
Cause I felt like I was a part of it. And so owning that I couldn't speak their language at that point was a huge learning thing. Cause I, I was an alpha guy, an athlete in high school and college. I'd never wanted to admit defeat or admit my weaknesses and just that ability. Was the biggest thing I learned from that [00:57:00] mentor.
And we had breakfast about a week later and I used that and I said, Hey man, I want an MBA. And so the company then paid for my MBA and, I became an executive. It was, he was really good. The other thing that he taught me was being human. We try to posture ourselves as the experts or posture ourselves as the leaders or the perfect, member and really owning your shortcomings and communicating those just foster so much trust in the people around you.
But yeah, he, his name is Adam Johnson. He was a fantastic mentor for me.
MPD: Okay. Now you've been an executive at some of these large Corp, large organizations. How has that transition been to being a software executive at a startup?
Chas Sanders: It's a little bit of a different game. So anyone who knows me I'm not particularly tech savvy.
In fact, I'm really proud of myself that I was able to use Google Chrome. They get on this podcast with you. That's a [00:58:00] huge win. But that being said, I had spent so much time in product and service product and sales product and service. And so when we launched MARGIN, I, I brought on a development team and we built the first, first version of our software.
And initially it was just, Hey, a customer could go on, pick out the products they want to buy, put in a purchase order and it should place you orders for them. And so we spent all this time developing it. I was assured it was ready to go. The day that go goes live an hour. After I tell our first customer, they can start using the system.
I get a note from the tech firm. Hey, the whole thing just cracked. And so for the first three or four months of us being open, we had a ghost technology platform. Customers would go in place, their orders, the orders would go nowhere. They would just be stored on this little site and go absolutely zero.
And so every five to 10 minutes [00:59:00] I had myself or somebody logging in cutting and pasting that picture and then fabricating emails that look like they were from our system to every vendor and customer out there. It was a nightmare. We wasted 50, 80, a hundred hours a week just trying to make it look like we actually had a tech solution that worked.
And so I think, for founders entrepreneurs who are not, don't have a huge background in tech. I think there's a few things I could say. One, there are really affect cost-effective options in firms and people out there to help you develop and you should find them. Too. You need to invest the time to start learning how to speak the language.
And so every developer that you might work with may have different needs from you. I found one where we now know each other really well. And so when I want to upgrade something, I can take a bunch of slides, schematic it out on the PowerPoint with all the directions [01:00:00] that I wanted to do. I get it to them, they code it and have it done instantly.
You don't have to overpay. You do have to commit the effort to make things right. And I think that for me was a shortcoming at first because I just assumed whoever I talked to knew exactly what was going on in my.
MPD: And because there's a whole, there's a whole method to product development.
Sounds like you stumbled through some of the basics, but that's normal. Yeah.
Chas Sanders: And it was so crazy. I was so excited to launch the company and then the first five minutes and Hey, the site's just trash, the
MPD: classic. And you became an entrepreneur later in your career. Any major advantages of starting later?
Chas Sanders: Yeah, I think there are, you there's certainly disadvantages, but I think some of the advantages is that you have enough water under the bridge, that you have a sense of who you want to be and how you [01:01:00] want to be viewed. And I think if you don't have experience, it's hard to know what the culture of your organization or your product or your service should look like.
The other part of this is that I had built up a lifetime of relationships. That I had never tapped into. I had never asked for anything. And so when I was launching my own company, it just kept surfacing time. And again, Hey, I need somebody who knows this or does this, or knows this person pick up the phone and I can say, Hey, John DOE, I need you to introduce me to this person.
Can you do that for me? And so there's a lot of relationship that you acquire over your career. If you stay in a certain sector that you can capitalize on later for me, the medical device companies could have laugh me off the planet, but luckily I had grown up in that space and I knew almost every VP at every company, because we all grew up together in this industry.
And so when I called him, I said, look, this is going to be our volume. We're going to get here, [01:02:00] give me a flyer for a year, give me this price for my customers and we'll make it right for you. They trusted me and I had to deliver, but without those relationships I would have just had a good idea and no way to operationalize.
MPD: Yeah. So maybe what this industry needs is more people like you jumping out with a little bit more experience, a little bit more industry knowledge, a little bit more understanding of the unique processes, the regulations, et cetera, and putting their hands on it.
Chas Sanders: Yeah, I think so. I think just being a sponge is credibly important.
I, when I was a rep covering surgeries, I wanted to know everything that was going on in that room, not just the screw that my doctor was using for my product. But I wanted to know why anesthesia was looking at the EKG monitor. And I wanted to know if there was an issue on EKG, what would it look like?
And I wanted to know what the medications that were being administered would do to the patients. So I have always just been an observer of the world around me. And part of that has really [01:03:00] enabled me. So when I have a conversation with a physician, although I'm not a clinician clinically, I know what the products are supposed to do.
And I've talked to enough physicians. I know that shortcomings of one product versus another. So when I'm having a conversation with a client, we're talking about the dollars and cents, which your average entrepreneur would do, Hey, you can save this on this, but then I can say, look, if we use this product, it's a hundred dollars less than this product, but we may spend $300 for accessories that we wouldn't have to.
And so I treat it from a kind of an operational clinical business acumen level, and that's been very good for us in MARGIN. And that's what the staff are now learning. And they're emulating a lot of money that goes into health care. No one has the framework to understand healthcare. And so you could have a great solution, but you're not speaking the language like me and that long-term strategy meeting
Thanks for being on.
Chas Sanders: Hey, thank you so much for being a part of this.[01:04:00]
MPD: So I love that. I hope you did too. Really cool to have someone lay it down and explain what's happening. The healthcare industry is such a black hole and the way the media covers it and the way all of us understand that to have someone who's an insider explain what's happening at some level, it was really interesting to me.
And here's the classic ask. If you liked what you heard, please look us up with a like or a five-star review and feel free to share with a friend. You can find me on Twitter at MPD, and to hear more of my conversations with innovators, subscribe on YouTube, Facebook, or any major podcast platform. Just search for innovation with Mark Peter Davis.