Silicon Valley has been a hub of innovation for the past few decades, and Palo Alto-based Theranos is no exception. Founded in 2004 by Elizabeth Holmes, then a 19 year old Stanford dropout, Theranos is poised to disrupt the 75 billion dollar laboratory testing industry.
Their business model is simple; they developed technology which allows them to be quicker, more convenient and far cheaper than their competition.
The laboratory testing industry is currently dominated by two players, Quest Diagnostics and LabCorp. These organizations buy FDA approved equipment from large manufacturers like Siemens and Roche Diagnostics to perform physician-ordered laboratory tests. Not only can these tests be very expensive but the hypodermic needle needed to retrieve the vials of blood required can be very painful.
Theranos spent the last decade developing their own proprietary equipment that is able to not only run identical tests with the same scientific accuracy and replicability, but also with a much smaller blood sample. In fact, they can run most of their 100+ tests with only a fingerpricks’ worth of blood. And if that’s not revolutionary enough, they publish their entire testing list and rate chart on their website with rates set at 50% of Medicare reimbursement or less! In the world we live in, where healthcare consumerism and high deductible health plans are rampant, savings opportunities and cost transparency are critical.
A ferritin test is great example to look at here locally in Arizona. The ferritin test is often ordered when a CBC shows that an individual’s hemoglobin and hematocrit are low and their red blood cells are abnormal, suggesting early stage iron deficiency. The test is $9.37 at Theranos. The very same test (with an accompanying hypodermic vial draw) at Sonora Quest is $40.00. Assuming that the PPO discount is somewhere near 50% with Sonora Quest, this brings the cost down to $20.00 (still more than 2x the cost through Theranos), but why hide and convolute the true cost of the test? Such tactics make it hard for true market economics to take shape and make it increasingly difficult for our generation to be intelligent consumers of healthcare.
Healthcare costs are increasing exponentially in the United States, with expenditures of nearly 18% our national GDP. Some studies believe this number could increase to 40% by 2040 if we do not start making educated decisions regarding our healthcare. As discussed in a previous blog post, competition and cost transparency are thee very best solutions to bring healthcare pricing within realistic levels. Theranos appears to be a harbinger of great things to come. Their pricing is as transparent as can be, and their technology not only allows them to run tests more conveniently, but also at a far lesser price. Healthcare is the only industry where technology and automation actually raise prices. Cheers to Theranos for being the exception to that rule, while also having the foresight to establish a pricing model conducive to long term cost control.
For more information about innovation in healthcare and the field of employee benefits, please contact us. With years of experience in the field of benefits consulting, we can partner with you to craft a benefit package that will provide the best possible care for your employees.
Editor's Note: Since publishing this blog post, a number of issues have come to light with Theranos' blood testing technology, not the least of which was an extensive investigation by the Wall Street Journal which shed light on accuracy problems with Therano's propriety Edison testing devices and a potential cover-up which misled investors about the state of its technology and operations. Unfortunately, it seems,Theranos is not the only start-up in the healthcare and insurance space which prematurely rushed a product to market; take the case of Zenefits, covered in detail in another post.