Can Theranos pivot to become a blood test lab (if it hasn’t already)? To see if their low prices can be sustainable, I compared some of them against Japan’s nationally mandated low fees. (Japan’s healthcare cost is 10% of GDP, as opposed to 17% in the US.) Above chart is the result. For 41 tests I compared, Theranos tests were 2.5 times more expensive on average than the same tests in Japan. While this doesn’t prove Theranos-as-a-test-lab would work, it’s reassuring.
I have followed Theranos with great interest since the beginning of 2015. When the company and its CEO started to show up in the media, I was surprised how seemingly out of nowhere it sprang up. Looking into its history, I was even more surprised that the company was founded and raised several VC rounds during the time when I had ongoing projects in the blood testing area. For ten years or so then, I talked to many people at medical device companies, academia, test labs, hospitals and so on. I was stunned that Theranos had raised so much with a premise of technology that sounded unattainable.
Regardless, I went to Theranos test location inside Walgreens in Palo Alto before it closed, to get tested for vitamin D level. The experience was very smooth. There was a price list for all the available tests, and vitamin D test was only like $10. I was fully expecting to pay out-of-pocket, but their onsite phlebotomist (someone accredited to draw blood) checked my insurance and told me it was covered. A day or two later, I went to their website and entered my code and got the result.
The most astonishing part in the above paragraph is that Theranos was able to check insurance coverage before the test. If you are not American, you may wonder what’s so great about it. Well, in the US, more often than not you don’t know how much a blood test would cost before you get it done. Weeks after the test, you receive a bill in the mail and that is when you find out. It can be unexpectedly expensive. Once I had a couple of blood tests and had to pay over $200 out of pocket without having any significant illness.
I knew Theranos had been using other manufacturers’ diagnostic devices instead of their supposedly revolutionary machine. But that’s OK by me. As long as the tests are accurate (though this is greatly disputed), I don’t care how they are done.
US test labs have consolidated and there are only two major companies left: Quest and LabCorp. They are competing on price as fiercely as any proper oligopoly should be. Theranos can be the third major test lab with disruptively low prices, which sounds like a great business plan unless Theranos’ low, low, low prices are just a VC-subsidized illusion like Webvan (or many services now available in San Francisco.)
In Japan, insurance reimbursements are dictated by the government. And they are cheap. While there are endless problems in their healthcare system, it is still functioning. As in the chart on top, Theranos’ prices are a lot higher than those offered by somewhat-functioning Japanese medical industry, and could potentially make a sustainable business in the US.
side note: Japanese medical system
American people associate government-controlled affordable healthcare with low accessibility where wait time can be months long. In Japan, however, it’s cheap and accessible. Since hospitals and doctors are in private sector, they are kind of forced to compete on quantity and usually try to see as many patients as possible. This sometimes causes quality problem, but, generally, the level of care is not too bad. My 92-year old grandmother in Tokyo got a barrage of tests including MRI for her 80-year checkup for free, and now goes to a senior daycare four days a week with a van picking her up in the morning and dropping her at the end of the day, and the care facility provides daily photo-album of her activities such as cooking, excursion, and crafts, so that the family members know what she was up to every day. But I digress.
For anyone interested in healthcare system in Japan and other countries, The Healing of America is an interesting read.