The guy who battled Republicans over Obamacare is investing in health tech for the 99 percent

Key Points
  • Meet the next venture capitalist that wants to fix the U.S. health care system.
  • Andy Slavitt is the former Medicare and Medicaid chief, and now has moved back to Minnesota to start a fund.
  • He wants to invest in start-ups solving "real human problems" and not the next Fitbit.
Andy Slavitt
Al Drago | CQ Roll Call | Getty Images

Andy Slavitt has been called a renegade, a rabble rouser and a policy wonk.

Soon, he might be known by a new title: Venture capitalist.

Slavitt made a name for himself as the entrepreneur-turned-Medicare chief who took on Republican lawmakers seeking to repeal the Affordable Care Act.

When members of Congress declined to hold town halls to educate their constituents about the pros and cons of the health bill, Slavitt showed up instead. On a tour of the country, Slavitt made appearances in towns ranging from Cleveland, Ohio to Reno, Nevada. His answered questions, broke down policies, and urged anyone who attended to write their senator to block the Republican health bill.

While traveling the country, he refined his investment thesis after hearing from everyday Americans about their health woes and anxieties.

"We need to stop investing in the third Fitbit for the 50-year-old upper-class person and start innovating for people who have common diseases and conditions, but live in communities with low access to care," he said.

Slavitt has now returned to his home town right outside Minneapolis, Minnesota, to invest in ideas that will improve the health care system. CNBC caught up with him about his new fund, which is still in the development phase. He declined to share his limited partners or the funding amount at this stage, as he's still in the process of recruiting partners to join him.

He's starting out with a clear population in mind: The oldest and sickest people in America.

'Real human problems'

While running the Centers for Medicaid and Medicaid, Slavitt did not lie awake at night worrying whether the prototypical Fitbit or Apple Watch user met their step goals. People with chronic conditions, like diabetes and heart disease, account for 86 percent of America's health care costs.

"We need to talk about real human problems," he said.

His first investment, in an Alphabet spinout called Cityblock, is in the ideal space. Cityblock isn't treating patients yet, but its goal is to help low-income Americans with costly and complex needs access a range of services, including housing and support.

Cityblock isn't a purely philanthropic enterprise. The company sees a path to make money by taking on the risk of these populations, and delivering better, more affordable care. The idea is that a company can put forward a proposal to a payor — like the government or an employer — describing how it will bring down costs. If it can deliver, the payor shares a portion of the amount saved.

Many investors in Silicon Valley don't take on these challenges as they involve working with the federal government, both as a payor and potentially as a regulator.

Instead, wearables, calorie-counting apps, and nutritional supplements have proven more attractive to those who are looking for a quick return.

As Slavitt puts it, this is technology that "chases the wrong problem."

And despite what investors think, financial returns from these more popular start-up ideas might also be limited.

The government remains the largest single payer of health care in the United States. And if Slavitt has his way, that will not change anytime soon — he's also running a nonprofit called the United States of Care to promote the idea of universal health care.

The one exception to this rule is Medicare, which covers the bulk of insurance costs for people age 65 and over, thanks to a type of health plan called Medicare Advantage or "Part C". Under these plans, the government picks up the cost, which gives the private insurers a steady stream of revenue.

The most-capitalized start-ups in the space include Clover Health ($425 million in venture capital), Bright Health ($240 million) and Devoted Health ($62 million).

So Slavitt is putting his attention towards Medicaid, the state and federal program that provides health coverage for low-income Americans, and has received very little attention from Sand Hill Road.

To do that requires a shift in thinking, says Slavitt. The biggest change is that entrepreneurs need to treat health and human services as one thing. Poverty, homelessness, substance abuse, poor nutrition and so on, are deeply correlated with health problems. Sending a patient home with a prescription isn't going to fix the problem.

"If you can help a hospital take care of a patient in the community, everyone saves money and everyone wins," he said.