Emerging healthcare business models and the new vendors they need
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New biz, who dis
In part 1 of this series, we talked about brand new markets and what to sell to them. Today we’ll talk about emerging business models in existing markets, and some pain points they face. While it may seem like a relatively arbitrary line that was drawn between those two in order to separate a post that was getting too long, I can assure you that’s exactly what happened.
A lot of vendors are purpose built for the business model of the end customer they’re selling to and the type of contract they’re in. How you get paid will dictate your workflow, which will dictate the vendors you use.
But if a new business model starts picking up steam, using the off the shelf stuff might not work as well anymore. Today we’ll talk about some segments that aren’t that new, but are trying novel business models. Not all of these will be VC scale businesses, but there are still opportunities.
Because of the nature of this post, lots of companies I’m invested in or advise are mentioned. They are denoted by the ** next to them.
The new risk-taking small business
Many more small employers seem to be shifting to level-funding or self-funded arrangements. Normally, it wouldn’t make sense for a smaller employer to become their own health insurance company because one really sick employee could bankrupt the company. Or one person that just really loves primary care I guess.
However, I think there have been ridiculously large premium increases for small businesses. I’ve heard some crazy 200-300%+ year-over-year increases from friends running their own small businesses.
Plus, small companies want more flexibility in how they design their benefits, which is hard if you’re staying fully insured because of how regulated the small group insurance segment is. The labor market has gotten particularly tight, and health benefits can be a great way to attract and retain talent while we’re currently in this absolute clusterf*** where employers control health coverage. Or, it can be a way to create different network designs for employees that might limit choice and reduce cost (or include coverage of specific things employees want).
In the most extreme version of this, some couples are “creating” their own companies just to be able to design their own type of insurance plan that isn’t available from existing carriers.
“Some insurers have allowed, for example, a husband and wife to create a limited liability company. They then count as an employer and employees, and can enroll in a small-group PPO plan. Kelly Fristoe, a broker who is licensed in Texas, has helped with some of these arrangements and calls them “micro-groups.”
However, Fristoe said some of those micro-group enrollees have moved into narrow network HMOs because the PPO premiums have gotten too expensive. Ever-higher prices from hospitals and poor negotiation from insurers, he said, are feeding into premium hikes that have become “completely unsustainable.”
“Something has to change for these fully-insured small employers,” Fristoe added. “And it’s probably not going to change at the health insurance company.”
Is there any sexier pickup line than, “let’s make a microgroup to get access to a PPO”?
The recent Kaiser Family Foundation Employer survey shows that 42% of small companies (3-49 employees) have a level funded or self funded plan this year. Last year was closer to 15%. That is a wild jump.
This new segment of small businesses taking on risk might need a lot of the services I outlined in the personalized health insurance post. They also might need help:
- Assessing vendors that come to them. Small businesses can get benefits that appeal to their very specific employee demographic (blue collar, concentrated in a specific geography, etc.) instead of ones that need to appeal to a general workforce. Nava does a version of this with their benefits search engine.
- Setting up captives or getting stop loss insurance. These are basically insurance products that protect these self-insured employers from egregiously high and unexpected medical expenses to prevent bankruptcy. Roundstone does this, for example.
- Coordinating with other small employers to set up shared benefits like near site clinics they can all use like Crossover Health and Rezilient Health. Or, creating a Centers of Excellence they can all send their employees to (Carrum Health and Transcarent seem to be doing stuff here).
- Monitoring high spend areas and analyzing claims so the employer can address them quickly. “Why has our pharmacy spend on adderall gone up so much?”, the employer demanding unreasonable release timelines asked.
Home care really took off during COVID as patients tried to avoid going to the hospital altogether. What was previously viewed as potentially substandard care became normalized nearly over night. The $8B bidding war and eventual acquisition of Signify Health should tell you how much attention is being paid here.
There are different levels of severity of home care. I think the two most emergent home care types during COVID were virtual care follow-ups and Hospital-At-Home.
Many virtual care companies are trying to keep as much care within their ecosystem as possible, but realizing they need an in-person component to do this. This can include blood draws, different types of screening tools, sending nurses to the home, etc.
Hospital-At-Home also took off during COVID thanks to CMS waivers that allowed hospitals to provide acute level care in the patient’s home and get reimbursed. This usually involves intense monitoring, lots of supplies delivered to the home, different types of staff visiting, and a physician that oversees the whole thing. These vendors are also coordinating and sending data to the other vendors, care teams, and relevant payers.
Both of these types of home care end up being relatively complex logistical operations with lots of moving parts.Just a few examples:
- Sending remote patient monitoring tools, durable medical equipment, and people to help set up and troubleshoot the equipment. Companies like Impilo, Tomorrow Health, and Better Health tackle different parts of this.
- Screening and diagnostic tools that patients can use themselves. If you can stab your brain doing a COVID test at home, you can probably do more. Kit lets users draw their own blood through fingersticks, Cue has a wide variety of assays to use at home, and TytoCare gives equipment + telemedicine to guide users through basic screens.
- Outfitting homes for fall risk patients with things like support bars, rugs that don’t slip, motion sensing lights, and couches with a lot of flowers on them for some reason. Companies like Jukebox Health and Ruby work on this.
- Staffing and sending the right person to a patient’s home at the appropriate times. Sending a blood draw, infusion nurse, nurse practitioner, etc. requires some combination of triaging the patients, scheduling, making sure they have the right tools, etc. Axle**, MedArrive, and Gento all provide different levels of home care.
- Upskilling non-clinical staff like home health aides, care givers, peers, etc. that are already in the home can help fill the support gaps. Companies like CareAcademy and Levo have been working on this.
- Hardware, software, and dashboards to actually monitor as much as possible while patients are in their home (specifically for higher acuity cases). Biofourmis has a suite that does this.
- Setting up contracting and payments for home health vendors. A lot of these businesses need significant upfront capital to get set up, invoicing can be a pain, etc.
What are other things home health companies uniquely struggle with today that aren’t served well by current vendors? If you need other ideas, here’s a list of what was required for the hospital waiver from CMS.
Direct Primary Care
Today, Direct Primary Care physicians generally charge a monthly or yearly fee in cash in exchange for longer visits, same or next day access, prescription drug discounts, and more relationship-based care that often includes the ability to text your doctor directly. They don’t deal with insurance at all. Here’s an example of what’s included and costs.
DPC is kind of like Long Island City…it’s in a constant state of “on the come up”. But maybe this time it’s really happening?
Because these providers are totally cash pay and every other vendor is focused on fee-for-service and billing insurance, new tools need to be built for them. Some examples:
- Cash pay “EMRs”, which actually look more like clinical record keeping, payment portals, scheduling, and third-party development sandboxes vs. traditional EMRs which have way more billing-focused features and unfriendly to applications built on top. Elation and Healthie have been working on this for a while.
- Practice management, customer relationship management, inventory management, managing memberships/accounts, etc. Hint Health has been working on this.
- Carhartt duffel bags to carry the fat stacks I’m paying my doctor with.
- Helping DPC docs contract with wholesalers to buy meds and labs. Rupa Health seems to do this for labs, and Cost Plus Drugs does this for drugs.
- Providing tools for them to guide patients to other cheap cash pay providers when they need things like labs or imaging, which Medmo does
- Helping with patient acquisition (e.g. getting nearby employers on board? Help build their social media presence? Kidnapping patients until they try a physical?)
- Making it easier for DPC docs to find or share usable real estate, especially as they’re just building out their patient panel and might not need it all the time. There are some WeWork for doctor companies like Lina and Clinicube, with less beer pong community events though.
- Or reimagining the entire thing and building an insurance plan that incorporates DPC from the ground up like Taro Health** is.
If the entire system was more cash oriented, what other vendors would be needed? Other than a vendor that…gives me cash.
Medicaid-focused care delivery
The last couple of years saw a ton of new Medicaid enrollees partially because people lost their jobs, because Medicaid expanded in a few states, and because during COVID states didn’t disenroll people from Medicaid (the low, consistent hum of the federal money printer assisted with this).
Simultaneously, more and more states are shifting their Medicaid members to Managed Care Organizations aka. MCOs. These are third-party health insurance carriers that are paid some flat-fee by the state per member to actually administer the plan, reduce cost/utilization, etc.
Importantly, each state has a Request For Proposal process for these different insurers and sets guidelines for what they want from the insurer who gets the Medicaid contract. Each state has different goals for Medicaid and different ways they think about quality care. This can include screening for behavioral health issues, making sure kids get vaccinated, and more recently, health equity measures.
The issue is that most of these health insurance plans don’t really have much direct contact with these members. There is no email or call that goes faster into the trash than the one that comes from a health insurer. Even calls about my car’s extended warranty will get picked up before them.
So in order to demonstrate they can actually hit these quality metrics + engage patients to make sure they’re getting cost-effective care (e.g. not going to the ER for antibiotic prescriptions), many of these Managed Care Organizations will work with care delivery companies and community organizations that actually interface with patients that are on Medicaid.
There has been a proliferation of companies that deliver care focusing on Medicaid populations, with Cityblock Health being the most well-known example. These companies typically have someone with regular touchpoints with the patient (community members, social workers, etc.) who coordinates care, screening, and non-clinical needs supplemented by clinical teams that do diagnostics, prescription writing, and escalation. My bet is you’ll see a lot more care models focusing on Medicaid going forward because of how fast the segment is growing, how locally nuanced the care models need to be, and how much more states are demanding of the Managed Care Organizations they’re contracting with.
As these Medicaid-focused care models grow, they still face a lot of pain points that might be potential opportunities. For example:
- Just getting up to date lists on who’s actually eligible for Medicaid, what their contact information is, etc. is a huge pain in the ass. These files aren’t consistent anywhere. This is particularly problematic if you’re on the hook for their care financially - it’s pretty hard to do that if you don’t even know if they’re eligible for Medicaid or how to reach them. There’s a new proposed CMS rule that potentially addresses some of these issues.
- Interpretation services for a wide variety of languages. Getting high quality interpretation that also understands healthcare in real-time is still very difficult. I wonder if developments in GPT-3 and DALL-E make this easier by representing things as pictures or doing automatic translation without a human in the loop.
- Helping patients enroll in other services like SNAP, EBT, housing vouchers, medicolegal services, etc. that they would qualify for, but may not know about. Or this could look like creating and enrolling them in totally new programs (e.g. Live Chair** gives credits to use at barbershops if beneficiaries do specific quality measure-linked activities, like see a primary care physician).
- More high intensity specialty care models that can take and manage patients with more complex conditions. This is already happening in the severe mental illness space with companies like firsthand and Amae health, and long term services and support (LTSS) with CareBridge, but you can imagine oncology, autoimmune, etc. being other areas of interest.
Medicaid patients are complex, tricky to engage, and have heterogeneous health needs. There’s still a lot of room here to better serve this population. But I gotta tell you, if you’re building in this space: be prepared for shit margins, complex patient populations, and an insane amount of state-by-state variation which inhibits scaling. Just writing that out makes me crawl back to the safety of newsletter writing.
Value-based care pharma/med device
The powers that be have been talking about value-based care (VBC) contracts for pharma and medical devices for a long time. I know I’m going to stun you when I say they aren’t widespread yet.
However, we seem to be inching towards a future where drugs and devices have some form of outcome attached to them. Drugs (especially curative ones like gene therapies) are extremely expensive upfront, so manufacturers are starting to make guarantees about their efficacy. Hospitals that are at-risk for patient outcomes (e.g. in a bundled payment program) want their med device manufacturers to share the risk. And both pharma/med devices want to stand out in massive chronic disease markets where their products are commoditized. Below you can see some examples in diabetes from this IQVIA report.
In any case, value-based contracting is a pretty new territory for pharma that requires more than just selling the product. Some new pain points that might be opportunities for companies:
- Contracting and adjudicating payments is going to be a pain in the ass. Figuring out when milestones get paid, how rebates get factored in, how contracts interact with each other (e.g. some contracts like Medicaid ensure they get the “best price” across contracts), potentially adjusting the amounts based on disease severity, and other issues make this less than straightforward. Companies like PharmaCCX are tackling some of this on the pharma side.
- Having supporting software that can help providers/payer screen for patients that are good fits for a given drug or device. There’s less room to “fuck around and find out” in an outcomes-based contract, so you have to make sure the patients are a good fit.
- Providing different levels of support services for patients using a different device or drug (known as hub services). Ensuring adherence, having call centers/staff that can check in on the patient, navigating insurance, and other forms of support are important to the success of an intervention.
- Creating and monitoring the correct biomarkers. Clinical trials will measure improvement of the disease for some metric, but there’s a host of other things you might want to measure that are relevant (adherence, patient reported data, quality of life metrics, etc). Finding metrics both parties can agree upon for success is difficult and might require creating new metrics to measure. For example, Zimmer Biomet uses the Apple Watch for their myomobility product that measures a patient's gait at home, and several pharma companies are exploring measuring itching using wrist-worn devices.
Clearly there are challenges to getting VBC contracts right, but maybe new vendors can help solve these issues and move us towards outcomes-based payment models in pharma/med devices. As Drake said, “you lose some you win some, as long as the outcome is income.” But he also said, “bills so big I call them Williams”-- so actually nevermind.
Hopefully, this gives some of you ideas on where to potentially build new companies. You’re betting that these new business models actually take off and become large enough to support a vendor that caters to them. In healthcare, that can be a tough bet, but lucrative if you get it right.
Nikhil aka. "New Biz On The Block"
Other posts: outofpocket.health/posts
Thanks To Morgan Cheatham, Dhruv Vasistha, Tricia Garland, and Frank Wu for looking at drafts of this
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