Every digital health startup is a clinic now
Inside the meteoric rise in virtual provider groups
For this newsletter, I often team up with subject matter experts. This piece is a joint effort with Dr. Jonathan Slotkin, chief medical officer at Contigo Health and vice chair of neurosurgery at Geisinger Health.
It almost seems inevitable these days that digital health start-ups are becoming providers versus just selling into them.
It’s a progression that makes a lot of sense for all sorts of reasons. The famously long sales cycles to sell into providers have gotten even longer for solutions not considered mission-critical in a pandemic. And even at the best of times, convincing care teams that an app or widget will help improve a patient’s heart failure or diabetes is an uphill battle. Even when physicians buy in, as founders have learned the hard way, it’s not always clear who’s paying for digital solutions and how to embed them into the day-to-day workflow.
On the health system side, there is also a significant sunk cost fallacy around investments in electronic health records (EHRs). Many health systems have adopted an ‘EHR first’ approach to new technology adoption versus partnering with potentially better external solutions or building applications themselves. This is a strong enough force that sometimes even the potential that their EHR vendor might have a particular product on its future roadmap is enough of a reason for health system execs to want to wait.
There are a set of challenges posed by the separation between the decision-makers and the end-users at many health systems. Administrators, not doctors, typically make the calls at large hospital groups, Dr. Danish Nagda, CEO of Rezilient Health, a company working to bridge telehealth and in-person care, told us. “That’s why digital health tools that solve problems physicians face are better off focusing on recruiting physicians directly and building their own care delivery systems,” he explained.
Given all of that, the shift to becoming a virtual provider has a strong allure for startups. “We get to be fit-for-purpose for 21st-century healthcare,” Claire Meunier, COO of the Digital Medicine Society, noted during a recent chat. According to Meunier, that means that companies don’t have to do things a certain way because that’s the way they’ve always been done.
Other founders are drawn to the idea of building new payment mechanisms for virtual care, particularly as the U.S. healthcare system slowly migrates from fee-for-service to value-based care. Some founders believe that modern virtual providers will be able to innovate on value-based care faster than incumbents. Traditional providers rely on payers to define value-based care models and then determine whether to take on risk or not. But digital-first providers can become the “market makers” for value-based care, notes PeerWell CEO Manish Shah. “With data sophistication and minimal legacy business models around fee for service, virtual providers can determine where they can underwrite themselves and define new value-based care models that stretch beyond capitation or bundles,” he said.
But becoming a provider isn’t something that can happen in a few days or weeks. Start-ups are hiring doctors, nurses, physical therapists, dieticians, and other clinicians in a market where talent is hard to come by, particularly for those looking to serve patients across multiple states. And in some cases, they’re taking on the full spectrum of care for a patient’s condition, or multiple conditions, either online and/or with some element of brick and mortar. The best in the category are redesigning the experience from the ground up to take advantage of the new digital medium, vs. just working to recreate in-person health care experiences online. We also see a lot of founders thinking of the end goal as getting in-network with plans and receiving CPT-based reimbursement. But that’s far from the end game. What comes next is a new set of challenges around patient acquisition and revenue cycle management.
That said, there’s a lot to like about this explosion of digital health provider groups. In our view, it’s essential that going forward we don’t just “tech enable” existing broken health care processes. And that we take pains to ensure that we’re migrating over (and in many cases improving or making new) the best of the care quality measurement approaches that we expect from in-person care to digital solutions. That shift is still nascent.
Here’s what we’ve learned after interviewing the smartest folks in our network about standing up provider groups:
How to do it
Overall, setting up a virtual medical group involves many of the same questions as setting up both a corporation and a medical practice. But there’s often even more complexity associated with doing it - and of course, companies will need to ensure that they have the right experts around the table.
“The playbooks here are better understood than they used to be,” said Nikhil Krishnan, author of the Out of Pocket newsletter, who’s spent time exploring how to bring new tech into clinics. “A lot of these processes are getting simpler to spin up.” Companies like SteadyMD, Medallion and others are poised to become the layer to power virtual health care, making it easier to ‘rent’ networks of physicians, coaches and more. Others, like TruePill, speed up access for virtual provider groups to add pharmacy prescribing and delivery.
But all of that might not be necessary depending on the strategy. So for those getting started, here’s some questions to think about.
Let’s start by determining whether becoming a provider is actually the right decision for the patients and the business. What problem is being solved? Is there a better way to solve it than the status quo? Make sure that the direction of becoming a virtual provider is truly aligned with the larger purpose.
Hire, partner, or team early with folks that know how to do this right and at scale. Managing providers well often can be best done by people with provider operations management experience.
Map the people, processes, and technology needed to do this. For instance, founding teams will need to set up MSO/PCs and qualify them in multiple states.
Understand the regulatory and licensing requirements for the provider types & the geographies in which they’ll be practicing. Is the clinical team diagnosing and treating patients? Do they plan to prescribe controlled substances?
Determine the right vendors to work with (if any). That might be a SteadyMD, OpenLoop or Wheel, for instance, for companies looking to quickly serve patients in all 50 states. The question of whether to build, buy or partner is a tricky one. It’s not necessarily a question of funding raised or size/stage of company, notes Lux Capital’s Deena Shakir, an investor in SteadyMD, but more about the company’s deeper strategy. Some well-capitalized companies may choose to work with an external vendor for their telemedicine network, and focus their resources elsewhere. “The task of trying to set this infrastructure up can be overly burdensome even for some of the most well-resourced global companies,” she said.
Tie the strategy tightly with your approach(es) to reimbursement. Is it a PE/PMPM, direct consumer payment, carrier payment, at-risk payment, etc.? Providing credentials for providers for participation with certain payer types can be a heavy lift. Companies will need to get physicians credentialed with those health plans and also ensure they have malpractice insurance.
Have a clear vision for reproducible and measurable clinical pathways - and methods for measuring both care quality and patient experience for the care provided by practitioners. We talked to Owen Tripp, CEO of Included Health, about this recently and he shared that digital health companies have an opportunity to raise the standard vs. meet or lower it. As he put it: “Our view is that we should publish against the relevant HEDIS and other standard scores but also advance the field in terms of what’s possible in this new medium.” Included uses a firm called Veracity to bump up its quality algorithms against the larger set of standard metrics.
Have a defined plan for the EHR or system of record. And a set of tools and systems that support the clinical work.
Get the system architecture, data security, and compliance houses in order.
Figure out the patient acquisition engine. There’s no “silver bullet” here, says Shah, CEO of PeerWell, an OMERS Ventures-backed company that stood up a virtual provider group for patients with musculoskeletal conditions. Shah recommends a variety of different approaches. It might be word of mouth; it might be Facebook or even physical mail.
And it’s essential, especially in this fiercely competitive market, that founders focus not only on patient experience but also on the experience of providers and supporting teams.
“All of this requires time and capital to administer, and it’s a lot more than you might think,” said Joe Connolly, CEO of Visana Health, a virtual clinic in the women's health space.
Where do digital first providers go from here?
Firefly, a company that started in virtual primary care, recently announced that it had become a health plan for employers. That’s certainly a path and one that makes a lot of sense, as it’s a fully integrated model and a model embraced on a much larger scale by behemoths like Kaiser.
All in, what we’re seeing is more digital health start-ups taking on risk - and even looking like payers. Of course, that may vary depending on the model. “More and more virtual-first providers are talking about taking on risk, potentially through sub-capitation by carving out specific patient groups from health plans,” said Connolly. “That’s one step you can take prior to becoming a full-blown health plan that allows you to take on risk, increase your revenue per patient, capture more shared savings and increase valuation without having to administer an entire health plan.”
How we understand the progression - and often see it play out - is as follows:
Companies start with a health app
They later become a digitally-enabled provider, meaning a provider group that offers a telemedicine and/or hybrid option
From there, companies might move to become virtual-first providers that truly incorporate enabling tech into the operations of a clinical practice, like One Medical or Carbon
That might lead to a company becoming a network of providers before eventually setting up a health plan such as Firefly.
Becoming a health plan has its own important steps and nuances. Moving to a ‘capital N’ network can include critical decisions about TPA services, network composition and adequacy, and even wrap network capabilities. New entrants often partner to provide a number of these critical functions - and that works very well for some. But “renting” large parts of the network and the key pieces that make it work can make it hard to control what really matters in improving quality and value. Several entrants working in this part of the continuum are taking steps to control their networks and the services that support them more directly.
We are also seeing a trend for virtual providers to start opening up physical clinics. For instance, Thirty Madison, under its Keeps brand, just launched brick and mortar hair restoration clinics. It’s an acknowledgment that not all conditions can be treated with telemedicine. It is also a reflection that the move from fee-for-service to value care approaches continues to be slow - and that patients seeing providers in person continues to be an anchor “currency” of United States health care that is easier to get consistently reimbursed than newer approaches.
We’d like to see more companies move to conditions that require costly or complex care, and for underserved populations and conditions. Most virtual providers started out treating conditions that are, generally speaking, relatively simple and formulaic to treat (although there are, of course, exceptions) like acne and hair loss. Now, we’re starting to see more focus on cardiovascular disease, diabetes, and more. It also means that companies are moving to hiring specialists versus referring out.
Who pays for this care?
Digital approaches won’t sustain and scale if there’s not a clear path to reimbursement. Virtual and home-based care may lower costs, improve outcomes and patient engagement, but these approaches can lead to relatively decreased revenue in the fee-for-service world.
We see many companies take the route of going direct-to-consumer in the short-term while building payer contracts for longer-term defensibility. “Ultimately, I think payer contracts will be a must for virtual-first providers to improve access to care and create defensible moats,” notes Connolly. Caveat: it’s important here to mention that not all payer contracts are created equal. It’s relatively simple to set up a practice and start billing services to a plan in exchange for a standard rate. But it can take several years - often two or three - for companies to prove to plans that they deserve better than that because they’re bringing down the cost of care for an at-risk population. A good example of that is AbleTo in the behavioral health space, which takes on some of the most complex and underserved patients and does so at better rates. Health plans are much more willing to pay for higher-quality care if companies can prove that the solution really works.
In the long run, we would need to see true payment reform to create the funding mechanisms that make digital medicine, prevention, and population health viable. We predict that the fee-for-service model will be with us for some time. As we hopefully emerge from the crisis towards COVID becoming endemic, many stakeholders (providers, payers, pharma, device) will push for minimal disruption of conventional fee-for-service as a way of getting back on their feet. So companies need to consider a model that can succeed in that market while keeping an eye on and building for the value-based world to come.
Finally, and in the interim, companies should continue to explore the direct-to-consumer route. Since millions of Americans have high deductible plans with co-payments, which is a massive shame, it may be cheaper for some consumers to pay out-of-pocket. For that reason, we’ve seen companies like Ro, Hims and others grow quickly by focusing on cash payers.
There are many reasons to like this model (more on that here). “DTC is back,” said Meunier, noting that some solutions have had success getting with consumers paying out of pocket even if they are insured. “People don’t want the hassle of going to the doctor, and/or the expense of a co-pay that may even be the same as what these groups are charging,” she said.
That’s all from us this week on virtual clinics. Anything we missed? Agree or disagree? We welcome your feedback and you can reach us on Twitter @Chrissyfarr & @Slotkinjr.