Health IT, Startups

How can digital heath startups meet priorities of investors, partners?

At the MedCity INVEST conference this week, panelists from a payer, private equity firm, accelerator and digital health validation group discussed what they look for in digital health startups and offered advice on selecting a partner.

From left: Steven Collens of MATTER, Deborah Kilpatrick of Evidation Health, Marti Nyman of Innovation Center of Excellence at United Healthcare, Jim Weisman of BioEnterprise, and Mark Tomaino of Welsh, Carson, Anderson & Stowe.

From left: Steven Collens of MATTER, Deborah Kilpatrick of Evidation Health, Marti Nyman of Innovation Center of Excellence at United Healthcare, Jim Weisman of BioEnterprise, and Mark Tomaino of Welsh, Carson, Anderson & Stowe.

A panel discussion at MedCity INVEST conference this week highlighted some of the features investors and healthcare organizations look for in digital health startups, particularly the questions they address. It was a useful barometer of how much entrepreneurs have learned and how much they still need to work on in the quest for mainstream adoption.

The perspectives came from investors and partners including Mark Tomaino, an operating partner with private equity firm Welsh, Carson, Anderson & Stowe; Jim Weisman, CEO in residence at BioEnterprise; Marti Nyman, a vice president for business development and innovation at the UnitedHealthcare Innovation Center of Excellence; and Deborah Kirkpatrick, Evidation Health CEO; with MATTER CEO Steven Collens as the moderator.

Identifying and solving overlooked inefficiencies

Weisman noted that given the size of the healthcare industries, inefficiencies abound. The inefficiencies that tend to get glossed over often offer the best opportunities for startups to make a difference and can drive a tremendous amount of value for some organizations.

CoverMyMeds, a Midwestern startup from Ohio that McKesson acquired earlier this year in a $1.1 billion deal, (and which BioEnterprise works with) was feted for its wisdom in spotting a significant inefficiency — the process of having a prescription approved and the wasted time it took to fax required documents  between pharmacies and physician practices. CoverMyMeds automated medication prior authorizations for pharmacies, prescribers, payers and pharmacy benefits managers.

A critical component to the success of CoverMyMeds, Tomaino observed, was McKesson becoming a reseller for the small business.

“Small, emerging digital health companies have to grapple with what’s the best go-to-market strategy  — building a direct sales force can use a lot of capital and finding a partner who already has a significant footprint can be a great way to go….Those who understand collaboration, partnering — it’s actually the newest innovation in healthcare today.”

Asked to identify the types of companies that haven’t proven they have value for investors, Tomaino offered up this profile: “A company that wants to build a direct sales force and has something they call a ‘platform’ and they go into a health system and say ‘we’re going to allow you to reduce costs and improve outcomes.'”

Four value proposition in healthcare

There are only four value propositions in digital health and startups have to check as many as they can: You either enhance administrative efficiency or enhance productivity, enhance revenues, improve costs or improve outcomes, Tomaino noted.

“The problem in this system is what is cost to the system is actually someone else’s revenue so if you a provider and the payers, the risk bearers, are trying to reduce their costs, providers have a real problem. They either have to reduce their costs or they have to do things more productively. I think that the [digital health startups] that succeed will have to focus on improving productivity and revenue enhancement and the ones that will be very challenged focus on the harder things to do, which are improving outcomes and quality which are very hard to show. Right now, providers are more focused on improving or sustaining revenue and becoming more productive.”

Durability and sustainability

Nyman highlighted the importance of actually speaking to the target customers in a meaningful way about how and why they would use the company’s product and having a deep understanding of their challenges — a message that can never be said enough it seems. Who really cares about your product or service and how do you know? But he also noted that payers look for a combination of durability and scalability.

“What will it take to bring this to a much larger population? Scaling, especially with this system with the data requirements, the privacy requirements…it’s not as easy as you think. We are looking for real clear answers as far as how well-positioned startups are for scaling….You may have gotten an audience engaged for your diabetes management plan, but six months later what do the numbers look like? What is the follow-up rate? Because we have lots of programs but our challenge is a lot of them don’t stick. And our employer customers are very adamant that they want better answers.”

He also warned that companies at the seed stage level were far too early for UnitedHealthcare. Startups have to at least be in market and their numbers matter. Are you getting progress and is it based on more than one test site?

The risk of “hugging the big elephant”

For a lot of startups, their dream is to engage with health systems with a global reputation like Mayo Clinic or the Cleveland Clinic, but Nyman warned of the risk of “hugging the big elephant.

“I sent one company to a meeting with the Cleveland Clinic and every department you can imagine was there.

“That’s not always the best route to go and it’s not always the smart way to go. Yes, you need to get proof of concept. And if you need to have hospital systems to do that, think about easier paths,” Nyman said. “Because sometimes the big guys are too busy with their own internal politics, their own inefficiencies in terms of how they deal with startups…It will be a dead end. It is really important that you find the partners early on who will work with you and who are able to help you get things out the door quickly so you can scale.”

Photo: Stephanie Baum

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