Startups, Health IT

Outcome Health: The fall of a healthcare unicorn and the road ahead

Here’s how the Chicago startup that raised $500 million and accorded unicorn status stumbled amidst charges of deception, and what the task ahead is for its newly-appointed CEO from the advertising world.

In the business world, a unicorn is a rare breed, especially more so in the world of healthcare. Outcome Health based in Chicago reached its own unicorn status a little more than a decade after it was founded in 2006 by Rishi Shah and Shradha Agarwal. But its downward spiral came shortly after it reached its highest peak. The company made numerous poor decisions and allegedly attempted to mislead its customers with the knowledge of Shah and Agarwal.

Now the question is whether Outcome Health’s newly-minted CEO can orchestrate a turnaround. But given that two healthcare unicorns — Theranos, whose CEO and COO now face criminal charges and now Outcome Health have stumbled with issues of trust, it’s worthwhile to probe how the latter faltered. [This reporter also wrote a glowing profile of the company in July 2017, so a follow-up is well warranted.]

Outcome Health’s entire business is placing digital screens in physicians’ offices with an aim of educating patients and selling ads. Think of it as a digital billboard for pharma — not an earth-shattering idea, but then pharma marketing budgets are large and the industry is always looking for ways to get close to the patient as the consumerization of healthcare takes hold. This is direct-to-consumer advertising in a clinical context as opposed to ads on TV where the consumer may be more distracted.

For physicians, the value comes from the content on the devices that can help patients learn more about their condition and be better engaged during an age of increasingly shortened appointment times. 

In a recent phone interview, Ted Chan, founder and CEO of physician rating site CareDash, said he believes Outcome’s business is unique, due in part to how close its offerings — the screens — are to the point of care. Chan said he and CareDash don’t have any financial ties to or relationship with Outcome.

The unicorn’s rise began slightly more than six months after it acquired Accent Health, another healthcare content provider, in late 2016. In May 2017, it closed its first financing round of $500 million, propelling it to a $5 billion valuation and its unicorn status. Investors included Goldman Sachs Investment Partners, Alphabet’s growth equity investment fund CapitalG, Leerink Transformation Partners, Pritzker Group Venture Capital, Balyasny Asset Management and others.

Things were all well and good for a while as Outcome continued its quest to expand from 20 percent of physician practices to 70 percent by 2020 and raked in venture capital dollars. 

But by last fall, the company’s decline began. In September, it laid off about 76 employees. The next month, a Forbes article found some of the startup’s customers weren’t satisfied with their service. Apparently, Outcome Health made deals that promised pharma companies — like Biogen and Pfizer — specific financial returns that didn’t always pan out.

But the problem seems to have run deeper than an investment that didn’t yield returns. Wall Street Journal piece detailed how Outcome misled advertisers. The article said some of the startup’s employees “provided inflated data to measure how well ads performed, created documents that inaccurately verified that ads ran on certain doctors’ screens and manipulated third-party analyses showing the effectiveness of the ads, according to some of these people and documents.” Three employees were thereafter put on paid leave amidst an investigation.

“From a business ethics perspective, I think what they did was certainly unethical,” Chan said, noting that the tech world’s obsession with unicorns likely led to both the company’s rapid rise and dramatic fall from grace. “To immediately have something of this scale come out just created a very big supernova of negative publicity for them.”

Toward the end of last year, things got worse.

Some major advertisers stopped doing business with Outcome Health, and a few investors who participated in the company’s Series A round — including Pritzker Group Venture Capital, an investment unit of Goldman Sachs Group and Alphabet’s growth equity fund CapitalG — decided to sue. The complaint detailed what the plaintiffs described as fraudulent activity:

Upon information and belief, Outcome Health is able to remotely capture screenshots of tablets or screens in doctors’ offices. Per contractual requirements with certain clients, Outcome Health provided these clients with screenshots purportedly showing that their ads had run in doctors’ offices. However, rather than using actual screenshots from doctors’ offices, Outcome Health would sometimes use screenshots of an ad from its own employees’ computers, edited to add a timestamp and doctor identification number to make them appear genuine.

The suit also called Shah and Agarwal and Outcome Health to return their investments in exchange for tendering their shares. Among the funds raised in the Series A round, $225 million was supposed to be given to Shah and Agarwal and held in a subsidiary of Outcome Holdings.

The complaint noted that “Had plaintiffs known the truth about Outcome Holdings and Outcome Health, they never would have made their investments.”

Soon enough, healthcare groups like the American Medical Association, CancerCare and the American Epilepsy Society cut ties with Outcome, ending agreements to provide any content. Additionally, more than one-third of the company’s employees — or about 200 individuals — took buyouts last November, according to the Chicago Tribune.

There was nothing happy about the new year either for the already embattled startup. The Tribune reported Illinois suspended a tax credit agreement with Outcome Health. The deal was through the Economic Development for a Growing Economy program, which gives tax breaks for companies that pledge to create jobs in the state.

At the end of January, the company resolved the lawsuit with its investors. As part of the settlement, Shah, Agarwal, the investors and lenders agreed to reinvest $159 million in Outcome Health. When asked about the lawsuit via phone, a CapitalG spokesman declined to comment but said it continues to believe in the business. An investor at the Pritzker Group declined to comment. A Goldman Sachs spokeswoman did not immediately respond to a request for comment.

As part of the settlement, Shah and Agarwal initially agreed to step down from their respective positions as CEO and president while still remaining with the company, though that has changed as of earlier this month. COO Nandini Ramani, who previously worked at Twitter, briefly filled the CEO role in the interim.

And that’s not the only lawsuit Outcome has had to settle.  

Another lawsuit dating back to March 2016 charged that the company’s previous incarnation — ContextMedia — violated the Telephone Consumer Privacy Act by continually sending automated daily nutrition tips to people who signed up for the service. The suit said Outcome kept sending automated texts to people who had repeatedly requested to opt out. In April, the Chicago startup agreed to pay $2.9 million to settle that suit.

In late May, Outcome brought on a group of new individuals to its board of directors, including Mike Gamson, LinkedIn’s senior vice president of global solutions; Robert Pelzer, former president of Novartis Corporation; Matthew Ray, founder and managing partner of Portage Point Partners; and Robert Schriesheim, Truvax Partners’ chairman.

Earlier this month, the company announced Matt McNally, the group president and chief media officer of advertising company Publicis Health, has been tapped as CEO, effective June 25. Meanwhile, Shah and Agarwal have resigned from the board and are no longer part of the company they founded.

With its co-founders out, will McNally be able to resurrect the business after all it’s been through?

When Chan first heard the company had tapped McNally, he did a bit of a double-take given that his experience in the industry is limited to healthcare advertising. But upon further reflection, he thinks selecting the former advertising executive is a move that makes sense for the Chicago startup. The decision, he said, is about having someone who can reestablish trust with advertising agencies.

Eileen Wixted, principal at strategic communications and crisis management firm Wixted & Company, offered some thoughts on how the new CEO should proceed, including meeting each customer to reaffirm the trust that they have placed in the company.

“A new chief executive officer has a limited timeframe to redefine and rehabilitate a company that has been mired in allegations of misleading customers and investors,” she wrote in an email. “Working within the healthcare profession, trust and candor are important at every level.”

McNally should ensure Outcome’s business practices are ethical, reshape the company culture and communicate that there’s a new way of doing business, she said, noting that it’s key to remember that “operations lead communications.”

“Along the way, he will need to acknowledge past challenges, eat some humble pie and consistently communicate the value of the company,” she declared.

Outcome Health’s representatives did not make McNally available for an interview, merely pointing to the news release announcing his appointment.

Chan, for one, believes the company taking steps in the right direction as far as recovery is concerned.

The situation is now about rebuilding the advertising demand since the screens Outcome offers aren’t going away anytime soon. “There are no doctors’ offices saying, ‘Because this happened, we’re going to rip these screens out,'” he said. Though it may be the case, he said, that the saga opens the door for another vendor to come in and compete with Outcome.

Still, Chan did note that the startup is “certainly going to have trouble hiring and retaining talent” going forward.

Photo: xmocb, Getty Images