Unlocking the Payer Channel
We recently hosted a panel that discussed how to partner with healthcare payer systems, featuring Mika Eddy (CEO of our portfolio company Malama Health, and a former Director at UnitedHealth Group), Michael Ellis (VP of Corporate Strategy at Blue Shield of CA) and moderated by Laura Finney (Coyote Venture Fellow and Senior Manager at Oscar Health). The views expressed in this blog post are topics discussed between the individuals who participated, and do not represent the views of the organizations they represent.
Our Fireside Chats aim to be transparent and tactical sessions to provide founders valuable lessons for navigating the digital health landscape. Navigating and engaging with payers is an essential, and yet sometimes obscure, aspect of operating in the healthcare space. We wanted to demystify some of this, and talk about how startup founders can effectively sell into and engage with payers.
What are the types of payer contracts / relationships that startups can pursue?
We can segment the types of payer contracts between 1) provider contracts, and 2) vendor contracts. Some considerations for pursuing each of these:
Provider contract: A provider contract will reimburse for medical, billable, services. These contracts can be constructed as fee-for-service (FFS) or value-based arrangements. Provider contracts will typically follow a more standardized process with payers; payers have thousands of providers in their network and therefore apply less scrutiny to new provider additions. As a result, this can be an easier and faster way to get a foot in the door with the payer. However, there will be less flexibility on reimbursement, and you can’t get reimbursement for non-billable services (e.g., app platform).
Vendor contract: Vendor contracts will allow for more interesting reimbursement models and flexibility around the payment structure. There is also greater room for negotiation in payment. However, startups should expect a longer sales cycle this route, as there will be more hurdles to overcome in proving ROI of onboarding as a vendor.
What pricing strategies should we look at as a vendor?
Examples of pricing models can include: a PMPM (per-member-per-month) fee, annual licensing, or risk arrangements.
Mika suggested focusing on what the goals of the engagement are. If the goal is to drive care coordination and patient engagement, then a PMPM / licensing fee can work well. If there are specific care outcomes that startup and payer can agree on, then a payment model could be to put some fees at risk with an incentive bonus for reaching those desired outcomes.
Michael recommended to be cautious with shared savings arrangements, as these can be very complex and require actuarial analysis to manage appropriately. Instead, focus on creating payment models that are simple to implement and understand, and based on clearly defined, objective measures.
What are the tablestakes I need to begin contracting with payers?
There is no “right time” to begin contracting with payers, and early stage startups can and should form payer relationships. The key is to find the right plans with the right executive sponsors who will see value and push for this engagement to go through.
Certain tablestakes to think about include:
Cybersecurity: Ransomware is top-of-mind for all payers right now, due to the amount of cyber attacks increasing each year, and the importance of HIPAA compliance. Payers will expect any vendor to have policies, procedures, and protections in place to prevent breaches, and to sign a BAA (Business Associate Agreement)
Legal counsel: Counsel that has deep experience in healthcare and commercial contracting will be invaluable in navigating the legal contracting process
Tips and tricks for getting in the door with payers?
Use your network. Cold outreach can work, but warm introductions are always beneficial. Leverage your advisors, board, and network for introductions wherever possible.
Attend conferences. Recommended conferences that can facilitate introductions with payers include: AHIP, HLTH, domain-specific conferences (e.g. ADA for diabetes care), and state/local health plan association meetings. The panelists felt that the domain-specific conferences can often be more effective, because they tend to be more intimate and attendees are already bought in to the importance of the topic, which can help cut through a lot of the noise generated within the larger conferences.
Have an internal sponsor (or a few!) inside the organizations you’re hoping to work with. Sales cycles can be long, ranging from 6 months to multiple years, and various champions from within the organization who will continue to push a partnership forward can be critical for getting to a deal. Multiple champions will help protect against losing ground with the multiple obstacles that come up.
Know the business. Conduct deep research on the organizations you’re looking to partner with, and go into conversations informed of the type of partnership you’re seeking. Understand the nuances between a payer’s lines of business (employer vs Medicare vs Medicaid) and the specific audience that you’re looking to target.
Move fast and flexibly. Payers will likely have layers of governance and approvals for making a deal, and particularly for deviating from their normal contracting standards. This will add time to the sales cycle. Without overpromising on terms that can’t be delivered upon, move fast and flexibly to take advantage of momentum from the payer. The first contract is always the hardest - do what you can to get it signed!
Pitch a contract. While pilots can be valuable, Mika warned us against getting caught in a cycle of never-ending pilots. Frequently the difference between a pilot and an actual contract is cementing it as a real contract. To do this, pitch it as a contract, and connect all of the dots for the payer so that they are not doing the work.
Don’t overpromise. Overpromising to get the sale is dangerous, and risks credibility to your company if you are ultimately not able to deliver.
How can startups continue to drive further engagement with providers once contracted?
Communication and transparency is key - you can’t overcommunicate with customers and sponsors, even after the contract is signed. Have the right governance model in place to manage the partnership effectively, including an owner of the relationship, and consistent scheduled meetings between your team and the payer (including your sponsor at the payer) to go over success and obstacles. Share data and dashboards on the metrics you’re tracking towards. You want to follow a land and expand strategy, and do so by showing results and talking about what other problems you can solve together.
We hope this fireside chat series continues to be valuable, and we look forward to seeing you at our next session on partnering with employers!
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