Seth Cohen and Giovanni Colella, OODA Health

DFJ
DFJ
Oct 23, 2018 · 12 min read

The stress of an entrepreneur is that the company may disappear tomorrow.

Giovanni Colella and Seth Cohen are out to reform a broken healthcare payment system characterized by increasing bureaucracy, inefficiency, and no small amount of frustration.

Talk about gluttons for punishment.

But the two co-founders of OODA Health couldn’t have timed it any better as they take aim at a strained system that’s particularly ripe for change.

Indeed, an estimated 80% of the roughly $500 billion of the annual cost to pass money from healthcare payers to healthcare providers wind up as wasted dollars. The company hopes to reduce this waste by eradicating payment complexity and reducing administrative red tape with a technology that’s designed to guarantee both patient payments and real-time claims settlements.

These two are industry insiders with years of experience, who have learned how the sausage machine works. Giovanni co-founded Castlight Health in 2008 and served as CEO of the company until 2017. Before co-founding Castlight, he was founder, president, and CEO of RelayHealth (acquired by McKesson in 2006). Seth is one of the early employees at Castlight, who established many of the company’s relationships with their top customers and health plans.

“If we want to keep healthcare as a somewhat private market endeavor in America, the only way to do it is to embrace this as a team sport,” says Giovanni, referring to OODA Health’s vision of a system wherein payers and providers are enabled to work more closely with, rather than against, each other.

We sat down recently with both Giovanni and Seth to find out how they hope to get everyone to suit up on the same team.

Q: Where did each of you grow up?

Seth: I grew up in Los Angeles, and I should add that I was not a surfer — my dad was a surfer and so I decided it wasn’t cool to surf.

Giovanni: I’m from Milan, Italy.

Q: When you were younger, what did you want to become?

Seth: I originally thought that I would be a lawyer because my parents were either lawyers or judges. By the time that I got to high school, though, I began to think I’d like to do something internationally or in emerging markets. My stepdad traveled a lot for work and he often brought my brother and me along on his business trips. We would go out and explore while he was working. I loved being immersed in seemingly chaotic environments and trying to figure them out. I think healthcare is the one place where you can still work in the US, but it still is an emerging market.

Giovanni: My father was a photographer and I was always very influenced by art. I first thought I would be a professor of History or Aesthetics. I wound up being a psychiatrist, but I found that entrepreneurship was really the thing that got me the most excited.

Q: Giovanni, prior to OODA Health, you had a couple of other startups to your name. What lit the fuse for you knowing that it was going to require a lot of long hours?

Giovanni: To be fair, there are a lot of hours involved in doing anything in life. I don’t believe in the myth that the startup guys work 24 x 7 while others don’t. It’s just a different type of work and a different type of stress that you put on yourself.

Q: How do you compare startup stress vs. big company stress?

Giovanni: The stress of an entrepreneur is that the company may disappear tomorrow; the stress of the big company is that I could miss something and my career could be jeopardized by that, but the company will still be there tomorrow.

Q: So, what attracted you to entrepreneurship?

Giovanni: It was a series of events. I don’t think that I had a moment where I woke up one day and said, ‘I want to be an entrepreneur.’ I think that I had a vision of what I wanted to achieve and was incredibly lucky to surround myself with really great people, who think like me and keep me honest. Everything else happened from that point.

Seth: I was a pianist in high school and psychology was big in my family, so when I got to Stanford University, I thought I might combine the two as a music psychologist. I auditioned to be in the music program and got rejected. As you can imagine, Stanford has some extraordinary pianists and I was not good enough. So, I remember thinking, well, I can’t be part of the formal program but what else can I do to take classes and such? There really wasn’t that much else — I could take a master class with six other people but it was really elementary. Then I spoke with some friends who liked photography but weren’t going to major in photography — there also was nothing else for them. I saw this enormous gap. So, this was entrepreneurship out of necessity and I wound up helping to create an arts group called SOCA, the Student Organizing Committee for the Arts — which became the biggest student arts group at the university. What’s cool is that 19 years later, it is still going strong and has university funding. That was really the thing that got me interested in entrepreneurship, and I would never have done any of that had I not failed my music audition.

Q: Good teams complement each other. Talk about how you mesh your respective skills?

Giovanni: What makes us a very powerful team is that Seth and I balance each other out very well. There are different ways of being entrepreneurs. There is the entrepreneur who starts from ground zero, who is better at building the model on that — and that is more Seth. And then there is an entrepreneur like me, who just enjoys ground zero when there is absolutely nothing there and it’s a state of total chaos. If you can put the two together, it’s very powerful. It’s not that one entrepreneur is better than the other entrepreneur. It’s about being able to harness the strengths of both and bring them together.

Q: How do you handle the acceptance of risk and what role does being close to Silicon Valley factor into that?

Seth: One of the advantages of this environment is that it’s so saturated with entrepreneurs or entrepreneurial interest that it makes risk-taking so much more palatable for people who might be on the margins. If you think about it, there’s always going to be some kind of bell curve of people on the scale of risk tolerance. Giovanni might be on one extreme of total risk-taking and then there are people on the other extreme who are totally risk-averse. And then you have a bunch of people in the middle. Being in this environment, where it is so commonplace to take risks, it makes taking risk more professionally acceptable and not a lonely experience. So, you can push a lot more people who are teetering on that point into the entrepreneurial space. I put myself in that bucket.

Q: You’re both separated by a few decades in experience. How did you two come to know each other?

Giovanni: I was introduced to Seth by my wife, Vanessa. She was a junior partner at McKinsey and at the time Seth was an intern. But he was already thinking about entrepreneurship and pitched me on some wacko business idea.

Seth: Hold on. Giovanni and his wife were hosting the interns at their condo and that’s where I sat across from him. He looks the same way he does now — like a fashionable bum.

Giovanni: Those days, I was a young bum. Now, I’m just an older bum.

Seth: It was 2007, before Giovanni started Castlight. I asked him about what he was up to and he said that he was reading lots of poetry and going to the opera and I thought, ‘Wow, what a great setup this guy has.’ Later on, I had an experience that got me interested in entrepreneurship. I had a high fever but didn’t have a primary doctor. I had no clue where to go and so I took a taxi to an emergency room in San Francisco, which wasn’t necessarily going to give me the best, most expedient care for my condition, nor was it the most cost-effective route. It was the cliché “messy” healthcare experience that many people have. And it just reminded me of living abroad in an emerging market. But I thought this might be a great opportunity for an entrepreneur. When I told Vanessa about that experience, she said I should pitch my idea to her husband. So, I went to Giovanni and pitched him about funding an idea that would go side-by-side with Castlight. It was a terrible idea.

Giovanni: I don’t even remember the idea, but my wife, who I consider super smart, thought very, very highly of Seth. Second, he was clearly passionate, and I thought, ‘OK, here is somebody who’s going to go somewhere,’ and then after that he joined Castlight. He had these degrees from Stanford and Harvard, and I was absolutely certain he had the intellectual depth to be a business person. You usually need a different type of smartness for sales, but Seth went from being a junior salesperson at Castlight to serving on its board. I watched him build quite a career. So, we decided to try and start something together.

Q: What was the genesis of the idea behind OODA Health?

Seth: When Giovanni and I finally decided to work together, we didn’t have a specific idea. We debated a lot of ideas and then ultimately did what one of our investors calls a walkabout, where you go through your network and speak to different people about what’s on their minds. There was one idea I recall being very interested in, that we had discussed before, around real-time payments. I mentioned this to Giovanni and we thought it could be a very interesting thing. So, he set up a meeting with Paul Markovich, the CEO of Blue Shield of California, and asked if he would be interested in working with us around this idea of real-time claims payments. It just so happened that Paul was already thinking about this and was very excited about it. At the time, we didn’t know that he was already building a new strategy of innovation that involved redesigning the whole paradigm of provider-payer interaction and one key component was real-time payments.

Giovanni: When we spoke with Paul, his enthusiasm really catapulted us to proceed and he said that’s exactly what we need to do. We wanted to capitalize on our previous experiences, but also solve a complex problem in a unique way.

Q: Your website talks about how OODA Health intends to change the paradigm and foster collaboration between payers, patients, and providers. What’s been the obstacle to date?

Giovanni: You can’t have a winner-takes-all situation on the payer side, the provider side, or the pharma side. There has to be cooperation. With that in mind, we began looking at the touch points. Why hasn’t it happened until now? Well, we had a phase in America in the 1970s and 80s where it was fee-for-service. With the economy growing at 5% of GDP year after year since WW2, we had booming momentum, and a very good health system. Nobody really cared about the uninsured at that point because it wasn’t such a big problem. That era came to an end and payers were asked to control costs. So, two things happened. On the payer side, they were asked to control cost but not manage care. That’s like asking someone to fight with their arms tied behind their back. On the provider side, providers had free reign to do whatever they wanted for many years and then somebody without their depth of medical knowledge came and challenged the whole way of treating patients. That immediately created an antagonistic relationship which spiraled out of control because if you have to control cost without changing the way care is practiced, you have to take draconian measures that aren’t always going to be nice. And then you add in the third variable with the pharmaceutical companies trying to advance the use of their drugs. This created a perfect storm. We have reached a point that is unsustainable. The cost of healthcare in America is so much higher than any other industrialized country and the outcomes aren’t necessarily better. Americans are concluding that this has to change.

Seth: I do agree that healthcare is a team sport. Unfortunately, as Giovanni explains, the system has evolved in such a way that providers and payers are not currently providing in a meaningful way. In the past couple of years, though, you’ve seen a lot of pressure and conversation around this idea of collaboration. There are strategies that get marketed around closer relationships between providers and payers, but in reality it is still much like an arms race. This is increasingly unsustainable because everyone acknowledges that we have to work together if we are going to solve these big problems. But how do you do that if we are we fighting over a claim or a payment that’s overdue?

Q: What is your solution to this impasse? How should the collaboration process work?

Giovanni: Before I answer that, I want to mention one factor that is an encouraging sign of how things are starting to change. We now have a new generation of extremely visionary health plan CEOs. You’ve got the CEO of Blue Shield, among others, who are a different breed of leaders. That’s important.

Seth: And it’s a new generation that’s thinking about working with providers differently. In fact, there is even a new CEO of a Blues plan who is a physician. So, when I talk about working together, it’s being reflected in those new leaders. But back to your question about how we’re changing the status quo. It comes back to how you take the model today, where a patient goes in for care by a provider, and the provider incurs all this cost to provision that care and then needs to work through an administrative tail of activity. They need to figure out what the patient owes and collect it from the patient. Then they need to figure out what the payer owes and collect it from the payer. There may be squabbling, disputes, or additional paperwork. There is this administrative process that ensues after every patient encounter. So, our solution is to remove that tail completely. There are two key components: remove the need to chase the patient for money and remove the need to chase the payer for money. When it comes to the patient piece, we need to make it easier and more effective because a lot of times patients don’t pay their bills. What we realized is that we don’t think the providers should be in the business of collecting from patients. It shouldn’t be their job. The insurance company and the payers should be the ones collecting from patients, while providers focus on delivering high-quality care. So, we’re helping them do that.

Q: What’s their incentive to change? Don’t they have a profitable setup already?

Giovanni: The 2% margins of the payers’ side are getting squeezed more and more. It’s growing, but it’s not profitable.

Seth: I think there certainly are strong reasons to remain complacent. These are often monopolistic or oligopolistic enterprises that don’t face a lot of competition, so why change? I’d suggest a couple of reasons. One is this new generation of CEOs that Giovanni mentioned, who have joined these plans not so they can kick the ball down the road, but to make a real difference. Providers and payers are looking for ways to offer their patients and members affordable and high-quality care, and collaboration is the best way to accomplish it. Two, there is now competition in the space that wasn’t there before, with new players that are relatively small but gaining a lot of attention. I think the plans look at the models and say, ‘Gosh, we better make sure we are competitive or else our core businesses are at risk.’

Q: How do you relax when you’re away from work?

Giovanni: Number one is my family — my little son and my wife. That’s the best. I also blow off steam reading and riding my motorcycles.

Seth: I spend as much time as I can with family as well. I have a 9 month old and a 3 year old. Exercise is my consistent way of blowing off steam. My time to get outside and go for a run is sacred.

Q: How many motorcycles do you have?

Giovanni: Five. I was driving one of them this morning. It was awesome.

Q: Which one is your favorite?

Giovanni: I’m definitely a Ducati man. Probably the Ducati Multistrada.

Q: Seth, do you still play the piano?

Seth: It’s definitely another way I blow off steam. But it usually gets interrupted by my daughter banging on the keys.

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Backing extraordinary entrepreneurs who are changing the world.

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