Getting into health systems: Considerations for early-stage startups
Selling into health systems is well known to be a daunting task, and today’s environment is making that all the more challenging. We are asked frequently about the current context and what the process can look like, and here are some reflections on what we’ve seen, as well as the thoughts of some founders we know who have successfully navigated systems.
Context is for Kings
Pardon the Star Trek reference, but being able to speak to the issues we’re facing is important in building empathy and goes a long way. Health systems across the US are losing money. A lot of it. There are a variety of causes, many of which are external, but our financial distress is being driven primarily by unprecedented numbers of patients in our facilities, the cost of hiring people to care for those patients, the types of conditions those patients are experiencing, the reimbursement we receive for providing that care.
Many hospitals have been operating well above 100% of capacity for over a year. That means we have had to sustain much higher levels of staffing than we normally would. Meanwhile, there has been a nationwide shortage of labor, forcing systems to rely on agencies, or asking our existing staff to work overtime, both of which result in significantly higher expense than we planned for.
The patients we are seeing are primarily medical patients (as opposed to surgical or procedural), which means they often need to be discharged to a post acute facility, most of which are full, so patients stay longer in hospitals than they need to.
The reimbursement health systems receive is lower for medical patients than it is for surgical or procedural patients, and while our input costs have risen due to inflation and labor expense, we have not been able to renegotiate rates to reflect those increased costs.
While these are the main factors driving today’s challenges, there are more. And what we don’t go into here is the toll this is taking on our staff, who are the ones feeling the burden of seeing unprecedented numbers of patients in health systems struggling to support them. Burnout is the result, and while harder to quantify, is perhaps the much bigger problem than an operating loss. Value based care will play a big part in solving these problems long term, but many health systems are not yet positioned to lean in fully.
Up the long ladder
With all that said, innovation will continue to be a key element of our path out of this crisis, and we need you.
Choosing Wisely — Are we the right health system for you?
One of the first decisions you make about health systems is who you want to spend time with, and it’s maybe the most important. This is particularly true when exploring your first health system relationship, which generates your evidence or Proof of Concept (POC). It can be tempting to chase a famous logo, but we’ve never seen a company get very far based on the brands in the slide deck. It can also pose a risk:
Entrepreneur’s Perspective: Getting a famous research center to produce a study can be tempting. The challenge can be that academics sometimes want to do a very small and narrow study, especially around sample size — whereas with a new innovation, you actually want lots of data and a continuous improvement cycle to improve your products. Moreover it can take years to publish the results in a journal and get value from that proof point . This can really hurt startups who must operate at a high velocity. It may be better to find a nimbler health system or community hospital that’s willing to study at scale with less confines — especially one that is representative of the health systems you want to sell to.
Joshua Liu, Co-Founder & CEO, Seamless MD
The theme of careful partner selection continues to the infamous pilot phase, as well as deciding who to pursue as your first health system customer, which are often one and the same. It’s easy to say from where we’re sitting, but it may not be in your best interest to start working with the first system to say ‘yes’. Many systems look and feel similar, but there are some differences that are worth researching before going down a road with as many consequences as your first pilot/customer.
How built out is the “innovation ecosystem”? Health systems with established teams and processes around innovation will have better resilience when (not if) the relationship has its rocky moments. If your lifeline is dependent upon the enthusiasm of one leader, that individual’s political capital may not be enough to overcome expectations that aren’t met or the scrutiny of prioritizing our time and resources we are facing now.
What is the track record and reputation for that system’s work with other early-stage companies? Ask around. Any system will have its good and not so good relationship outcomes, but the ‘preponderance of evidence’ should point to a system that shows up for its partner/customer. We should be demonstrating that we want to work with you as much as you want to work with us.
Entrepreneur’s Perspective: Believe it or not, you should be willing to walk away from your first customer contract. If the environment doesn’t lend itself to a high probability of success, the downsides can kill your company. You can never recover the time and resources invested in a failed relationship, and that makes the next relationship all the harder to build.
Tom Tsang, Co-Founder & CEO — Valera Health
Build your foundation — Leave no stakeholder behind.
If you’re fortunate enough to be in conversations with systems that are a good match for you, the next important consideration is who you’re speaking to within that system. There’s no perfect way in, but for many companies there is a right way through, and that’s by building engagement from the bottom up. But don’t take our word for it:
Entrepreneur’s Perspective: “One of the biggest mistakes we made early on was approaching someone in a leadership position in the hospital first who was enthusiastic, so we signed, implemented, and rolled out to clinicians — without having engaged clinicians in the buying process. When we did go live, pushback was so fierce that clinicians refused to enroll their patients in our service, citing a total lack of awareness, engagement, or buy in. By the time we tried to repair our relationship with the clinicians, it was impossible to overcome the negativity borne out of the process. Now, we don’t move forward unless we have buy-in at the local level and a clinical champion for our service”.
Joshua Liu, Co-Founder & CEO, Seamless MD
As you do meet with various stakeholders and build buy-in, it’s vital to have differentiated messaging and to speak the language of your audience. A crisp presentation of timelines and ROI may be a winner with executives, but with clinicians it may at best sound tone deaf, and at worst alienate and create mistrust. Patient-facing staff and executives live in two different worlds, and your communication should reflect that and land with their priorities.
What this comes down to is knowing your value proposition. For a clinician, that will be showing them how this makes their life easier and allows them to better treat patients. You must intimately know their workflow, and a diagram showing how you fit in goes a long way. For administrators, have a pre-built ROI calculator with transparent assumptions and inputs. If we have to build our own or the ROI isn’t crystal clear, now more than ever you will struggle to get traction.
Measure what matters — A dashboard is worth a thousand words.
At this point, you’ve managed to build enthusiasm and belief in your product or service, and you’re close to inking the contract. Before you launch, it is critical to understand how you are being measured, and what expectations are being set. For many companies, this will show up in the Service Level Agreement (SLA).
Entrepreneur’s Perspective: “Build in both process and outcomes measures that are regularly (and reliably) reported on and discussed by both sides. Understanding what ROI looks like and how it is measured before you start working together can prevent serious friction down the road. The worst place to be is coming up short of promised outcomes, with no indicators as to why that might be happening. This void can often be filled with blame, and seriously damage the relationship. Process measures help show where things are going off track and create a constructive framework for getting things back on.”
Tom Tsang, Co-Founder & CEO — Valera Health
Hold steady — The goalposts will keep moving.
You’ve made it! Contract signed, time to autopilot this customer and move on to the next.
Except, with health systems you’ve never truly made it. Especially with your first customers, where the playbook hasn’t been written yet. Even if you’ve signed a contract, you’re likely still way out from integration and go-live, and you’re in the messy part of execution. This is when the real work begins, because your initial customers become the references for future customers.
Entrepreneur’s Perspective: “You need to give 120% to your first customers, as they can make or break your business. When you are early stage, you don’t have the resources for a full customer success buildout, so you must be doing everything and be always on and available. Making those first customers a success story is much more important than chasing new ones. Your bandwidth is limited and needs to be focused where it matters.”
Tom Tsang, Co-Founder & CEO — Valera Health
Ex Post Facto
We’ll be the first to admit this is an oversimplification of the process, but these are some of the key areas we have seen early conversations break down, and some lessons learned from those that have successfully tread the path before. There is so much to consider, each part deserving of its own article.
If there were one takeaway from all this, it’s that all these steps (and there are plenty more) are in fact trust building opportunities. A health system is ‘pitched’ by countless companies each year. Often, it’s difficult to differentiate between the value and services companies claim to provide, and most health system veterans have been hardened by companies that over-promise and under deliver. The companies that do shine through, and the relationships that endure, are those where time and energy have been invested to build trust.
This is as true for large, enterprise level companies as it is for startups. The difference is that mature companies may have the resources to survive a failed relationship, where an early stage startup may not.
What are we missing, or what elements of working with health systems would be valuable to read more about?
Find us at https://www.multicarecapitalpartners.org/, or contact me directly. We would love to learn from your perspective, so we can continue to produce content that is helpful to founders.
If you are a founder seeking a health system partner and investor, please don’t hesitate to reach out.
