Show Me the Money: How To Get Paid In Healthcare (Part 2 — Providers)

Healthcare is one of the only industries where the consumer of the product / service is usually not the one who pays for it. Understanding who pays for healthcare is important in bringing innovation to the space that’s lasting.

This is a series that aims to help start-ups, in particular those with tech founders who are entering healthcare for the first time, get up to speed on the basics of healthcare commercialization.

To review, healthcare services and medical devices are sold to three major categories:

1. B2C: the consumer (the smallest)
2. B2B: the provider
3. B2B: the payer

There are also business models that sell to medical device companies, but ultimately this is really a corollary to the above 3 to enable them to sell their products better and gain more market share

This is part 2, where I’ll deep dive into providers. This is the bulk of where innovations are sold to and delivered to patients, and where I personally have the most expertise

B2B: The Provider

What they care about: providers want to provide the best care for patients, but they are also balancing a business (even if non-profit) of revenue (reimbursements) from payers vs. the cost of care.

• Previously in a full fee for service space, attracting more services meant more revenue, as such they looked for new technologies and services that attracted patients. However, this model has not always been the best for the patients and caused a ballooning of our healthcare costs.
• More and more so the US is shifting towards value based care — where the providers are paid a set amount for a certain episode of care (e.g. knee replacement), including all labs, imaging, surgical, and recovery, as well as re-admissions costs related to the episode. With this, providers care about providing the best care for the lowest cost by decreasing complications and making sure the job is done right the first time, without excessive services that may not be marginally beneficial. In this world, providers are interested in technology to can provide benefit for the lowest cost (e.g. virtual care vs. in office visit, minimally invasive surgery over open surgery, and software / tools that allow for better patient management). Providers get paid by attracting the right patients for the profile they can manage

Types of Providers:

• Large hospital networks such as HCA, Providence, including accountable care organizations like Kaiser and Geisinger that provide both the insurance and the care
• University hospitals and specialty centers such as Stanford, UCSF, Memorial Sloan Kettering

• Community hospitals (though they are gradually getting consolidated into IDNs)
• Specialty centers for particular services in various sizes, such as imaging (Radnet, RadPartners), surgery (Ambulatory Surgical Centers, Rothman for Orthopedic), labs (Labcorp, Quest), etc, some of which are for-profit and private equity owned, and can be a quicker entryway relative to the hospitals

• Often times the sale here doesn’t end to the facility (e.g. any type of procedure or lab related reimbursement) but rather at the provider level to choose your device over your competitor’s — this is why field reps and field marketing are very important in many of these sales to drive procedure volume

Most healthcare companies sell to this segment so there are too many to list, but some categories include:

• Surgical technologies such as Intuitive Surgical, Tenex Health (another former employer), Stryker, Medtronic, J&J, etc; these are typically procedure based so the sale in not just one time but rather on-going with the providers who may have a choice of what’s used on every case

• Diagnostic hardware and software, from GE, Siemens, Philips, Butterfly Networks and Caption Health for ultrasound, Heartflow for heart disease, to my former employer: Subtle Medical, which sold a Saas software subscription in the medical imaging world
• Lab based diagnostics such as Karius and Natera; these, similar to surgical procedures, will be based on volume so is on on-going sale to ensure providers are prescribing them to the appropriate patients

Compliments of Heartflow — FFRCT demo

• Enterprise software that are either sold to IT or heavily involve them, such as EHR systems (EPIC), PACs companies (Sectra, Intelerad, Change, etc), and the recent trend of telehealth providers and a variety of other companies enabling greater care at home

Analysis compliments of Daniel van den Bergh at Kaiser Ventures

• In recent years, software vendors that use AI / data analytics to help providers operate with better results, communicate better, and provide better care (e.g. Kela Health, Qventus, Collective Medical, etc)

Qventus Dashboard for Hospital Optimization

Limitations: Hospital sales can take time, large chains and academic centers can take from 12–18 months, while even a community hospital will take 6–9 months. While experience, rolodex, and having case studies can shorten this as much as possible, start-ups need to go into this space with eyes wide open and plan their revenue cycle accordingly.

Part of the reason why selling to providers take so long is that it’s often a multi-stakeholder sale. You have to prove your solution clinically (unless you stay purely in the back office), establish ROI so they pay for it from their operational budget or have reimbursement (which by itself can take 4–5 years to get adequate coverage after getting a code), and convince IT to share with you patient data (the more data and deep EHR integration, the longer the sale and deployment cycle).

Opportunity: While it can take a long time, this is really one of the main drivers of healthcare adoption that’s closest to the patient, and pretty much a must-have for many new technologies. B2C solutions that involve remote patient monitoring or virtual care can significantly scale if adopted by a large provider network that will then introduce it to their patient base. Once you get a few reference accounts and pave the way towards reimbursement, you can create a significant moat against new entrants. Furthermore, there are ways to shortcut this if you can leverage some of the specialty centers that tend to focus more on operations, or GPO relationships to gain scale.

There are too many companies to list, but have I missed any general categories that are sold to providers?

Stay tuned tomorrow for Part 3: B2B Payers