Why We Incubated Switchboard Health

Two years ago we saw a big problem in specialty care. The more time we spent in the space, the more conviction we gathered that a new type of platform needed to emerge. Today, on the heels of Switchboard Health closing its seed round, we wanted to share our thesis behind why we think the world needs Switchboard.

Our Thesis

What is the state of specialty care today?

Specialty care is a vital part of the US healthcare system. Anywhere from 10% to 25% of ambulatory visits result in a referral to a specialist today. This rate has been steadily growing over the past few decades. With our aging population, this rate is likely to skyrocket.

The supply of specialist time has not been able to keep up with demand. Patients are waiting months to get care. This is driven by a number of factors:

1. Specialists are not “operating at the top of their license,” often spending too much time on admin and/or care that could be better delivered by a different type of clinician.
2. Specialists are burning out/retiring, and there isn’t a new supply of providers joining the workforce fast enough, especially in the areas we need them most.
3. Specialists don’t want to practice in the markets that need them most.
4. Today’s medical system fails to act proactively and is forced to reactively manage chronic care, which puts undue pressure on specialists.

The supply/demand imbalance is driving up costs to payers. Of course, those costs are ultimately punted back to the patients or the government (which are also ultimately absorbed by patients via taxes).

This increase in specialty spend has led to an influx of disruptors (many venture-backed) seeking to help.

Put together, this is what we saw…

… a fragmented system, where incentives aren’t aligned and all stakeholders have challenges. The risk-owner spends too much time managing a network and still ends up paying too much for specialty care (relative to value), providers spend too much time managing referrals, and, most importantly, patients don’t get the care they need.

Despite amazing companies coming to the rescue, specialty care is still broken.

Access

Everyone has probably experienced a doctor giving them a referral, and then thinking, “Now what? Who should I go see? Will they have availability? Are they any good at what they do? How much will it cost me?”

Many companies are trying to attack this challenge via navigation, telemedicine, referral management solutions, etc. However, despite these solutions today, finding a high-quality, in-network specialist that has availability is still WAY harder than it should be.

Some of the key reasons these solutions aren’t solving the problem is that the solutions:

1. Are rarely tightly integrated into existing workflows → how does the PCP or payer easily connect to these solutions?
2. Have to battle data quality and interoperability challenges → how does the patient know if a specialist is actually available and in-network?
3. Don’t change the underlying capacity of the existing network and provider availability → How do I get a neurologist appointment if there is no supply?

This lack of access isn’t just bad for the patients that need the care, it’s impacting outcomes and payer quality scores and is creating additional administrative burden for providers.

Care Model

Today, specialists spend too much time on patient tasks that are not purpose built for their specific skillset. Incentives and dynamics in specialty care make it challenging for specialists to provide additional support and services that many patients need.

There are a lot of tech companies (disruptors) that are now trying to improve outcomes and access to specialists by building new care models that more efficiently use lower-level clinical staff and technology.

Typically we see three go-to-market strategies for these companies:

1. Creating a wraparound service that partners with traditional specialty providers and enhances their existing care model by providing additional services.
2. Creating a wraparound service that partners with PCPs to help them manage conditions that were traditionally managed by specialists.
3. Creating de novo specialty clinics.

But these models need to either:

1. Win the patient, i.e., convince the patient to join the disruptor clinic, which has proven to be challenging and capital intensive.
2. Win the provider, i.e., create a simple referral pathway or sell the provider on an integrated “wrapper” service. This strategy has also proven to be challenging, since any one disruptor may only be solving for a small percentage of the provider’s panel and the disruptor has to battle other companies trying to sell to the same provider (how many wrappers can a PCP have?).

As a result of these challenges, many of these companies have experienced limited adoption of their high-value care models that we know improve outcomes, scale providers, and free up the limited supply.

Financial

Today most specialty care rides on a fee-for-service chassis. We are starting to see the rise of bundled payments, which can work well in certain areas, such as surgery. Much of the spend on specialty providers, however, is in chronic conditions where neither model works because there is a need for many little touch points that don’t fit well into a defined “episode.”

Enter the promise of value-based care where providers are compensated for the outcomes that they generate, right? Not so fast!

When a patient with heart disease shows up at the ER, who gets attributed the cost? The primary care doc? The VC-backed cardiology start-up? The large nephrology group? Without a clear answer to this “fight for attribution” question, value-based care will not be the silver bullet we need in specialty care.

Integration

When a referral is made today, the care plan very often goes into a dark void. Outside of integrated health systems (and even there, not always), PCPs and specialists rarely collaborate on care plans.

This lack of collaboration is partly driven by interoperability challenges and a lack of workflow solutions — both of which new start-ups are starting to tackle. However, even if data flowed seamlessly and workflows were effortless, providers are still not incentivized to spend time working together.

So how do we make specialty care better?

When we thought about what the world of specialty care needed to look like, this is what we imagined…

An integrated system, where all parties collaborate and are aligned on the outcome of the patient. If this sounds a lot like a Kaiser-style model → we had the same thought. So we said…

We need an orchestration layer

How do we create infrastructure to allow any organization to create an integrated network that operates on a value-based chassis without having to own all the specialists and design all the care models? How do we create almost a “de-centralized Kaiser?”… We need an orchestration layer.

Going back to Route 66’s fintech roots, we saw a ton of value creation from companies building the pipes and infrastructure that organizations (both incumbents and disruptors) needed to be successful. For example, our portfolio company, DriveWealth, has built the leading technology platform that powers the investing experience for global business leaders/brands, as well as fintech disruptors. Their infrastructure has democratized access enabling everyone around the world to control their financial future through best-in-class trading and investing technology, all from their phone. It struck us that specialty care needed the same thing. The industry wanted to move to cars from horses, but before we could do that, we needed roads, not dirt paths.

Our thesis in short was: “The world needs a tech-enabled, clinically integrated network that enables seamless access to value-based specialty care.”

How it started

If that sounds bold and ambitious, we agree. It is. That is why we started by designing the navigation and payment rails that payers and at-risk providers need to seamlessly get patients to the best-fit care.

Navigation Rails

Switchboard brings network, cost, quality, and availability data into the referral/navigation workflow, ensuring that patients are quickly matched to the best-fit provider for them. If the patient is matched to a provider in the Switchboard network, the Switchboard platform then enables bi-directional communication, clinical data exchange, and automated scheduling that supercharges the navigator and creates a truly collaborative clinical environment.

Payment Rails

Switchboard allows risk-owners to enhance their network with a curated set of specialists with a single contract and allows specialists to quickly get in-network with risk-owners by partnering with Switchboard. This isn’t a novel concept → think independent physician association (IPA), managed service organization (MSO), or clinically integrated network (CIN). Traditionally these contracts have operated on a fee-for-service chassis. “Instead of 105% Medicare individually, we get 140% Medicare together.”

When we try to move to value-based, however, a radically different dynamic results. Different participants may want different types of contracts, and calculating the value created by each participant requires an actuarial feat of strength that many payers just aren’t interested in.

Switchboard is now able to come in and design and implement a “universal adaptor” that allows risk-owners (both traditional payers as well as the rising number of full-risk PCPs) and specialists to share the risk and participate in value-based contracts in a manner that works for all parties.

Fair Winds and Following Seas

We know that building a start-up is akin to a treacherous trip around the world. Long-term success requires:

A Great Ship

A great ship = a great theme, thesis, and insight. We are deeply convicted that specialty care needs to be re-built and doing so will require a platform approach. When architecting Switchboard, we chatted with payers, providers, specialists, disruptors, and patients. We consistently heard a desire for:

1. Integration not fragmentation
2. Navigation not referrals
3. Mission and incentive alignment.

Although it may be bold and ambitious, Switchboard is uniquely positioning itself to create the platform the market needs.

A Purpose-Built Captain and Crew

One of the largest challenges when incubating a company is finding the right CEO and building the team. In our opinion, you can’t just hire a CEO. You need to find a real co-founder. The right person is not looking at the company as an opportunity, but rather thinking, “I have been thinking about this space a lot. I too am deeply convicted that this is what the world needs.”

In our case, this person would be a commercial leader, who has been around the block in healthcare, and can pull all sides of the network together.

When we met Derek Baird, we knew we had our person. If you are in digital health, and you don’t know Derek, I am willing to bet you know someone who does. Over the past year and a half, he has done a masterful job taking control of the ship, pulling together an amazing crew, and setting the course.

A Great Route around Cape Horn

The vision for Switchboard is large and ambitious. We can’t just build the entire platform in one fell swoop. Switchboard will need to go to market in smaller steps, jumping from lily pad to lily pad. Often, the first jump is the hardest. Using our nautical theme, nailing the go to market approach is picking the best route around Cape Horn. It has been amazing to see the traction Switchboard is getting with both payers and at-risk providers. Of course, there will be a lot of unknowns, so we can only plan so much, but Switchboard is starting to see path light up in front of it.

Stocked Shelves

You can’t run out of water on the trip, because it will almost definitely take longer than you think. Pack too much and it could weigh you down. If you have been paying attention to the venture market, especially in healthcare, it’s no longer 2021. Despite a challenging environment, Switchboard has brought together an amazing group of investors. Led by the great team at First Trust, we are excited to announce Switchboard Health’s seed round. With fresh capital, Derek and the team have the resources they need to bring their vision to life (at least, until the next round 🤣).

Perfect Weather

Pick your favorite cliché quote: “Everyone has a plan until they get punched in the mouth.” Or, “The best laid plans…”

Building a start-up is hard. To have a real chance, you need to time things almost perfectly. For Switchboard, there are some great tailwinds guiding us forward.

First, there is more and more evidence that new ways to manage specialty spend are desperately needed (Exhibit A — Slide 5 of Agilon’s guidance update).

Second, it’s becoming clear that specialty care has to move into value-based arrangements, especially if risk is going to continue to move to PCPs (which it continues to do so).

Finally, as more capital flows into the space, there is more company formation, making it more challenging for organizations to creatively assemble the best components, necessitating the need for a platform solution.

Set Sail!

Switchboard Health is still early in its journey. The hard work continues. Onward.

Little about us, if you don’t know

Here at Route 66 Ventures, we are laser-focused on catalyzing companies on a mission to truly transform health outcomes. We take a thesis-first approach and go deep on a handful of spaces that we believe are ripe for disruption. Like many early-stage funds, we typically invest $500K to $4M into companies with ambitious visions, unique insights, and unfair advantages. Unlike many early stage funds, though, if we build deep conviction in a point-of-view AND we can’t find an investment that matches our thesis and investment mandate, we will opportunistically incubate companies. As ex-operators, we know it’s 100x easier to invest than build, so we have a super high bar for when we build. We are not a studio. We don’t have formal stage-gates, playbook, or templates. We aren’t incentivized to spin-out X number of companies. If we feel compelled to build, it’s bespoke. At least, that’s how we operate today. As with everything here, strong opinions, loosely held.