Andrey Ostrovsky, MD, Social Innovation Ventures, on care without compromise

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Dr. Andrey Ostrovsky is the former Chief Medical Officer of the US Medicaid program. He is now Managing Partner at Social Innovation Ventures where he invests in and advises companies and non-profits dedicated to eliminating disparities. He also advises federal and state regulators on how to incorporate human centered design into policy making. He previously operated a series of methadone clinics in Baltimore, Maryland. Prior to working on the front line of the opioid use disorder crisis, he served as the Chief Medical Officer for the Center for Medicaid and CHIP Services, the nation’s largest health insurer, where he advocated to protect the program against several legislative efforts to significantly dismantle the program. He also led efforts to streamline Medicaid and make it more customer-centric.

Before leading the Medicaid program, he co-founded the software company, Care at Hand, an evidence-based predictive analytics platform that used insights of non-medical staff to prevent aging people from being hospitalized. Care at Hand was acquired in 2016 by Mindoula Health. Before Care at Hand, Dr. Ostrovsky led teams at the World Health Organization, United States Senate, and San Francisco Health Department toward health system strengthening.

Dr. Ostrovsky has served on several boards and committees dedicated to behavioral health, interoperability standards, quality measurement, and home and community based services including the National Academies of Medicine, National Quality Forum, Institute for Healthcare Improvement, and the Commonwealth Fund. Andrey holds a Medical Doctorate and undergraduate degrees in Chemistry and Psychology Magna cum Laude from Boston University and is a member of Phi Beta Kappa. Andrey completed his pediatrics residency training in the Boston Combined Residency Program at Boston Medical Center and Boston Children’s Hospital where he was a clinical instructor at Harvard Medical School. He is currently teaching faculty and attending physician at Children’s National Medical Center.

In this episode, we discussed:

• Andrey’s journey to healthcare, including his own childhood immigrant experience living in public housing in West Baltimore for several years and receiving healthcare coverage through the Medicaid program
• Marrying mission and margin as an investor for tech-enabled services serving Medicaid populations, and two opportunities Andrey sees for more companies in the space: PACE, and plans/providers for children with special needs
• The oncoming fiscal unsustainability of our federal healthcare programs, and what ought to be on the policy roadmap for CMS around innovation, equity, quality, program integrity, and sustainability

Start — 5:00 — Andrey’s background

• Journey to healthcare: Andrey’s journey started as a Jewish immigrant given the option of doctor, lawyer, or engineer for a career path. He liked coaching basketball with little kids, so pediatrics seemed like a good fit. He did the usual pre-med thing and medical school thing. Halfway into medical school, he realized that the systems in serving patients were quite broken. The root causes weren’t really fixable by clinician actions. At that point, Andrey decided to take a year off from medical school and go to San Francisco to try to learn more about systems and how health systems worked.

“Supportive government-subsidized housing and government-subsidized health care got us through. It was that foundation that gave us and millions of Americans a chance to get on their feet.”

• On being inspired to close inequities in healthcare: Andrey’s family immigrated to the U.S. effectively penniless when Andrey was five years old. His family left everything they owned behind in their home country, and went to West Baltimore City. There, they were able to live in public (i.e., government-subsidized) housing near Druid Hill Park. There, he was surrounded by other kids who, like Andrey, were growing up in a pretty impoverished area. Andrey believed those kids were at least as smart as he was, if not smarter. However, while Andrey’s family was able to relocate to the suburbs, many of his peers weren’t able to, mostly as a function of systemic racism. As a white male, Andrey recognized he was being given pretty much every opportunity there is to succeed.
• In another breath, Andrey recounted a story when a giant Great Dane mauled Andrey’s face when he was five and a half years old — he credits being able to pay for care to being covered by the Medicaid program. He also witnessed firsthand the suboptimal districting of where people live due to redlining or other discriminatory urban planning practices, leading to strongly entrenched. impoverished areas. These experiences from childhood have impacted his strong focus on Medicaid programs nationally. While Andrey and his family were able to move on, many families cannot because they don’t have the opportunities to do so. For that reason, Andrey invests in companies serving populations that experience systemic; fortunately, he believes it’s possible that private sector market forces can be used for good to address those issues.
• Continuing his immersive learning as an investor: Andrey spent 24 hours immersing himself in understanding exactly the needs of some of the populations he was serving. A couple years ago, Andrey was running a series of methadone clinics. He had a good number of patients that were being so-called “noncompliant” with attending group therapy. Group therapy is one of the more costly aspects of running an opiate treatment program, and Andrey’s company wasn’t getting enough volume to sustain the business. He solicited ideas from his staff on why patients might not be coming in. Many of his patients were homeless, so he decided to spend a 24-hour period in a homeless shelter. Obviously, Andrey recognizes this doesn’t compare to real homelessness, where you have the uncertainty of where you’re actually going to sleep day after day. Still, he started 24 hour period under President Street in Baltimore City, waiting half a day in the cold trying to figure out where he was going to sleep, not knowing what he would eat, surrounded by people he didn’t know. He was then bused to a remote spot of East Baltimore City in an abandoned motel room with a bunch of other people and was fed a decent meal and given a decent cot to sleep on. It was freezing. The next morning, Andrey Ubered back to the clinic he was running, and realized that these very populations would never be truly influenced by an app. Many of the shelter residents were just clamoring for an electricity socket to plug their phone in, careful to use their limited data plans, worried about where they would get their next meal. Not only was this experience constructive around understanding technology use in populations that are housing insecure, but even more so about the reason why patients weren’t showing up to do group therapy sessions. It came down to: you had to start to get in line by around 12, or 1pm, in order to get a spot to sleep that night. If you didn’t, you didn’t get a place to sleep. Many of Andrey’s group therapy offerings were in the afternoon onwards. They ended up moving the times to much earlier in the day, which yielded much higher attendance, much higher revenue, etc.

“There aren’t a lot of healthcare investors today that were once housing-insecure or homeless altogether. This leads to an empathy gap: there isn’t much empathy to connect between what traditional investors have done in the past with populations that really need innovation the most. I don’t think all investors have to necessarily go be homeless. But I do think they need to go through exercises to build empathy for populations that they want to create value for. That’s assuming they even want to create value for some of these populations.”

• Andrey acknowledges we can’t fix society at large in one fell swoop, but he does believe Silicon Valley investors are always going to find it appealing for an IRR to be 30–35%. He believes that investing in Medicaid populations, and investing in the supply chains that serve the public payer space, can yield significantly higher IRR than just typical healthcare investments. Just look at some of the valuations out there today. As an example, Cityblock Health (one of Andrey’s portfolio companies) has a multi-billion dollar valuation. Andrey is excited for investors to invest in this space more, but he hopes they’ll do it also with more empathy.

13:00–30:00 Tech-enabled innovation in the Medicaid landscape

• Andrey sees the opportunity in the Medicaid market as not a pure technology play. Tech-enabled services are more likely to create value in the supply chain serving these populations, and are more sustainable businesses. The only exception here is software targeting back-end processes like revenue cycle management. Front-end operations are things like care coordination, care management, engagement, communications, etc. It’s very rare that a company like that will be able to get enough engagement and enough revenue on a unit basis to be a viable standalone software business. Andrey believes there is interesting value to be created for vulnerable populations, primarily by taking traditional brick-and-mortar businesses that have too many inefficiencies. Those inefficiencies might be an inability to flip from FFS to VBC. They might be an inability to compete and grow in new markets, where technology can help augment some of the population health management aspects of growing a business. They could be cultural competence aspects in patient engagement.

“The technology has to be on the backbone of a human component, because you really can’t have empathy and trust that is purely technology-driven, especially amongst vulnerable populations. In healthcare generally, empathy and trust are the big competitive differentiators of one technology solution, or one company or service versus another service.”

• On how to marry mission and margin with capital-intensive, tech-enabled service businesses: Andrey references Fortune at the Bottom of the Pyramid, which describes a pyramid structure whereby, within any given population, folks at the top, narrow part of the pyramid have high purchasing power. In contrast, the base of the pyramid is where the vast majority of the population lives, and these folks typically have very little discretionary money to spend. The book highlights how there have been successful businesses built around serving the bottom of the pyramid. It is that framework and that approach Andrey applies to serving beneficiaries in Medicaid, dual-eligible, and exchange plans.

“There are 70 million Medicaid beneficiaries, who have increasingly guaranteed health care paid for them on an individual basis. If a solution provider can get large enough scale and distribution in serving even a fraction of those 70 million, we’re talking about a lot of headcount. While the unit economics in and of themselves may be slim, multiply that across 60 to 70 million and it becomes a very interesting potential business. The question becomes, how scalable can it be at what costs?”

• Technology-enabled service businesses can have a lot of cost because the service might be costly to provide. Andrey believes a lot of folks have discovered that Medicare Advantage is really low-hanging fruit for building a profitable business. It is a bit of a double-edged sword. While it’s great that innovators are focusing on Medicare Advantage populations, a lot of the appeal from an investment perspective is gaming risk adjustment.

“My colleagues at CMS recognize that this is not a sustainable way to manage the Medicare program, especially with continuing growth in enrollment in managed Medicare (MA) as opposed to FFS. That is going to set up for a lot more innovation. How can we creatively risk adjust and pay plans more to manage more sick or complex patient populations, but do it in a way that’s sustainable and not subject to gamesmanship?”

• On valuation bubbles in health tech: Per Andrey, there is no data to suggest any correlation between the valuation of health technology businesses and their contribution to the Triple Aim. In 2014, Andrey worked with the Institute for Healthcare Improvement to analyze the relationship between valuation and Triple Aim contribution. They found that there was no correlation or significance whatsoever between the two variables. In November 2020, Andrey published another report funded by the California Health Care Foundation which also found that very few companies serving dual eligibles had any peer-reviewed literature published. While Andrey isn’t suggesting adding regulatory pressure to companies for evidence review and approval (e.g., as the FDA does with new therapeutics), but he believes there is a competitive advantage for companies that do the research and have the proof to reaffirm that their marketing claims are in fact supported by peer-reviewed research. He believes valuations need to be grounded on data, not just investor speculation to view future theoretical earnings.

“The punchline is that very few digital health companies have any data to show that their claims of improving outcomes or saving costs are actually doing that. There’s this enormous disconnect between expectations from investors, and what companies are actually proving that they can do in improving outcomes, reducing total cost of care, improving member experience, and I’ll add, improving on the provider experience. I understand why it’s hard to convince a board and institutional investors that their money should be spent on doing research since research can require long lead times and be very inefficient. But it’s also very doable.”

Andrey sees two untapped opportunities in the Medicaid market: the Program for All-Inclusive Care for the Elderly (PACE), and plans insuring children with special healthcare needs. Why?

• They both benefit from having generous premiums relative to premiums for folks that don’t have as much medical complexity.
• Both types of plans are, for the most part, largely void of any technological innovation. Therefore, there are a lot of inefficiencies.
• The populations are high-needs with interesting volume to them.

1. With PACE, there has been increasing private equity and venture capital activity directed at technology-enabled service businesses. Andrey believes this will continue, especially as the National PACE Association with support from the Hartford Foundation rolls out its PACE 2.0 Initiative. In the latter, they are trying to bring new PACE programs online with 15 million or so dual eligibles. PACE providers get anywhere from $3,000–4,000 PMPM (3x that of what a provider receives in caring for a single comorbidity Medicare bene ~ averaging $800 PMPM). Those dollars could be spent on primary care, tech, home delivered meals, transportation centers — there is just so much flexibility there.
2. Much of the care delivered to children with special healthcare needs is done in an inpatient setting. Today, the average payment for care for a child with special needs is $1200-$1500 PMPM (vs. $300–400 otherwise). During Andrey’s pediatric residency training and career since, he has seen many children’s hospitals catering to wealthier cash pay patients that pay a rate 2–3x what Medicaid would pay for the same services (if not more). There is a really interesting opportunity to not have hospital-driven care for these children, but rather have community-driven care, much like what has happened for adult populations with disabilities over the last two decades of so-called “rebalancing”. Per Andrey, if we were to do that level of prioritization of care for children with special health care needs, we could offer care in a much lower-cost environment, and we could offer care that’s much more patient- and family-centric. We could do it in a way where we take not even the full sticker price of traditional care for these kids, but even at a discounted price — saving money across the system and certainly for state Medicaid programs. Most importantly, these kids would most likely have better outcomes.

• Andrey envisions the future of Medicaid shifting more aggressively towards AI-based payment and putting financial risk on solution providers. This is where a technology-enabled service provider is positioned to really succeed — if they are able to carry financial risk. If they can get subcapitated to a health plan, or are themselves a tech-enabled health plan, this is where we will start to see interesting alignment between outcomes, savings and member experience.

30:00–41:00 — Policy

• At the top of Andrey’s CMS policy wish list?: Having a simultaneous focus on equitably improving outcomes and doing so sustainably. Andrey is optimistic in speaking with colleagues on the Biden transition team and incoming political leaders that the equity focus is a priority. In fact, that’s the only priority that Andrey is consistently hearing. What he isn’t hearing is how all of those equitable improvements happen in a sustainable way.

“Medicare, unless drastic changes happen, will run out of money by the end of 2024. That is not a lot of time. Also, we have health disparities that have always existed. But in 2020, these have been perpetuated so starkly: the average life expectancy in the US dropped by a year, but for Black males dropped by three years.”

• What needs to evolve at CMS: There has to be a substantial reinvestment in the infrastructure of CMS, notably the people, to enable the Centers for Medicare and Medicaid Services, to once again become a learning organization. In Andrey’s mind, there has been very significant regression over the past four years after enormous investment in building the capabilities of the staff that work at CMS. There’s been a lot of brain drain. We need to get the folks that are still at CMS to be empowered to evolve more efficiently, and we need to bring new blood in. We’re seeing a big influx of folks into the United States Digital’s Digital Services Program. Andrey is personally seeing a lot of clinicians reaching out wanting to get plugged in with CMS. We have to make sure that the investment is not just an investment in these four years, but that the investment is longitudinal and well beyond any one administration.

“There needs to be a change management competence within CMS. There is less of a mentality of ‘just keep the train on the tracks’, which is super important. We can’t just keep the train on the tracks, because there’s a cliff to the tracks that’s coming up in 2024. There are no more tracks after that. We could chug along on the tracks for three more years. Medicare payments will keep happening, but then there will be no more Medicare program. Avoiding this is doable, but requires a pretty meaningful and bold investment within CMS on strategically sound, non-political OKRs to be set. It is not typical that that combination of things happen.”

• The above is just Medicare — what about Medicaid?: Medicaid numbers are variable because the program is state-dependent. The 2021 American Rescue Plan Act (ARPA) created very compelling incentives for more states to expand Medicaid, which is probably the single most high-yield policy intervention that could happen to improve equity. If we were to do nothing else, Andrey just wants to try to find ways to convince the twelve holdout states to expand Medicaid. In terms of paths to sustainability, it comes down to shifting towards value-based payment, and getting as much of payment to the alternative payment model category flowing through full risk-bearing models as much as possible. That can be challenging, especially for duals, especially given current data-sharing challenges.
• On employer-sponsored insurance (ESI): CMS can only do so much in healthcare — at least half of U.S. healthcare is reimbursed by ESI. Medicare being insolvent is just one issue — the overall American healthcare system is not just dependent on Medicare and Medicaid. It’s also dependent on what employers are doing. The mindset around ESI is to stay at trend, or be slightly better than trend. But, the trend is still skyrocketing, so this isn’t a sustainable approach. We need to see shifts towards value-based payment for high-cost drugs, biologics, and gene-based therapies.
• On hospital consolidation: More than the above, Andrey believes the biggest elephant in the room is the monopolies that hospitals have, and the prices that they set. That handcuff all but ensures it is impossible to move away from using those hospitals or health systems. Andrey would like to see a legislative or regulatory fix to that as a mechanism to improve sustainability.

“I think there’s very significant risk in the federal government trying to impose so-called ‘innovation’ upon the states, because if the state doesn’t want to do it, they’re going to find a way to not do it. It’s basically applying human centered design principles to policy making. You don’t want to force your customer to go do something. You want the customer to come to you and want what you’re offering them.”

• On innovation models with Medicaid: While CMMI is focused largely on Medicare innovation, it will be hard to enact a material shift for federal oversight of Medicaid innovation. The way the Medicaid program is structured to be federated with the central government ensures an accountability mechanism. States are the drivers of innovation or, in some cases, negligent policymaking. Andrey does think there are ways to collaboratively come up with innovative policy that meet local needs. Interestingly, Medicaid leaders at the state level genuinely care and prioritize Medicaid beneficiaries. The supply chain they are serving is usually not the culprit of Medicaid cuts and onerous requirements — it’s the state legislatures and, in some cases, state governors that can be misguided and have some unfortunate views often driven by systemic racism. Still, Andrey believes the system of checks and balances between the states and the federal government for Medicaid is elegant. As long as those risks are mitigated with accountability from the federal government, Andrey believes the federal government should be there to support state innovation when the state is ready to innovate.
• One exception here: for public health emergency preparedness, Andrey believes a strong central government is absolutely essential. However, for course correcting at the margins, that’s where the states ought to be the drivers of innovation.

41:00 — End — Personal Leadership Principles that Guide Andrey

• Ben Horowitz’s “peacetime vs. wartime CEO”: When an organization is not facing existential threat (i.e., in growth mode), you want to be a servant leader, be their best selves — as a leader, you are there to remove barriers that block your employees from being their best selves. In wartime, there isn’t the luxury of time for employees to fail their way through learning. There has to be precise and narrow objectives that are distributed throughout the enterprise in an authoritarian way, not an authoritative way. You can be a wartime CEO and still have dignity and be kind to people. But, there is less time to coach other people.
• Jim Collins’ Hedgehog Concept: Have a clear vision, know what organizations who are best in the world in their field are doing, understand the sustainability engine, engage in level 5 leadership, practice LEAN management, etc.
• At the end of the day, the best principles depend on context, the stage of the organization, and whether the organization is in peacetime or wartime. Most importantly, Andrey suggests to always be learning (reading books, finding mentors, engaging your peers).