Episode Details

My guest in this healthcare podcast is Nikhil Krishnan, who is the founder of the Out-Of-Pocket newsletter. I was talking with Nikhil, and we identified—or, more accurately, he identified—five business models of digital health. What makes each model distinct is a few factors. If you weren't in the healthcare industry, you'd probably expect that I'm going to say that the biggest factor a business model must hinge on must have something to do with patient outcomes or care or something that has something to do with the hopes and lives of patients. Except no. Mostly, our models do not define themselves by attributes of their patients, except on one dimension: who is paying their bills.

Who is paying has enormous downstream consequences that I don't think people outside of healthcare, or even people inside of healthcare, sometimes really appreciate. It's because of all of the perverse incentives. It's a tangled web we weave.

For example, let's just say you're a start-up founder trying to cook up your unique selling proposition. You can't just decide you're gonna lower costs and improve patient care as general constructs. Because let's just say you do that—that's your USP (lower costs and improve patient care)—and then you try to sell your thing to Medicare Advantage plans or large provider organizations.

Oh, right … Medicare Advantage plans or even commercial ones—they don't care about the total cost of care. Neither do provider organizations unless they take on sufficient risk to care, and many do not.

In fact, as came out in that JAMA article the other day, it could be construed that entities such as these carrier health plans have a perverse incentive to see total costs of care go up. So right, you naively (you're the start-up founder again in this case study, don't forget) trot into some administrator's office with a great something or other to reduce total costs of care—and you'll get cast out upon your petard on the quick.

Every single day of the year in my world, I see people make this same mistake over and over again: not tailoring their product market fit to any particular market, with the recognition that some in this healthcare industry have a vested interest to see costs going up and some have a vested interest in costs going down. Either way, if we're talking about large organizations here and even some small ones, the money wins over patient care. So sad to have to say that, but listen to EP351 with Dr. Eric Bricker and you'll get all the context you need on that point.

Here's the thing, though. I don't know about you, but I can't tell you how many digital health start-ups I run across where I look at their decks or have a conversation with a founder, and I ask who their customer is. Is it employers or health plans or … ? And they don't know. They're gonna figure this out later. I don't get how to successfully do that. I'm indubitably wrong here given all of the pivots I hear about that seem to go OK, but the prospect of completely redefining my operational goals and operations and market positioning at some point in the future seems like a daunting and avoidable prospect.

I would be remiss not to mention, however, the number of really good mission-driven healthcare companies out there really trying hard to figure out how to create a sustainable business, a fair profit, while at the same time serving patients really well. There are companies adding value commensurate with the dollars that they come by, and I certainly applaud everything that they are doing.

At the same time, given all this, here's a message for all of you VCs and private equity etc—people with money—out there. Let me quote Dr. Vivek Garg here (