Inovia Sessions: Rebuilding Healthcare’s Software Stack

In the first 6 months of 2020, the Digital Health space has seen an unprecedented amount of change as a result of the pandemic and rising economic and social justice issues. Many entrepreneurs aren’t sure how investors have been adjusting their views evaluating opportunities to build transformative digital health companies for the next decade. Our partner Antoine Nivard had a conversation with Beth Turner, General Partner at SV Angel, Megan Maloney, Principal at General Catalyst and Kristin Baker Spohn, Venture Partner at CRV, on navigating Digital Health space post-COVID-19.

ANTOINE NIVARD: How has your investment framework in healthcare evolved in the last few months?

KRISTIN BAKER SPOHN: One of the questions that I always come back to is “why now”. Being too early to a market is the same as being wrong, and I think that’s been a challenge in the digital health space. What’s changed with COVID-19 is the “why now” question.

So much has held promise, then things have taken slower to adopt. All of a sudden you’re seeing behavior change as a necessity to continue to provide care, to get care, and to serve the needs of the market. Things that were taking maybe 10 years to get adoption are now taking 10 weeks.

MEGAN MALONEY: We’re also seeing acceleration towards the convergence of offline and online models. Before, there were a lot of companies who were starting in brick and mortar, then moving towards digital. Now, most would have to lead with the digital strategy first.

BETH TURNER: The “why now” question definitely remains critical. It’s not yet fully clear to differentiate from what’s a temporary behavior shift as opposed to what’s going to be a long term behavior shift. We’re investing on a 10-to-20-year time horizon. It will definitely be hard to go back to pre-COVID-19 behaviors. A lot of patients and providers are also getting used to these new behaviors for remote care and speed.

ANTOINE: What have you seen your portfolio companies doing to adjust to the new realities we’ve had to deal with this year?

MEGAN: I think of our healthcare workers as superheroes right now, and they need as much help and support as they can get. One of the most transformative things I’ve seen was from our portfolio company Color. They are typically focused on genetic screening, including BRCA1 genes to detect breast cancer predisposition, and so forth. When the crisis hit, they quickly repurposed a lot of their clinics and CLIA-certified labs to be able to help with COVID-19 testing.

We’ve also seen companies take advantage of the telehealth movement. ProHealth is providing free virtual screenings in the event that you actually need to see your provider for COVID-19 testing. We’ve seen that across the board. Of course, Livongo’s entire business model was predicated on remotely monitoring people with Type-2 diabetes. Now, being able to step in and make sure that people who are predisposed to chronic conditions are taken care of is really important for them.

BETH: We’re in about 45 companies within the healthcare space. We’ve been amazed at what some of our portfolio companies have done and really risen to the call. What founders are now realizing is beyond the balance sheet of the company, you really have to worry about your employee’s well-being as well.

Headspace is now giving free mental health services to people who have recently become unemployed. They’re really stepping up — we hear that line being repeated “it’s time to build” — that really means something different right now, especially in terms of healthcare when lives are on the line.

KRISTIN: The message to drive home is that our portfolio companies have been competing for a long time against traditional players and it’s impressive to see how nimble and adaptable founders are in response to this crisis. We’re seeing traditional players adapt as well.

We recently led the Series A of Wheel which provides a 50-state on-demand clinical network for telehealth. We were already seeing this wave of telehealth adoption and trend but they all of a sudden had to quickly train up a large number of clinicians on COVID-19 triage and power the response for a lot of telehealth companies out there.

Shifting resources and being able to really quickly adapt has been something that we’re going to see really separate the companies that will survive and adapt and drive forward the new normal versus those that will, unfortunately, be left behind.

ANTOINE: Let’s dive into some of the big industry shifts that we’ve seen this year. What do you make of the sudden market opportunity for telehealth as an investor?

KRISTIN: Telehealth isn’t new. The industry suffered from pretty anemic adoption, from both behavior change on the provider side and the patient side.

Pre COVID-19, we were already seeing a second wave of telehealth adoption in the last few years, from direct-to-consumer prescription services and companies building providers in the cloud as an example, but we were also seeing significant consumer pull in the market. COVID-19 has definitely accelerated that wave to a tsunami. As I continue to invest in this space, what I’m looking for is which of those companies are addressing use cases that are sticky in the new world order from the ones that are transient.

MEGAN: CMS published data seeing 12,000 telehealth visits a week, and now they’re seeing close to 1 million. So, the idea that it completely reverts back, especially when it’s so convenient for a lot of people, doesn’t really make sense. Telehealth is here to stay.

You’ve got a bunch of barriers that were there and are basically starting to vanish. It used to be that your reimbursement rates were much lower with telehealth because you couldn’t prove that telehealth was as effective. Now you’ve just had a massive experiment demonstrating that, in a lot of cases, I can get my care just
as well over video as I can in person.

Another question is, if telehealth is here to stay, and there are already companies that provide the backend infrastructure for it, how do we make sure that we’re delivering care most effectively pre and post consults? For example, providers now have to be in communication with their teams across the board. Then they’ve also got to be in communication with their patients. What will that now look like?

The other thing I’m thinking about is people with chronic conditions. Now you’ve got fewer touchpoints with your providers. The new narrative is, don’t go to the emergency room unless it’s really dire. So, in that world, how do you make sure that you’re delivering preventative care? How do we move away from this fee for service model?

By the way, there have got to be companies that help physician practices bill correctly. It’s ridiculous how many hours of courses you have to take in order to understand how to bill insurers and understand every insurer’s different type of coding and license number. I think companies that can change that would be really interesting.

Lastly, I think the elderly population isn’t sitting with a smartphone or necessarily has the same idea of how to use one. How do you target them? Some payers are actually calling people over a certain age every morning and asking, “Hey, do you need anything?”. How could we do that more efficiently?

KRISTIN: That’s a great point; how are payers thinking and changing their workflows? They’re also seeing that the lines of what qualifies as “healthcare” are blurring. We’ve seen more emphasis on social determinants of health, things like housing, or whether patients can get groceries delivered. All of a sudden payers, especially in a value-based reimbursement model, are thinking much more holistically about making sure people are getting care, not only in a traditional healthcare sense but also including things like shelter and food. That opens a whole new opportunity and the chance to really meet people where they are; the aging population being a great example.

ANTOINE: How do you anticipate new remote care models for startups that have taken the approach of building both brick and mortar and digital? We’ve seen Forward (in our portfolio) or OneMedical in primary care, and more recent specialist approaches around specific patient populations like Tia for women’s health or KindBody and fertility for example. What’s your overall take on the direction of that trend?

MEGAN: This is also one of the more interesting trends. For women’s health, for example, the reason a lot of these women’s health companies have sprung up is that women make the majority of healthcare decisions in the household.

The second piece is that women actually use their gynecologist as their primary care provider. What happens in a gynecology appointment is that you go and get your typical workup, and during the last five minutes, you say, “oh, by the way, I have all of these other issues” but who do I go to? Now the gynecologist is tasked with a very short period of time and they have to try to solve your needs.

A lot of these companies were coming out, you mentioned Tia, Kindbody, and others. The premise is to say: we can take that stress piece away from the gynecologist and actually reallocate it; use technology to help provide access to information and access to other resources.

It’s likely going to continue. Those companies are typically CAPEX intensive but there’s a way to scale where the gross margin profile starts to look better when they’re removing costs from the health system. Perhaps, they can build a business model where maybe they’re getting some shared savings upside or have a large digital health platform similar to OneMedical where people don’t use the physical locations as much.

My worry is the disproportionate impact and divide that might occur with the African American population and the Latinx population. They’re already distrustful, generally speaking, of the medical community. Now you’re adding a digital component on top of that. It’s really important to actually meet them where they are. We’re doing that for some populations, but I think we’re starting to miss the boat on providing care for the Medicaid population.

Cityblock is an example of a company that thinks about that. They’re partnering with local community health centers and are aware of who the members are at all points in time.

ANTOINE: I think that there’s a huge expected spike in Medicaid enrolment. Traditionally that’s not been an area where founders have been focusing on. Are there other examples that you’ve seen in the space that are changing data, bringing the care closer to those communities and patients?

KRISTIN: We’re definitely seeing not only a backlog of demand, but a recognition that healthcare, like politics, is inherently local, and responsive to that local community. When we think about meeting people where they are, it’s not just meeting people on their phones, it’s meeting people, in the community health system, through schools, through other areas. It’s not just how do you get to them, but how do you speak to and engage a particular community?

We’re now seeing direct to consumer care companies, telehealth, and also in-person care companies, that are specifically designed for the needs of a certain community. Some are popping up on the payer side, but also on the care side. I’m excited to see what founders are doing to shape a brand, patient experience, and services to specifically meet the needs of that patient and that patient’s community.

BETH: One of our companies called Hims & Hers just rolled out the ability, within your telehealth appointment, to choose a Spanish-speaking doctor. That enables them to gain trust with the patient, have someone who understands the deep language disparities that may come up. We’re seeing more community-focused digital health companies flourishing focused on LGBTQ, maternal care, menopause, and excited about those opportunities.

ANTOINE: There’s been chatter about “unbundling healthcare” for a while now and founders and attempts to rethink the divides between preventative care, diagnostics, and therapy. Do you anticipate we’ll see a new generation of preventative care companies, striving to keep people out of the hospitals and out of the healthcare system altogether? Are we closer to at-home diagnostics and care than we were?

KRISTIN: I think we’re getting closer. The key thing for founders to understand is just what the underlying reimbursement and payment models look like. I’ll give real quick two frameworks that I think about a lot.

The first one is really around understanding and building into your go-to-market for all of the stakeholders. In the US healthcare, you’ve got: who buys, who pays for, who decides, and who uses. In a typical consumer retail experience, it’s the same person, it’s the consumer. But in a healthcare experience, those can be four different people, four different entities, with misaligned incentives. It’s key to understand all of the different stakeholders. So much about building a great company and getting to scale is capturing that value.

The second one is that, historically, our reimbursement model in fee for service has not been to pay for prevention. An imprecise rule of thumb I come back to is that, on a scale factor, we (in the US) pay out $10 for a therapeutic, $1 for a diagnostic, and $0.10 for prevention. So, if you’re coming out with a prevention model in a fee-for-service paradigm, you need a lot of volume and make sure that you can get to it with really big scale. Whereas on the therapeutic side, if you’re treating a rare disease, for example, you can generate high revenues even if you’re addressing a really small patient population.

All that being said, this shift towards value-based care has been slow, but it’s still happening in pockets where, all of a sudden, companies are able to capture value for the work they do on prevention. We see, especially in the Medicare advantage space, companies like Devoted and others who take the financial responsibility for bearing risk for an entire patient throughout the care journey. They are incentivized to drive those preventive behaviors because they can capture that value. The more that we see that shift toward value-based care, the more you’ll see companies be able to capture value for the work and service they’re doing to drive better outcomes and more prevention.

ANTOINE: We’ve seen another interesting shift enabled by these new reimbursement models. One of our portfolio companies, AlayaCare, provides back-end infrastructure software for home care services providers. As those home care providers shift towards different modes of care, they have to use different software to run their operations efficiently. For founders building tech companies, that begs the question of whether it makes sense to do it “full-stack” and be the healthcare provider themselves versus servicing simply servicing those buyers that’s likely too early to tell.

ANTOINE: There was already a lot of attention towards mental health pre-COVID-19 and a lot of funding rounds getting done. Obviously with shelter in place, the ensued economic downturn, there’s a sharp increase in demand for mental health, continued funding for mental health. In our case, we’ve seen a lot of portfolio companies starting to offer mental health and therapy sessions for their employee base as well. Any new thoughts on the category?

BETH: What I think is probably underserved in mental health is thinking about the people that don’t have the traditional employer-sponsored access to some of these products. How do we loop some of the mental health platforms to the greater healthcare community? I also think there’s going to be a lot of growth in different verticals within mental health itself. I’m excited to see that it’s now becoming less stigmatized and that people are actually really paying attention to the importance of mental health.

KRISTIN: The challenge that I’ve seen with companies that are going direct-to-consumer has been mostly a unit economics challenge. There’s a lot of opportunity for companies who can figure out how to acquire consumers organically, efficiently, and then serve them.

A company I invested in is Modern Health which offers mental health services through employers. When I was on the operating side, I saw employers shift from viewing mental health services from a “nice to have” to a “must-have”. That was happening over the last few years and with the Mental Health Parity Law passing other payers are catching up. Employers had started really thinking about mental health not just as a healthcare issue but as an employee productivity and workplace culture issue as well.

MEGAN: Mental health has been an area of focus for VCs in the last couple of years. It’s an area that also impacts everyone. Thinking about the right channel opportunities is interesting. The psychiatric care space is interesting as there aren’t enough psychiatrists and hiring one is hard. So, figuring out a way to leverage psychiatrists to reach more populations would be interesting.

You just have to really think about the segments right now that are being underserved, as well as the delivery of care models. That brings me to my last point which is privacy in mental health. If you think about getting a therapy session today over telehealth, are you able to get into a private room to talk to your therapist? I haven’t seen anyone trying to solve that problem and I know it’s a big problem because people won’t be able to get their care otherwise.

This transcript has been edited for clarity and length.