Navigating PMPM Pricing Model in Digital Health Industry

For a full transcript of this episode, click here.

We have been spending a bunch of time here on Relentless Health Value talking about PBMs (pharmacy benefit managers) lately and pharmacy benefits, but we are moving into a new topic area. It sort of kicked off three weeks ago with the pod with Rik Renard (EP427) on the importance of care flows if you are a digital health vendor trying to get consistent outcomes. But then I actually went back to the PBM/pharmacy benefits topic to talk with Luke Slindee, PharmD (EP429) and Julie Selesnick (EP428) because, you know, the J&J lawsuit. But now we’re back on the “let’s talk about digital health and point solutions” bus.

I wanted to talk today about the trend to sell to employers and advice for digital health solutions who want to sell to employers, but there’s a little bit of advice here for employers themselves. At a minimum, this conversation affords a little bit of transparency to employers about what’s going on on the other side of the table.

So, as I just said, in this healthcare podcast we talk about selling to employers. Why sell to employers is probably a first question. Well, one reason Barb offers is because that’s where the money is. It’s like that Willie Sutton quote. Someone asked him why he robbed banks, and he replied, “Because that’s where the money is.” I mean, hospitals know this. Have you seen their commercial rates and their multiples over Medicare? Payers know this, too. Payers who use their ability to raise commercial rates as leverage to get lower MA (Medicare Advantage) rates for themselves … they know this. So, yeah. Why wouldn’t a point solution entrepreneur take a page out of that business model? It’s saying the quiet part out loud, but … yeah, I guess it’s good to know when you’re the numero uno healthcare industry sugar daddy (or sugar mommy, as the case may be). Every employer listening right now has already opened up their phone and started an email to me.

Barb gets into four pieces of advice for entrepreneurs looking to sell to employers:

1. There has to be a market that has a need for what you are selling, and there won’t be a market with a need unless the problem you’re solving for is big enough—and right now, I am recapping things that Barb says on the show—because when she talks about whether the problem is big enough, she means as per the employer and maybe because the fallout from that big problem accrues to the employer in a way that the employer fully appreciates.

As I say in the pod that follows, the ground is littered with entrepreneurs, often really smart people who oftentimes I truly admire. These are individuals who found a problem for patients (or sometimes even clinicians) and solved for it and then discovered that no one will pay them for whatever they’ve done, because we can’t forget that, in the healthcare industry, one person’s waste is somebody else’s profit. There is show after show here at Relentless Health Value that showcases the sacred honeypots where these perverse incentives lie, so if you are an entrepreneur, please follow the dollar and see where it leads before getting too far. That would be my advice. I’d recommend the show with Rob Andrews (EP415) and the one with Jodilyn Owen (EP421) as a great place to start.

One comment about the whole “it’s gotta be a need that employers appreciate” point that Barb makes which caught my ear, she rhetorically asks, “Should HR purchasers be buying solutions that improve health and well-being?” And the short answer is no. Barb says none of that should be the primary driver. The primary driver, Barb mentions, should be about optimization of human capital to drive business outcomes. She says every decision a business makes should be about maximizing business outcomes.

Now, I could take this a bunch of different ways; and viscerally it has, again, kind of a “quiet part out loud” vibe. But in certain ways, it also means buying decisions should be bigger than just cutting costs. First of all, no one is arguing here that cutting wasteful spending isn’t always a good thing; but neither are cost-containment strategies that undermine employee health to the extent that they can’t complete their work role or their job. Listen to the show with Nina Lathia, RPh, MSc, PhD (EP426) for more on this cost containment versus value-based purchasing, specifically in the pharmacy benefit space, but same rules apply pretty much everywhere.

2. Be truly differentiated in terms of what you’re trying to sell. Barb gives a bunch of examples of “secret sauces” she thinks are kind of compelling right now.

3. Navigate the internal politics of the employer. And this is kind of Selling 101, but find a champion and help them navigate their own organization. We talk at length about how long the sell process can take, especially in some of these jumbo employers.

4. Manage your investors as closely as you manage your possible clients. And this is an interesting point that also comes up in the conversation with Kate Wolin, ScD, that’s coming up in a few weeks.

Also in this conversation, we have a sidebar about PMPM (per member per month) and performance guarantees and just some nuances about how to get paid.

Oh, and one last point here: If you are an entrepreneur who is thinking about selling to brokers, employee benefit consultants, or practice leads, do listen to the show with AJ Loiacono (EP379), which I encored a couple of weeks ago.

My guest today, Barbara Wachsman, has had experience in every single element of the healthcare ecosystem. She has worked in public health. She’s worked for an HMO. She’s worked for a hospital system. She’s run benefit consulting practices and also spent the last dozen or so years at Disney running strategy and benefits. Today she is a limited partner in several private equity funds at Frazier Healthcare Partners.

Oh, and hey, you might want to subscribe to our weekly email, which includes this introduction transcribed as well as links to the full episode transcribed. We also sometimes send out invitations to Zoom meetups and other ways to get involved or support us in our quest to get Americans better healthcare. So, go to relentlesshealthvalue.com and get yourself on that list

Also mentioned in this episode are Rik Renard; Luke Slindee, PharmD; Julie Selesnick; Rob Andrews; Jodilyn Owen; Nina Lathia, RPh, MSc, PhD; Kate Wolin; AJ Loiacono; Elizabeth Mitchell; David Claud, MD, PhD; Al Lewis; Kenny Cole, MD; and Cora Opsahl.

You can learn more at Frazier Healthcare Partners. You can also follow Barbara on LinkedIn.

Barbara E. Wachsman, MPH, is the former director of strategy and engagement for enterprise benefits for the Walt Disney Company. In this position, she led the strategic initiatives and designed the programs that addressed Disney’s long-term healthcare and goals and objectives, headed operations of large on-site clinics and full-risk physician partnerships, and was the creator of the Strategy Lab, the home for innovation in healthcare delivery. She is a speaker on the national stage regarding direct contracting and the value of primary care.

Barbara currently serves as a senior advisor to an $8 billion growth-buyout private equity firm specializing in healthcare and as head of employer strategy for a virtual primary care company with a unique medical practice model. She sits on the Boards of the Duke-Margolis Center for Health Policy Institute and the QueensCare Foundation, serving the low-income and underserved population of Los Angeles. She remains a senior advisor and founding member of the Employer Healthcare Innovation Roundtable (EHIR) and is a faculty member of the EHIR Academy. Barbara serves on the Executive Committee of the American Board of Medical Specialties and on the Advisory Boards of several healthcare start-ups as well as the corporate board of a large metabolic health company. She is also an advisor to the Purchaser Business Group on Health and to the Silicon Valley Employers Forum.

Barbara received her Master of Public Health and Master of City Planning/Architecture degrees from the University of California, Berkeley, and is a Phi Beta Kappa graduate of Scripps College, where she received her bachelor of arts degree.

06:55 Why have people cottoned on to selling to employers, and is it a good direction to focus?

07:28 What are the three ways healthcare gets paid for in America?

07:46 Where is the profit in the healthcare system?

08:32 What does an entrepreneur really need to understand in order to sell to employers?

13:05 “It really is about producing a productive employee.”

17:49 Why it’s not enough to understand the market but you must also differentiate.

21:01 What’s the biggest misunderstanding entrepreneurs have about per member per month?

24:10 What companies are standing out right now as differentiators?

28:02 Why is it important to also show that you are improving quality?

28:51 EP331 with Al Lewis.

28:55 EP427 with Rik Renard.

29:33 EP372 with Cora Opsahl.

30:07 Why is it important to find a strong champion who will advocate for you as a partner?

35:05 Why is it important to manage your investors and set appropriate expectations around the timeline of a sale?

36:21 What’s the lesson to be learned behind Livongo?

You can learn more at Frazier Healthcare Partners. You can also follow Barbara on LinkedIn.

Barbara Wachsman discusses #digitalhealthvendors selling to #employers on our #healthcarepodcast. #healthcare #podcast #digitalhealth #healthcareleadership #healthcaretransformation #healthcareinnovation

Recent past interviews:

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Luke Slindee, Julie Selesnick, Rik Renard, AJ Loiacono (Encore! EP379), Nina Lathia, Marshall Allen, Stacey Richter (INBW39), Peter Hayes, Joey Dizenhouse, Benjamin Jolley