Presented by Providence Ventures

Third in the series,”Strategic VC as a Secret Weapon in Healthcare.”

It is well understood by venture investors that the U.S. healthcare system is in need of a dramatic technology transformation. As evidence, one need only look at the $16.8 billion that has been invested by VC’s in private digital health companies over the past 3.5 years. In previous articles, we have highlighted how Providence Ventures and some of our portfolio companies have been contributing to this digital transformation effort through our unique investment/partnership model. We also highlighted some of the biggest problem—and opportunity— areas that Providence Ventures and many other healthcare technology VCs are targeting.

Yet, one significant segment of healthcare that could benefit immensely from digital transformation and investment has largely gone untouched: Medicaid. Even though Medicaid covers 1 in 5 Americans and represents over $500 Billion in annual spending, venture investors historically have largely shrugged their shoulders when considering this area for investment. Why is that?

There certainly are reasonable objections that have dissuaded investors from historically pursuing investments in Medicaid that still represent challenges today. For example, the complexity of regulations that vary state-by-state can make it hard to grow and scale a business with venture-driven timelines. Also, Medicaid reimbursement rates are typically lower, often significantly so, than Commercial or Medicare rates. This makes it harder for provider systems to justify making investments in new technology for this low to negative margin component of their business.

However, market dynamics over the past 15 years have changed significantly creating a much more attractive investment opportunity.

  • Medicaid enrollment has exploded since the passage of the ACA to approximately 75 million Americans today (30 percent growth since pre-ACA).
  • Medicaid-managed care plans have grown immensely with 76 percent of all Medicaid patients enrolled in managed Medicaid vs. 56 percent in 2000. These well-capitalized and rapidly growing health plans represent a big market opportunity for new technology and service vendors that can help them better manage the care for their growing member base.
  • Provider risk-sharing arrangements — through the creation of narrow networks of care for Medicaid plan enrollees — are expanding the market for new technology and services to provider systems that are now on the hook financially to deliver better and more cost-effective care. Risk on providers means more latitude for innovative solutions that were more difficult under fee-for-service.
  • Large non-profit organizations like Providence St. Joseph Health (PSJH) have recognized that the intersection of their mission to serve the Medicaid population and the economic challenges of the status quo means they must think differently about this population. Some, like PSJH, are increasing investments in the space deploying innovative population health and digital strategies with the goal of making the Medicaid population healthier, thereby costing the health system less —  both fulfilling their mission and improving their system’s economics.
  • Growing recognition by all healthcare stakeholders that different approaches to care delivery are needed based on the unique and heterogeneous needs of Medicaid members.

This last point about the growing recognition of the unique needs of Medicaid members relative to Commercial or Medicare patients is critical, and sits at the core of potential innovation and investment. It also resonates with our mission at PSJH to care for all people, especially the poor and the vulnerable, that comprise the Medicaid population. However, PSJH recognizes that caring for Medicaid patients presents unique challenges both in terms of effective care delivery and resulting system economics.

So, what are some of these unique attributes related to caring for Medicaid members, and what are the resulting big opportunities for innovation and investment?

Social determinants

Studies show that 60 percent of health is linked to social determinants such as sufficient food and housing. However, today’s healthcare systems are not well-designed to identify these social issues, let alone take action to positively impact change for these patients. Technology that can help identify the social needs of patients and directly connect them with services available to them is sorely needed and represents a tremendous opportunity to improve outcomes and lower costs in this population.

Patient education and navigation

Health plans and provider systems serving Medicaid members know that engaging members about their health is critical to improving outcomes. However, finding and engaging these members presents unique challenges driven by insufficient information (e.g. no addresses, limited demographic information, etc.) and language barriers. Also, Medicaid members represent a heterogeneous mix of individuals (i.e. children, low-income adults, elderly, disabled, urban/rural, etc.) that require different approaches to effectively engage them.

Medicaid members, though, (contrary to some conventional thinking), are largely mobile-phone enabled and have proven responsive to engagement through texting and apps. Thus, solutions that leverage these communication modalities, and effectively personalize their communications, can break through the traditional challenges of engagement, receive feedback on specific needs and better support Medicaid members in caring for their families and themselves and accessing needed services.

Data: Enhanced analytics and sharing

Access to quality, structured data about Medicaid patients is a big challenge given dated technology infrastructure, siloed data, and often incomplete information about Medicaid members. Technology solutions are needed that can access, aggregate, cleanse, and analyze data sets across populations of patients, and ideally down to the individual level to enable personalized engagement and care.

New care delivery models

Given how different the needs can be for Medicaid members, health systems need to think differently about the design and approach to care delivery. Payers and providers need to work in concert in sharing data about the members, and creating collaborative care models including government-sponsored Federal Qualified Healthcare Centers (FQHCs) that often serve as frontline primary care for Medicaid members. Technology that can facilitate those collaborative efforts, and service providers that can complement the unique care needs, are critical for success and represent attractive investment opportunities.

Andrey Ostrovsky, Chief Medical Officer for Medicaid and CHIP, earlier this year in an interview with CNBC, said about Medicaid, “My gut is that it’s a big opportunity with $500 billion in federal spend every year in a system that hasn’t evolved technologically much since 1965.”

We at Providence Ventures agree wholeheartedly with his view, and some recent notable financings in the Medicaid sector indicate that we are not alone amongst venture investors. Notable recent financings include:

  • Nuna — raised $60 million in June for its cloud platform that has aggregated and cleansed data on Medicaid patients from all 50 states, thereby providing a valuable database that can be analyzed and acted upon by healthcare organizations.
  • Healthify — raised $6.5 million in July for its social determinants management platform that enables healthcare organizations to find community services for their patients, track social needs across their population, and coordinate care with community-based services.
  • mPulse — raised $5 million to help Medicaid Plans overcome engagement challenges through tailored, interactive mobile solutions that deliver crucial information to members to drive cost-effective engagement and behavior change that improves health outcomes.

Providence Ventures is looking at investment opportunities in this complex market and has made some investments that are already positively impacting the Medicaid Population. InDemand Interpreting provides instant video interpretation services to ESL and Deaf populations. IRIS, a telemedicine solution that provides diabetic eye disease screening systems in primary care could improve the effectiveness in screening for this disease in vulnerable populations by providing screening in primary care. Finally, PSJH and Omada have collaborated on ways to deliver Omada’s diabetes prevention program to the Medicaid population.

Providence St. Joseph Health is committed to providing enhanced access and quality, personalized care to Medicaid members. We also realize that changes are needed to our current approaches to better do so. It is exciting to see the recent attention being paid to Medicaid from the entrepreneurial and investment community, and Providence Ventures looks forward to continuing our dedicated efforts in partnership with our like-minded colleagues in the market.

Look for our next article in Venture Beat where we will highlight other key emerging areas that we are targeting at Providence Ventures.

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