Digitally Disrupting Medicaid?. This segment in healthcare offers…

Written by Daniel Galles — Partner, Providence Ventures

It is well understood by industry experts and investors that the U.S. healthcare system is in need of dramatic technology transformation. Digital tech’s ability to disrupt industries has not gone unnoticed — over the past 3.5 years, $16.8 billion has been invested by VC’s in private digital health companies.

What’s the Opportunity?

Despite the giant swath of investment dollars pouring in, one significant segment of healthcare has largely gone overlooked and untouched: Medicaid.

Medicaid covers 1 in 5 Americans and represents over $500 Billion in annual spending — swarms of opportunistic investors should be pouncing at this space begging for disruption, right?

Sadly, similar to the rest of the industry, effectively disrupting this space isn’t that easy. Venture investors historically have largely shrugged their shoulders when considering this area for investment.

Why’s this the case?

To start, it’s fair to consider that there are reasonable objections and challenges that have steered investors away from pursuing investments in Medicaid. For example, the complex regulations that vary state-by-state can make it extremely hard to grow and scale a successful business with typical venture-driven timelines. Add to that, Medicaid reimbursement rates are often a lot lower than Commercial and Medicare rates. This makes it challenging for provider systems to justify making investments in new technology for this extremely low (at times, negative) margin component of their business.

Market dynamics have transformed in the past 15 years, creating a far more attractive investment opportunity:

• Medicaid enrollment has exploded since the passage of the ACA to approximately 75 million Americans today, which accounts for 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 enrolled in 2000. These well-capitalized and rapidly growing health plans represent a big market opportunity for new technology 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 range 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.

Recognizing these needs is critical to drive innovation.

The unique needs of Medicaid members is critical, and sits at the core of potential innovation and investment. This group’s unique needs aligns with our mission at PSJH to care for all people, especially the poor and vulnerable, that comprise the Medicaid population. However, caring for Medicaid patients has its own unique challenges in terms of effective care delivery and resulting system economics.

“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.” — Andrey Ostrovsky, Chief Medical Officer for Medicaid and CHIP.

So, what are their unique needs, and where are the big opportunities for innovation and investment in Medicaid?

Social Determinants
Studies show that 60 percent of health is linked to social determinants such as insufficient food and housing. However, even modern-day healthcare systems aren’t equipped to identify these social issues, let alone take action to create positive chance for these patients. There’s a growing need for technology that can help identify the social needs of patients and directly connect them with services to improve outcomes and lower costs.

Patient education and navigation
Health plans and providers serving Medicaid members know that engaging members about their health is critical to driving positive outcomes. But, finding and engaging these members presents its own unique challenges driven by insufficient information (e.g. no addresses, limited demographic information, etc.) and language barriers. Add to that, Medicaid members represent a diverse mix of individuals (i.e. children, low-income adults, elderly, disabled, urban/rural) that require different approaches to effectively engage them.

However, contrary to popular belief, Medicaid members are largely mobile-phone enabled and have proven responsive to engagement through texting and apps. Thus, there are opportunities for solutions that leverage these communication modalities to effectively personalize communications to break through the challenges of patient engagement, and receive the optimal feedback on specific needs and to better support Medicaid members in caring for their families and themselves.

Data: Enhanced analytics and sharing
Access to quality, structured data surrounding Medicaid patients is a big challenged due to dated technology infrastructure, siloed data, and incomplete information about Medicaid members. Digital solutions are needed that can access, aggregate, cleanse, and analyze data across patient populations, to start enabling personalized engagement and care.

New care delivery models
Given how different the unique needs of Medicaid members, health systems need to begin thinking differently about their approach to care delivery. Payers and providers need to work together in sharing data about these patients, and create collaborative care models for Medicaid members. Technology that can facilitate collaborative efforts, and service providers that can complement unique care needs are critical, and represent attractive investment opportunities.

Investors are beginning to see potential in Medicaid:

We at Providence Ventures believe that there is significant opportunity within this healthcare segment, and some recent notable financings in this sector indicate that we are not alone amongst venture investors:

• 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 and PSJH’s Mission in Medicaid

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.

Providence Ventures targets early-to mid-stage investment opportunities, preferring to be one of the first institutional investors in a company. Over the life of an investment, we seek to deploy $8 to $15 million. Our best opportunities to add value are investments that align the interests of our portfolio companies and the innovation priorities of Providence St. Joseph Health (PSJH), through broad solution deployment and strategic insight. The innovation opportunities PSJH targets as a large health system tend to reflect the priorities of the US health system overall. We welcome the opportunity to partner with established venture funds as co-investors, however, syndication is not a prerequisite for our participation.

This article originally appeared as a sponsored post by Providence Ventures on VentureBeat under the headline “Medicaid Innovation and Investment Offers Surprising Opportunity”