Apr 6, 2022, 2:41 PM ETWebinar, Interview

Risk-based Contracting for Value-based Care, a Founder's Playbook

a16zJulie, Justin, Jack Stoddard, Rajay Bhatniji, Corbin Petro, Faye Rottenberg, Satish Jain, Mike Copco, Sunny Goyal, Sonny

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CMS aims to have all Medicare beneficiaries cared for by providers and value-based care models by 2030.
Payers are expected to double down on risk-based models due to rising medical costs, offering subsidies and encouragement during early participation phases.
Future provider assignment is predicted to shift from geography and referral networks to clinical effectiveness in managing specific risk conditions.
Companies may face a data delay of up to 18 months for financial validation of model success due to claims reconciliation.
Investors expect founders to use interim measures, such as satisfaction and savings, to gauge model viability before final financial readouts.
Success in risk-based contracts will be judged against value or outcomes created, requiring non-trivial investments in clinical aspects and risk management.
Founders are advised to adopt a glide path approach rather than moving to full risk for valuation arbitrage, aligning incentives with payers to gradually increase risk levels.
Companies must maintain sufficient capital reserves and financial weight to manage statutory risks and potential negative impacts from model failure.
Digital health companies are expected to build data infrastructure from day one to identify high-risk members, risk stratify, and iterate on care models.
Investors require evidence that a company has selected a patient population where market readiness for value-based care is high and the timing is appropriate.
Organizations are expected to need a broad coalition including contracting, medical leadership, legal, and executive sponsors to navigate internal resistance.
Companies may ramp up market presence before having final financial answers if non-financial indicators provide sufficient confidence.
Founders are expected to build for value-based care in parallel with fee-for-service contracts to prove the model over a time horizon of potentially a decade or more.
Large national partners are predicted to require the broadest coalition building across functions due to organizational complexity.
Success in risk-based models requires defining metrics in terms of what matters most to each specific partner, including literal financial assumptions.
Investors will look for plans that account for talent, capital reserves for risk management, and a well-articulated roadmap for achieving higher risk levels over time.
Companies face trade-offs between achieving scale for unit economics and avoiding exposure that could cause huge negative financial impact if the model fails.
Payers are expected to require experience, patience, and financial weight before allowing a company to assume full actuarial risk.
Future provider assignment may shift toward who is effective with risk rather than geography, as payers reward hitting quality and cost outcomes.
Companies may evolve into marketplaces, enablement layers, or effectively become payers taking on full actuarial risk through global capitation models.
Taking on insurance risk is expected to significantly increase capital requirements, necessitating the use of reinsurance and stop-loss policies.
Companies will need to generate sufficient clinical evidence to sell outcomes to payers as they move toward full risk, often requiring third-party data collection for statistical significance.
Founders are expected to bring expertise and processes typical of larger, later-stage companies earlier in their lifecycle to manage complex risk contracts.
The shift to value-based care is described as a macro-level trend that will rewire the healthcare system and address the lack of resiliency in the traditional fee-for-service model.
Large markets are expected to become more immune to punitive swings compared to small practices due to risk mitigation through scale.
Companies must decide whether to build or buy core instrumentation pieces to ensure compatibility with health plan partners and providers.
Investors expect to see whether a company has payer partners lined up or a hypothesis regarding which partners are ready to collaborate for a given population.
Companies are expected to face varying levels of payer readiness for value-based care across different market areas, which is described as a moving target.
Regulatory tailwinds may be relevant to specific populations such as kidney care, primary care, or oncology.
Payers expect value-based care models to drive affordability and reduction in total cost of care.
Founders are expected to face challenges if they struggle in risk-based models, while others successfully navigate a phased approach to risk.
Companies are expected to take on full risk against the total cost of care in global capitation models or specific episodes via bundled payments.
Creating meaning and purpose in patient lives is noted as a clinical model that cannot be paid for under existing CPT codes.
Founders must have deep understanding of the local population to define success tailored to their community's specific needs.
Investors will scrutinize whether a company has internal experts or a plan to hire those with past experience implementing value-based care models.
Companies may elect to renegotiate original contracts after demonstrating proof points in fee-for-service phases.
Future management systems are expected to stay, with companies delivering multimodal, interdisciplinary, and continuous care approaches.
Companies are expected to iterate and change their models based on evidence and data from patient interactions to ensure efficacy.
Validation that a chosen area has high market readiness for value-based care is considered super critical for success.
Investors expect to see if a company has a use of funds plan that provides sufficient runway to reach a strong set of milestones.
Companies may need to build data infrastructure to evaluate impact, enriching it with their own data to test assumptions.
Founders are expected to have an anchor customer who becomes a co-founder to help launch the business and mitigate initial risks.
Companies must avoid being too creative or far ahead/behind by purchasing components compatible with what partners are currently seeing.
Scaling at-risk models often requires the ability to deliver care in novel ways to address population needs.
The market is used to paying only four to six percent for primary care, necessitating new business models to extract waste from the remaining 90 percent.
Success in risk-based contracts is ultimately judged against the value or outcomes created, requiring a clear definition of success for each specific partner.
Founders must have the patience to see real impact over a decade or more, as outcomes cannot be expected in 12 or 18 months.
Companies are expected to need a toolkit and dashboards to know if a model is working ahead of ultimate data readouts.
Investors expect to see if a company has selected a patient population for which value-based care actually makes sense.
Companies are expected to face a gamble in deciding what to build versus buy for their data infrastructure.
Future risk-based contracts will generally require a fairly non-trivial set of investments into clinical and risk management aspects.
Payers are expected to require a plan for sufficient capital reserves to manage statutory and other risks.
Companies are expected to collect data through third parties to show statistically significant impact.
Founders are expected to need to build these capabilities early on as they take off on the glide path to risk.
The speaker suggests that companies are expected to become care platforms with a broad range of clinical services as they grow.
Companies are expected to take on full risk against all the care for a given patient in bundled payments for a specific episode.
Founders are expected to need to build data infrastructure from day one to collect, analyze, and iterate on care models based on evidence.
Companies are expected to face significantly up capital requirements when taking on insurance risk.
Investors expect to see if a company has a well-articulated roadmap and set of assumptions for getting to higher levels of risk over time.
The speaker suggests that having a strong coalition including contracting, medical leadership, and legal is necessary to avoid downstream "antibodies".
It is expected that companies will need to build these capabilities early on as they take off on the glide path to risk.
The speaker notes that many people in payer organizations can say no, making coalition building critical.
It is expected that companies will need to collect data through third parties to show statistically significant impact.
The speaker expects that companies will need to renegotiate original contracts after demonstrating proof points in fee-for-service phases.
It is expected that the range of risk will be mitigated by accepting more systemic risk through larger market size.
The speaker notes that digital health companies must build data infrastructure to evaluate impact.
It is expected that companies will need to iterate and change on their model based on evidence and data from patient interactions.
The speaker suggests that companies need to buy components that are compatible with what partners are seeing to avoid being "too creative, too far ahead, or too far behind".
It is expected that scaling at-risk models requires the ability to deliver care in novel ways.
The speaker notes that digital health companies are expected to become payers themselves as they take on global capitated risk.
It is expected that the shift from fee-for-service to value-based care is a macro-level shift that is currently ongoing.
The speaker notes that the market is expected to see a shift where providers are rewarded for hitting certain quality and cost outcomes.
It is expected that companies will need to take on full risk against all the care for a given patient in bundled payments for a specific episode.
The speaker suggests that companies are expected to take on full risk against the total cost of care in global capitation models.
It is expected that companies will need to have enough experience and financial weight to manage risk.
The speaker notes that companies are expected to start slow on a glide path to risk.
It is expected that companies will need to build for value-based care in parallel with fee-for-service contracts.
The speaker suggests that the future of provider assignment will depend on clinical effectiveness rather than geography.
It is expected that companies will need to align around long-term impact tailored to their local community.
The speaker notes that having an anchor customer who becomes a co-founder is expected to be crucial for launch success.
It is expected that companies will need to build broad coalitions including contracting, medical leadership, and legal to avoid downstream resistance.
The speaker suggests that future risk-based contracts will require a fairly non-trivial set of investments into clinical and risk management aspects.
It is expected that investors will look for plans that account for capital reserves and runway to milestones.
The speaker notes that validation of market readiness in a specific area is expected to be critical.
It is expected that companies will need to generate clinical evidence to sell outcomes to payers as they move toward full risk.
The speaker suggests that companies are expected to have a hypothesis about which payer partners are ready to collaborate for a given population.
It is expected that the future will see companies becoming marketplaces or enablement layers spanning payers and providers.
The speaker notes that companies are expected to become care platforms with broad clinical services as they grow.
It is expected that companies will need to bring in expertise typically seen in larger companies earlier in their lifecycle.
The speaker suggests that companies are expected to operate with a time horizon of a decade or more to make a real impact.
It is expected that value-based care is expected to rewire the healthcare system and patient experience.
The speaker notes that companies are expected to define success in terms of what matters most to each partner.
It is expected that companies will need to use interim measures to get confidence before final financial readouts.
The speaker suggests that companies are expected to need a toolkit and dashboards to know if a model is working.
It is expected that companies will face a balance between scale for unit economics and avoiding negative financial impact from model failure.
The speaker notes that investors are expected to look for a well-articulated roadmap and assumptions for higher risk levels.
It is expected that companies will need to validate that they have selected a patient population where value-based care makes sense.
The speaker suggests that companies are expected to need to generate sufficient clinical evidence to sell outcomes to payers.