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My guest in this healthcare podcast is Nikhil Krishnan, who is the founder of the Out-Of-Pocket newsletter. I was talking with Nikhil, and we identified\u2014or, more accurately, he identified\u2014five business models of digital health. What makes each model distinct is a few factors. If you weren\u2019t in the healthcare industry, you\u2019d probably expect that I\u2019m going to say that the biggest factor a business model must hinge on must have something to do with patient outcomes or care or something that has something to do with the hopes and lives of patients. Except no. Mostly, our models do not define themselves by attributes of their patients, except on one dimension: who is paying their bills.

Who is paying has enormous downstream consequences that I don\u2019t think people outside of healthcare, or even people inside of healthcare, sometimes really appreciate. It\u2019s because of all of the perverse incentives. It\u2019s a tangled web we weave.

For example, let\u2019s just say you\u2019re a start-up founder trying to cook up your unique selling proposition. You can\u2019t just decide you\u2019re gonna lower costs and improve patient care as general constructs. Because let\u2019s just say you do that\u2014that\u2019s your USP (lower costs and improve patient care)\u2014and then you try to sell your thing to Medicare Advantage plans or large provider organizations.

Oh, right \u2026 Medicare Advantage plans or even commercial ones\u2014they don\u2019t care about the total cost of care. Neither do provider organizations unless they take on sufficient risk to care, and many do not.

In fact, as came out in that JAMA article the other day, it could be construed that entities such as these carrier health plans have a perverse incentive to see total costs of care go up. So right, you naively (you\u2019re the start-up founder again in this case study, don\u2019t forget) trot into some administrator\u2019s office with a great something or other to reduce total costs of care\u2014and you\u2019ll get cast out upon your petard on the quick.\xa0

Every single day of the year in my world, I see people make this same mistake over and over again: not tailoring their product market fit to any particular market, with the recognition that some in this healthcare industry have a vested interest to see costs going up and some have a vested interest in costs going down. Either way, if we\u2019re talking about large organizations here and even some small ones, the money wins over patient care. So sad to have to say that, but listen to EP351 with Dr. Eric Bricker and you\u2019ll get all the context you need on that point. \xa0

Here\u2019s the thing, though. I don\u2019t know about you, but I can\u2019t tell you how many digital health start-ups I run across where I look at their decks or have a conversation with a founder, and I ask who their customer is. Is it employers or health plans or \u2026 ? And they don\u2019t know. They\u2019re gonna figure this out later. I don\u2019t get how to successfully do that. I\u2019m indubitably wrong here given all of the pivots I hear about that seem to go OK, but the prospect of completely redefining my operational goals and operations and market positioning at some point in the future seems like a daunting and avoidable prospect.

I would be remiss not to mention, however, the number of really good mission-driven healthcare companies out there really trying hard to figure out how to create a sustainable business, a fair profit, while at the same time serving patients really well. There are companies adding value commensurate with the dollars that they come by, and I certainly applaud everything that they are doing.

At the same time, given all this, here\u2019s a message for all of you VCs and private equity etc\u2014people with money\u2014out there. Let me quote Dr. Vivek Garg here (@vgargMD on Twitter): \u201cIf you\u2019re financing care delivery without board-level focus on clinical outcomes, you\u2019re part of the problem.\u201d \xa0

So, let\u2019s talk about these five business models that health and healthcare start-ups eventually settle themselves into after they figure out who their customer is. Nikhil Krishnan, my guest today, and I discuss how they can be financially viable and if we think they\u2019ll actually be able to provide superior patient outcomes.

[Trumpets play here] In no particular order, this is what we\u2019ve got for our five business models:

1. Completely avoiding incumbents, creating a cash-pay ecosystem
2. Better middleware (being the pipes, as I\u2019ve heard so many times these past couple of weeks)
3. Companies serving incumbents either by being a virtual front door for them or disrupting the competitive landscape somehow
4. Joint ventures
5. Old-school digital health who are now incumbents in their own space

My guest in this episode, Nikhil Krishnan, has a bunch of things going on. He might be best known for his newsletter, Out-Of-Pocket Health, which you should certainly subscribe to. He\u2019s also working on a healthcare 101 crash course to teach newcomers about the Wild West we call American healthcare. Besides all of this, Nikhil does some early-stage investing.\xa0

Nikhil Krishnan is the founder/thinkboi at Out-Of-Pocket, where he\u2019s trying to make the business of healthcare more easily understandable and (hopefully) entertaining. He runs a newsletter (yes, yet another one) and an online healthcare community and does some digital health investing on the side. He\u2019s \u201cextremely online,\u201d and you can find him firing off obscure healthcare memes plus the occasional insight on Twitter at @nikillinit. \xa0

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05:31 What are the different models of digital health?
07:17 What are the different motives for cash-pay digital health models?
13:08 \u201cOne of healthcare\u2019s original sins is that every solution deployed has been a custom solution for the end user.\u201d
13:31 How willing will these companies be to share their data with third parties?
17:20 \u201cI don\u2019t think selling tech to large incumbents is going to move the needle.\u201d
20:27 \u201cThese companies, most of them are actually getting extra money for the more expensive stuff.\u201d
22:11 How did joint-venture digital health business models come about?
25:50 Why do you see partnerships more on the payer/provider side?
26:41 Who are the old-school digital health companies that could be considered incumbents?
28:48 Why do so many digital health start-ups have a hard time pinpointing who will pay for their services?
31:22 \u201cThe ability to go through the idea maze is way faster now.\u201d
34:08 \u201cThe field is wide open to help teach people how healthcare works.\u201d

@nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

What are the different models of digital health? @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

What are the different motives for cash pay digital health models? @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

\u201cOne of healthcare\u2019s original sins is that every solution deployed has been a custom solution for the end user.\u201d @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

How willing will these companies be to share their data with third parties? @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

\u201cI don\u2019t think selling tech to large incumbents is going to move the needle.\u201d @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

\u201cThese companies, most of them are actually getting extra money for the more expensive stuff.\u201d @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

How did joint-venture digital health business models come about? @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

Why do you see partnerships more on the payer/provider side? @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

Who are the old-school digital health companies that could be considered incumbents? @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

Why do so many digital health start-ups have a hard time pinpointing who will pay for their services? @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

\u201cThe ability to go through the idea maze is way faster now.\u201d @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

\u201cThe field is wide open to help teach people how healthcare works.\u201d @nikillinit discusses #digitalhealth on our #healthcarepodcast. #healthcare #podcast

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