What Healthtech Startups Need to Know Before Pitching Hospitals & Payers
By Andrew Smith
In pitch meetings with healthtech startups, founders often ask us what unique differentiators Inflect brings to the table, compared to VC firms with a broader portfolio across the many verticals beyond health/biotech.
The short answer: As the innovation arm of Vituity, we have access to the network’s clinicians in many locations, geographies, and communities — real providers in real hospitals on the frontline, highly attuned with the people who care for patients every day.
This also gives us a deep bench of practical experience with the broader health ecosystem to draw from. We leverage this insight, for example, when helping our startups launch pilot programs in various acute care settings like the Emergency Department or on an inpatient floor, (along with pilots for patients across all other levels of care).
Related to that, here’s some broader points of advice we often give to healthtech startups, especially when they are in the early stages of development:
Payers & hospitals should not necessarily be your holy grail
Early on, many healthtech founders assume that landing a partnership with a major hospital system or healthcare payer is key to their success. And while doing that is one of many milestones worth working toward, these partnerships are often fraught with unforeseen risks.
One key concern is cost adjustments. Founders can understandably assume that access to a health system’s thousands of patients will translate into a strong increase in revenue. But almost by their very nature, payers and networks are inclined to negotiate patient costs downward, and by significant rates. And as hospital profit margins continue shrinking, this cost pressure can decrease a startup’s expected revenue from dollars per patient, to mere pennies.
An equal challenge is what we like to call the data interoperability trap:
When signing with a major payer/hospital system, this point is often raised as a potential dealbreaker: “If your product doesn’t integrate with our existing products, we can’t use it.”
Eager to secure the deal, a startup is tempted to promise interoperability — even if that means adding many more months to their timeline. In our experience, the healthcare system’s IT department waitlist to approve an API can last up to a year.
A better solution? Propose launching a small standalone pilot program, while also working on interoperability over time. That way, you can show concrete results immediately.
Which takes me to my next point:
Know the rules of engagement with health care provider pitch meetings
We faced just this issue recently with one of our portfolio companies. While the founders’ pitch deck was impressive, it included some slides around clinical trials and ICU bed costs which were not necessarily accurate to how much these items generally cost a hospital. Had the founders pitched this deck to payer/network board members, those questionable figures might very well have been a serious speed bump.
Finally, startup founders need to go into these meetings knowing beforehand what they’re willing to negotiate around, and what they won’t. All too often, we have seen startups alter their roadmap to please a prospective hospital investor — accelerating this or that feature on their timeline — only to have these course corrections frustrate the expectations of other customers or investors. Everyone has their own agenda, and as a founder, you ultimately have to stay true to your startup’s core vision.
Finally, one last point of practical advice:
Get Soc 2 Certification First Before Approaching Payers/Hospitals
A table stakes auditing procedure, hospitals and payers will absolutely ask you about your SOC 2 compliance before even seriously considering any kind of deal. It is also a time-consuming, frustrating process. Far better to have this checkbox already checked beforehand.
Overall we strongly recommend that health tech startups have a founding member or close partner with extensive experience in healthcare, who knows and understands the unique but overlapping cultures of hospitals, payers, and health employers.
This is not to say every founding member must come from healthcare. Far from it. In fact, we often find that the most transformative ideas come from founders outside that world. It’s core to our mission to help as many of those startups as we can.
Andrew Smith is President of Inflect Health, the innovation hub for Vituity.
