SplashX Precision Health: who are you targeting as the end customer?

Who's the best target customer? Pharma, self-insured employers, payers, consumers, hospitals...

At SplashX Invent Health - Precision Health, the Salon co-hosted and co-produced by Vator and HP last week, there were discussions over how this new space, which encompasses the move toward tailored and personalized medicine vs a one-size-fits-all approach, would affect both doctors and patients. 

There is, of course, another part of the equation: the end customers, meaning hospitals, self insured employers or other health systems that will be purchasing these solutions in order to provide them to those doctors and patients. 

"Who do you target? Maybe the self-insured employers, they’re extremely innovative. Are there any lessons here for the entrepreneurs or one of your companies in precision medicine that actually went down the wrong path and had the wrong business model, had the wrong target end customer?" co-moderator Bambi Francisco asked the panel, which consisted of venture capitalists who have invested in the precision medicine space.

(NOTE: Save the date, our next salon is on Vitality - Healthy lifestyle as a drug, a look at wellness and prevention and behavioral change as the prescription to better health. JOIN us on December 13 at HP's headquarter in Palo Alto. Get Early Bird tickets or become a member).

Risa Stack, General Manager of New Business Creation at GE Ventures, answered first, saying that, "the target customer is super important in terms of validating the business model."

In terms of who to target, pharma is the group with the most money, she said, and hospitals are slow to adopt new technology. And self-insured employers are not all as forward thinking as some think they are. 

"Self-insured employers, though everyone thinks they’re great, but I worked with one of the largest self-insured employers, and I spent a lot of time trying to get them to adopt technology, and there are some very progressive ones in Silicon Valley, there are some that are less progressive, so I think it’s tough for the self-insured employers. So I think there are a lot of companies that have gone down the wrong road a little bit," said Stack.

Part of what it comes down to is actually listening to the customer and seeing what they want, rather than trying to tell them what they want. 

"I have one company that’s in this space, an asset they’ve developed for themselves internally is turning out to be really interesting and the clients are asking, ‘Can we buy that? Can we buy into your database, we don’t actually don’t know how to store our data.’ The pharma companies are asking this. ‘Oh, that’s really interesting, maybe we can sell that.’ So I think another thing is be flexible. Maybe you’re trying to sell a customer and they actually want to buy something else so really listen to that," she said.

"I think the pharma companies are a good place to start; I think hospitals are harder, self insured employers are harder. I think that’s one of the really interesting things about precision health is who your customer is because a lot of customers who actually need this are often slower adopters of technology."

Amy Raimundo, Managing Director at Kaiser Permanente Ventures, added that difficulty is why she is "looking for that strong signal" to show that whatever is being sold is something that those providers really need. 

"That is the distinction we look for because they're slower. So if it’s a nice to have, or it’s ‘Yeah, it’s valuable,’ but there’s only so many things you can do and providers are providing healthcare."

While everyone in Silicon Valley loves to talk about disruption, that's actually not a good thing in care delivery, she said.

"So you need to really think, ‘Those people need to solve this problem in order to tolerate the disruption, tolerate the opportunity costs of not focusing on that patient.’ We look for that every day. So if you’ve got that with somebody, you’ve got your first foothold, and that may be a wedge into many other things, but you’ve got to have that one. ‘It’s good or it’s valuable broadly’ isn’t enough to get some of the big enterprises to move."

"The trifecta that really gets me excited is, everyone talks about reducing costs and improving quality, but if there’s an angle where you can increase revenues to the system, that is the trifecta. Hard to find in software companies, you can actually do a better job uncovering that in medtech, and it’s a reimburse pathway as a device or a diagnostic oftentimes. So I always try to find those but they’re hard to come by," said Garrett Vygantas, M.D., Managing Director of OSF Healthcare Ventures, who spoke next.

Ursheet Parikh, Partner at Mayfield Fund, stated that he both agreed and disagreed with what was being said. 

"I think each type of entity in the healthcare ecosystem, there’s big opportunity to build pretty large companies. Typically I think the way that’s becoming is very and I think this is where the exceptional entrepreneurs are figuring this thing out. In many ways your open market has to become a function of the product and it’s the secondary group that determines what is the set of features and offering that you privatize?" he said.

"The customer is usually right but not always right and one of the biggest benefits that emerging companies have is you get to choose your customer. So once they’ve paid you, you can’t afford to have a bad reference. So you really want to be careful when you take money from customers. Do you really want to be in that business and is that what you want to commit yourself to for X many years?"

Parikh also spoke about mistakes that companies make, and said that the most common one he has seen have been in sales for self-insured employers.

"Self-insured employers are among the biggest driving forces of innovation in all of the healthcare ecosystem. They are paying for about 40 percent of the total cost of healthcare. And the government is another 40 percent. You have the head of benefits, who’s typically the big decision maker; this person never gets applauded or acknowledged for doing this. So the result is you end up having this ever increasing premium and it ends up far exceeding inflation, and there’s a whole different conversation around why premiums keep going up. But then, effectively, in the total healthcare spend, I’m making up a number, but close to 98 percent is to go to healthcare premiums, and then two percent is going to go in this benefits or innovation bucket," he said. 

That remaining two percent is what "has been used to dress up the pig," in this case the "pig" being a regular health plan.

"The tendency to dress up the pig is what’s new and cool this year. There’s a flavor of the year dynamic that happens, where when you are selling to self-insured employers if you’re new and cool you will find customers but then, for the benefits manager, he has such a long laundry list of stuff, a lot of it not getting used, because the benefits team don’t actually have the staff to travel to adoptions. So you end up then having to hold the next year and you have to cull it and then you’re not planning their option, so that’s going to end up being a bad signal. It’s even worse if you end up selling to this customer because this customer doesn’t have the bandwidth to buy 30 products and integrate them. A lot of those companies are very challenged right now. The whole benefits channel has been quite challenged. I think a place where a lot of false signal has come and has impacted a lot of companies, I think that’s one."

Co-moderator Archana Dubey, Global Medical Director at HP, noted that the self-insured employers have "revolutionized the whole value-based care movement and that has led to in hospital system solutions that are driving value-based care."

"Yes, it is a cost but they’re starting to see that the only way for us to, and you mentioned the lipstick on the pig, but the only way for us to bend the cost curve is by actually having to invest in that 2 percent, increasing that 2 percent spend, so that the 98 percent starts to shake down. So it’s very interesting that we see pharma being an opportunity, or health systems being an opportunity, but, at the end of the day, it has to be delightful not just for the patient or the provider but also the payer. Those are the solutions that hopefully be the future solutions."

The companies that have done well, said Parikh, are the ones that have been able to benefits as a license to engage those users.

"The ones that continue to get the back do so when they actually have sustained user engagement. And that user engagement cannot be compared to other healthcare products, it needs to be compared to stuff like Snapchat, and that’s the benchmark. You’re now finally beginning to see a set of companies that are beginning to show that type of engagement."

For a company like GE, said Stack, benefits all come down to the bottom, and for that reason it has started to partner with existing companies, such as Warby Parker for eye exams for its employees. 

"They were toying with, ‘Do we keep the vision benefit or do we not?’ and they found way that would actually be more efficient and easier for their employees to use and they were even toying with ‘Can we do eye exams at the work site?’ So I think there’s a certain level of technology that you can make it really easy because Warby Parker existed we didn’t have to create it, is there a way we can partner with them? I think for some of them coopting the newer companies in terms of that are already delivering benefits was easier than creating something."