Last week we were privileged to visit Independence Blue Cross in Philadelphia with five of our leading portfolio companies.
They presented an important slide that depicts the breakdown of the expenses for US-based health insurance companies. Of every dollar:
23.3% is spent on Prescription Drugs
22.2% is spent on Doctor Services
20.2% is spent on Office & Clinics Visits
16.1% is spent on Hospital Stays
And the rest of the breakdown receives a small portion of every dollar.
Where do new technologies enter the picture?
Speaking the Language of Insurence Companies
There is always an internal struggle between medical experts who want to implement new technologies and the lawyers and actuaries who view everything through the lens of risk.
IBX shared that every morning, their employees responsible for innovation receive dozens of emails from startups who want to offer their new technologies—the majority of these emails will not be answered.
Only those who are able to specifically advance the goals of the insurance companies (as presented on this slide) will receive attention. The main takeaway—startups need to speak the language of the insurance companies, and try over and over before their technologies are given a chance.
The insurance company does not provide medical services, and startups need to be very explicit about who is the user. Sometimes insurance companies may adopt a technology new technology that they believe will serve a specific sector of their clientele base, only for the insurance company to later discover that their clients do not have a need for this technology. One example of this can be found in the Independence Blue Cross’s first try at telemedicine before Corona.
Medical Scrutiny and Ironclad Information Security
The process of setting up pilots after a startup company receives initial interest from the side of the insurance company is long and arduous. They scrutinize all components of the technology, with a critical emphasis on information security. Medical professionals, data analysts, lawyers, and more will tear the different components of the technologies apart.
Insurance companies are looking for clinical validation based on well-run and large-scale studies. Beyond innovative and clinically validated technology, the most important variable is information security. Without ironclad information security, new technologies will not even be considered.
Clinical and Economic Validation
US insurance companies receive the same reimbursement for each emergency visit regardless of the procedures that were performed.
Accordingly, in order to adopt new technologies a start-up must demonstrate:
- Endorsement from medical administrators that there is a clinical value
- Proof that the technology does not increase expenses but rather increases efficiency with a positive ROI
- Improves the quality of care
First Mover Advantage paired with Business Value
There is a big first-mover advantage for new technologies of their kind. Switching an existing technology that is already in use is dangerous for these insurance companies. There needs to be a huge gap in payoff for the insurance company to consider switching. Technology that “does good for patients” is not nearly enough.
There needs to be a strong business case with clinical value and validation in addition to strong business value. There needs to be continuous feedback from active system users.
About eHealth Ventures
The eHealth Ventures partnership is a leading investor in early-stage digital health companies.
It includes 2 VC funds and a technological incubator with an exclusive focus on digital health and significant government non-dilutive funding. Partners include Maccabi (a leading Israeli HMO), Amgen (global biotech giant), the Mayo Clinic, Medison Ventures, Arad Investments, and the Hadar Group. The team has reviewed over 1,650 companies to date and invested in a portfolio of 24 highly innovative companies (digital diagnostics, therapeutics, home care and Bioconvergence).
