Managed Care Contracting for Health Tech Startups

Welcome back to the VBCA podcast. I'm Alex Yarijanian and today we're going deep into a topic that's make or break for health tech founders. And way too often this very same topic is totally misunderstood. And that's managed care contracting. Yeah, I know. Not sexy, definitely not trending on X. But if you're building in health tech and you don't understand how payer contracts work, you're building on sand. Let's be real.

You can have the best clinical AI, the slickest ui, the perfect patient experience, all of it good. But if the reimbursement model doesn't support it, you're just giving demos and sending PDFs no one reads. Today's episode is a blueprint. This blueprint is for founders, operators, and even some health plan folks who are trying to figure out how to actually work with innovation. Instead of slow rolling it to death. We're going to break it down into three parts.

1, what makes managed care contracting so brutal for startups? 2. Strategies to not just survive it, but win in managed care contracting. 3. Some real world startup case studies that code. Let'sgetintoit.

Let'sstartwiththeobvious.You'reahealthtech startup. You're comingintothis worldwithaboutasmuchleverageasahighschoolinternatapharmaconference. Nooneknowswho youare.You'vegotnovolume,andunlessyouhaveACO leveldata,noone believesyouroutcomes. Yet.Pointblankpayersarerisk averseandyourcompanyis,well,risk. You'renowsteppingintoa regulatoryminefield. Thereis hipaa,stateregs,priorauthorization,

utilizationmanagement.It'sliketryingtodoparkourwhilereadingalegalbrief.Andall you'vegotis onelawyerretainer anda COOwho hasn'tsleptsincethe lastSOC 2 audit.Thenthere'sdata,oractuallythelackofit.Healthplanshavearmiesofactuaries.You'vegota coupledashboardsandaclutch analyst who's alsodubbing asyourproductmanager.So whathappens?Youeithergetstuckin pilothellorworse.Yousignabaddealjust togetintothedoorandnowyou'relockedintoacontractthat'sbleeding yououtandapair willnotcometothetable.Letmetellyou

something.You

donotneedtobemassive to win.Youjustneedto besmart.Structured,surgical. Let'sbreakdowna fewplays.Play1.Usetech topunchaboveyourweight.Contractmanagementplatforms.Yeah,I'mtalkingabout toolsthatbringorderto thechaos canhelplevel theplayingfield.Fromcontroltoaudittrailstostructuredreviewprocesses,having cleanoperationalinfrastructurebuildscredibilityandsavestime.Now,allof thesethings thatI said, from controltoaudit trails,et cetera,processes,youmightbethinking,let'sjustgetstarted.

Butremember,whenyoustart,youneedtohave adirectionyoudon'tget,usuallyinanairplaneandjusttellthepilotto takeoff.You typicallyhavetohavealocation, youhave tohaveadestinationtogoto,otherwisetheplanewouldlikelynottakeoff. Allofthat tosay,don'tshowuptonegotiationswithvagueintentions.Showupwithdatatransparencyandthe operationalmaturitytoscale.Whenyoufirstsignacontract,you'renotdoneright?Youhaveaneffectivedate,youhavea contractinplace.Askyourself,

doIhaveaplanforrenegotiatingthis?Folksoftenthinkrenegotiationscomelater.Yeah,they do come later.Butguesswhat?Ifyoustart thinkingaboutwhatyournegotiationstrategy is,whatsomeofthe thresholdandkindofcriteriatotriggerthis negotiation,what you'retryingtogetout ofthenegotiation,what outcomesareyouseeking? Now, youdon'tjustsuddenly decide,okay,I'mgoingtonegotiatethiscontract,sowhatdata doIneed?Sure,youcandothat,butit'sbest thatyouthink aboutwhatoutcomesdo Iwantfrom anegotiation?

Playtoo.Toomanyfounderstrytofigurethisoutastheygo.Don't find someone who'sdonethis before,formerpayerexecutive,ahealthsystemlead,someonewho'sbeenthroughthreeMedicaid car routesandstillshowsuptowork.Hey,therulesare notwrittenanywhere. They'relearnedin theroomsyouhaven't evenbeeninvitedtoyet.Sofind someonewho's beeninthoserooms.Playthree.Sell financialimpact.Do not sellfeatures.That'saflag, redflag.Noone'sbuyingbetterux,they'rebuying results.Frame

yourlanguageintheirlanguage.Loweringutilization,fewerEDvisits,improved adherence,operationallift.Ifyou don'ttie yourvaluetocostcontainment orqualityimprovement,you're justalineitemtheydon'twant to fund.Now,becarefulabout this.In somemarkets,suchasCalifornia,youcantalkaboutER and EDandhospitalvisitsasmuch as youwant,right?Butfolks,eyeswill glazeover.That's ifyougetameeting.Why?Becausethepayersimplypays thehospitaladrgand it'suptothehospitaltofiguretherestout.

They'renotgoingtopayanything morethanthey'repaying. SobecarefulhowyouFrameyourvalue,butmakesure youframeit intheirlanguage.Startupwarstories,who

actuallygotitright.Let'swalkthrough threecasestudiesreally quickly.Thesearerealstartupswithreal challenges and, hey,real progresstoshowforit.Caseone is InnovateHealth.Theywerebuilding.I chuckle only becausethese vaguenamesandeverythinghasawordhealth andeverything has carein it,butitissoInnovateHealth.They werebuildingremote monitoringtechnology.Clinicallysolid,butnonetwork access.

Youcanbeas clinicallysolid asyouwant, butifthere'snonetworktoaccessyourclinicallysolidproduct,thenhey,it'snotgoing tobeout there.Butwhat worked?Ihavethreebulletpoints Iwant youto think about.One,theybrought inaformerhealthplancontractingleadearly.Now,watchoutwiththis. IfyougoandpoachsomeonefromaUnitedorHumanaor anAetna, anyoneofthesemajorcorporations,make surethat theyunderstandthestartup cultureright.Thesefolksaretypicallynotused tothemovingfast,breakingthings,a rapid

iterationandthebusinessneedsofastartup.Thesefolksareused to simplybeingin acorporation,alarge organization,andit operatesverydifferentlythanastartup.Somakesurethatyouconsiderthat.Sodon'tjustquicklypausethispodcastandgo findsomeonefromUnitedand bringthemin,butmakesureyouaskthemthe right

questions.Makesure that you watch forcuesthatareoutsideofjusttheinterviewtomakesurethat person understandsthatthey'recomingintostartupandunderstandsthatsomethingthatissettoday,astrategyof today,couldchangetomorrow, couldchangeagainthe dayafter,and itcouldchangeagain Mondaywhenyoucometowork.Somakesurethatyou'renotjustspending moneyonsomepersonyou got fromahealthplan.Thatwon'tbea goodfit.Mightseemlikean obvious

thingtosay.That'swhyIdidn'twantto sayorganizational fit,culturalfit, butspecificallyahealthplan corporate personneedstofitinto thefastpacedenvironmentof astartupandtheyneedtobeokay,right? Withthingschanging everyday,everyotherday.Two,structurethe contractingprocessfromthejump.SowhatInnovateHealthdidwasthattheystructuredthetotalityoftheircontractingflow andprocessfromthe

verybeginning.Andthree,buildanoutcomesdashboard.That'swhattheydid.Theybuilt anoutcomedashboard to show real valueandtheydidthisbeforethe pitch,notafter meetingwiththehealthplanandsaying,hey,yeah, we'llsendyousomedata.Andthenscramblingtobuild adashboard.Yeah, sothatisvery important.Theywalked inwith Proof,notpotential.Landed threeregional payeragreementswithin oneyear.And thesearen'tjustyourbasickindofagreements.Right.Theseareactually,I'mgoingtoput in airquotesfor

thelisteningaudience,enterpriseagreements.Sotheseare actualcontractsthatcouldbringinsome tremendousvalue.Iwanttotalktoyouabout casenumbertwo.That'sMedTechSolutions. Soit'satelehealth platform.Signed,they signedtwo earlycontractsthatnearlytankedthem.AndI'veseenthishappeninmanydifferentpointsofmy career.I'mtemptedtonamenamesbutIwon'tdothat here.Essentiallydon'tjusteagerlysignacontractthatyou don'tunderstand.Sothese peopledidthat,theysignedtwoearlycontractsandthatverythinmarginsand waytoo

muchrisk.I'veseen thishappen whenIwasatHumana andessentiallycertainprovidertookontremendous amountofrisk.Soglobalrisk,partA,Medicare,partA,BandD.Soa hospital,B,physician,D, drugs.Theytookallofthatrisk foracertainpercentageofpremiumthat didnotallowthemtobreathe.Theywereatthe door,knockingat thedoor,essentiallyneedingtorenegotiate,let'ssaythat. Sowhat Medtechdidwastheyretooledandtheycollectedgranulardatafroma smallpilot. They built avaluepropositionaroundavoidablecostreductionandnegotiatedbetter

termswithsharedsavingstriggersandtheyaddedstoplosslimits.Sothatwasmissing fromtheirinitialagreements.Nowthey're in five stateslive growinginmultiyearagreements.Okay, thelastoneI'mgoingtobringupisHealthWave.Everyallofthesehaveaword healthinit.Sothat'sanAIdiagnostic tool. Incrediblescience.I'm suretheirprogram isworking.They weretotallyunpreparedfor compliancereviews.Whattheydidwaspauseexternalnegotiationsto

tieuptheirinternalprocess.Itdependsonyourteamsize.Youdon'talwayshavetodothat.Theyrebuilt theircontractworkflowsand approvalcheckpointsto makesurethatessentially thingsweren'tjustgoingso fast thattheywereflyingundertheradarand theyengagedaregulatoryconsultanttohardentheirdealstructure.Nowagain,depends ontype of organization you'rerunning.You don'tneed aregulatory consultantforyourkindof behavioralhealthteletherapyplatformandthesetypesof

things.But it isimportantthatyoumakesure tobring inthepro periodexpertsearlyonin theprocess. Otherwise you'rewastingtimeandmoney.Right,and timeismoneyandmoneyistime.Soyou'rewastingyourresources.AndasastartupIdon'tneedtotellyou,you knowyourselfprettywellthat allyouhaveisyourtimeandthat'syourmostvaluableasset. Sooncethehouse wasinorder,Health Wavelanded.CommercialandMedicaid contracts. Andtheydidthiswithin six months.

Here aresomefinalthoughts.And8.Thisisnotoptional.Let'swrapitup here.Managedcare contractingisn't aline item.It'syourbusinessmodel.Youhave to takeit seriously.Ifyou're astartupin thisspaceandyoudon't understandhowyourproductfitsinto ahealthplan'sactuarialmodel, their quality strategyorcostsavinggoals,youarenotready. Thisisn'tabout beingliked.Theylikeyou.It'sabout beingcontractable.And that's aword.Andbeingcontractable meansyoucanspeakthepayer'slanguage,youcanprove your

impact,andyou'vegottheinfrastructuretodeliverwhatyoupromise.Becausehey,iftheysignthatdealwith youandyoudon'tdeliver,guesswhat?Youdon't have that deal anymore.Ifyou'reseriousaboutscaling, getseriousaboutcontractsinclosing. Startupsseem tothinkiftheyjustthrowthesethreewords,valuebasedcare,intosomePowerPointora GoogleSlidepresentation,exportitasaPDF and emailitout,investorswillsimply throwmoneyatthem.The restwilltakecareof itself. Health

planswillrushtocontractthem.It'slikesayingyouwantto beaworldclasschef,butforgettingthatyouactuallyneedtobuysomefood, that'saproblem. Andwhatyou need to doismakesurethatyou'renotoneofthesestartups.Becauseguesswhat?Suchstartupsexist.Sototheextent towhichyou're notoneofthese startups,you'realreadystickingoutasacompetitiveadvantage,right? SoIwantyoutothinkthroughthisandif you haveanegotiation nightmareora contractingquestionyouwantunpacked,senditin,let

meknow.Wemightcoveritin afutureepisodeandImightaddressitdirectly. Ilikedoingthat.ThisistheVBCAPodcast.I'm AlexYarajanian.Nofluff,notheory, just whatittakestobuildhealthcareand dosoforreal.Catchyounexttime.Y

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