Between June 2023 and June 2024, I was a founder building a startup in the healthcare space. I iterated on a number of products, particularly in the Medicaid space.

It has been almost a year since I took a breather from being a full-time founder, so I wanted to take some time to reflect.

Here are some things (in no particular order) that I wish someone had told me as advice during the ideation-to-pre-seed stage.

1. It is a marathon, not a sprint.

2. If your company is successful, you may be working on the product for 8-10 years. Is that how you want to spend those years of your life?

3. One of the most important signals in raising money? Costumer traction.

4. Investors will invest in the CEO. Give as many proof points as possible that you are the right person to lead the company.

5. Work in public. This means sharing honest thoughts on what you are seeing. This can be posting on LinkedIn and humble bragging—less about yourself and more about the progress of your product.

6. If you are bootstrapping a company, plan to take some consulting work on the side if possible.

7. Talking to ChatGPT is great, though more than likely, it will be a “yes person.” Be careful when ideating—you may be wearing rose-colored glasses.

8. A partnership ≠ product traction.

9. Distribution, not the product, is a critical bottleneck—meaning how you get sales connections and how you get your product in the hands of users.

10. A lot of the core challenges in healthcare are individual organizational challenges and the misaligned incentives of healthcare. Not technology.

11. Channel partnerships are your friend. But make sure they will directly result in revenue on the other side if things go well.

12. If you are doing a D2C2B play, make sure you have a few realistic paths to a viable business model.

13. Don’t focus on bringing in big-name advisors. Bring in friends you trust and get along with.

14. If you are bringing on a product lead as one of your first few hires, that’s a bad signal. You, as the founder, should be the product leader for a decent period during the early stage of your company.

15. Develop a pitch deck that is as transparent as possible. Stupid investing deals happen all the time, but frankly, you want smart investors working with you.

16. You most likely don’t need investors to build and launch your product. Getting investors is more about scaling what is already working.

17. Figma and Miro are your best friends. Use them to map out customer pain points, visualize how your product solves them, and see exactly where it fits into their workflow. This process will reveal gaps, opportunities, and even whether your product is the right fit—or if it won’t work at all.

18. The whole thing about trying to talk to 100 people in the space is great, but realistically, you are better off talking to a few people who really understand the space.

19. Yes, your product may result in an ROI, but if it is not one of the most important pain points your customer profile faces, no one will buy it.

20. In the pre-seed stage, you may be in a tough position where you need capital to get a team, but you need a team to get capital. It sucks. I don’t have a great answer. Ideally, lean on product progress and a few friends willing to work in a very limited capacity.

21. Learn to iterate quickly based on market signals and be prepared to change course if necessary.

22. Don’t take advice from your friends, family, and people who will not be brutally honest and who understand the domain space. It is not a malicious thing, but they are most likely just being nice.

23. Identify key performance indicators—like customer acquisition cost, lifetime value, and churn—and track them closely.

24. Build genuine relationships within your industry for strategic partnerships, referrals, and potential funding. The Health Tech Nerds’ Slack community is a game-changer.

25. Craft a compelling narrative that resonates with both investors and customers, clearly articulating your vision and mission.

26. Beware of vanity metrics that feel good but don't correlate with actual business success. Focus on metrics that truly indicate growth.

27. Better sleep is more productive than overworking.

28. And more generally, taking time off can be more productive than working.

Anyway, this is where my mind is at on an early spring afternoon in North Carolina.

Shoot me an email if you have any advice to add.

It was the summer of 2019. I was in Boston, and I had a cracked tooth. It was two months after starting my first job out of college.

I had a fever and was calling around to find a dental practice who would accept my dental insurance and could see me on very short notice.

After calling half a dozen offices, I finally found one that, thankfully, could fit me in later that afternoon.

The procedure cost $2,000.

Here’s the thing: at the time, I had dental insurance.

So, why did it cost so much?

What Does Dental Insurance Actually Do?

For dental insurance most yearly premiums range from $400 to $700. Cleanings are often fully covered.

For minor procedures, like fillings, the plans might pay 70% to 80%. For major procedures, such as crowns, the plans often pay about 50% of the cost.

One of the key points is that dental insurance typically has an annual maximum—this is the most the insurer will pay in a year, often between $1,000 and $2,000. Once you reach this limit, you are responsible for paying everything out-of-pocket.

This means dental insurance doesn't always protect you from high costs, especially if you need major work done.

While it can help you get discounted rates with network dentists, the coverage often isn’t as comprehensive as you might expect from medical insurance.

The system isn’t set up to protect you from financial risk in the same way other types of insurance (ideally) are, and for many people, the high costs still lead them to skip or delay treatments.

As well, insurance plans are subject to a variety of barriers, including waiting periods, extensive paperwork, treatment limitations, and annual maximums. These limit quality of care and are time consuming to navigate.

Dental is Oddly Not Considered Medical Care

About 50% of Americans get dental coverage through their workplace.

And around 47% Medicare beneficiaries, do not have dental coverage. And most state Medicaid programs don’t cover dental treatment for adults.

The U.S. healthcare system often overlooks dental care as a core component of overall health, even though research consistently shows that oral health is closely tied to general health.

A healthy mouth contributes to outcomes like better pregnancy health and a lower risk of heart disease. Yet, dentistry has long been treated as a separate and less integrated part of healthcare.

Now, the most effective way to avoid steep dental bills is through regular checkups and preventive care. Routine cleanings, x-rays, and exams help identify potential issues early, preventing them from escalating into costly emergencies.

Yet, without a clear pathway—either through insurance or alternative options—patients often forgo the dental care critical to their overall health.

The Impact of Insurance on Small Dentist Practices

Patients aren’t the only ones questioning whether insurance is truly worth it—dental offices can also face financial challenges when they choose to accept insurance.

For small practices with a large proportion of insured patients, being in-network can result in significant revenue loss.

This is because, the payments from dental insurance haven’t kept pace with inflation. As a result, solo practices who accept insurance are adopting one of two strategies:

1. Volume-based approach: Focus on seeing as many patients as possible, with a heavy reliance on hygienists to handle most of the labor, allowing the dentist to focus on essential procedures.

2. Growth strategy: Expand the practice in higher-income areas to attract private-pay clients.

As a result of the financial pressures, many dentists are selling their practices to larger groups or private equity firms, which are better equipped to manage the volume-focused model. In addition, they can benefit from vertical integration.

Source

The Dental Membership Alternative

To support patients who prefer to avoid insurance or don’t have insurance, dental practices can offer membership plans. These plans typically involve an annual fee, granting patients a discount on services.

These membership plans have become increasingly popular in the dental industry due to the growing demand for alternatives to traditional insurance.

Consider this a similar approach to Direct Primary Care (DPC).

For instance, a patient might pay $450 annually and receive two cleanings, along with a 10–15% discount on treatment.

Unlike traditional insurance, these plans have no deductibles or limitations or waiting periods that can make individually purchased dental insurance unattractive.

Before joining a membership plan, patients should ask what the dentist charges for procedures so they know not just the discount but their actual out-of-pocket cost. In some cases, the membership plans are a viable option.

If you can afford it and don’t anticipate high costs, this seems like a good option, particularly if you are uninsured.

Price Transparency in Dentistry

So, is dental insurance helpful?

Here’s the thing: I don’t think anyone can assert this definitively.

It can vary based on the patient's dental needs, the dentist's office, and the insurance provider.

As well, patients should know upfront what their out-of-pocket expenses. This concept is currently foreign, which makes an apples-to-apples comparison of dental insurance versus out-of-pocket costs difficult.

We are seeing the same problem in non-dental settings, where people are not given the opportunity to see prices upfront, preventing the market from influencing the prices offered.

This is largely because prices aren’t determined by the market but are instead set through closed-room negotiations or by dental practices establishing non-market-influenced prices.

This means a dental practice can offer significantly higher prices than the practice down the street.

It appears that the price transparency movement has bypassed dental insurance altogether.

One of the things we need is a marketplace with upfront pricing in the dental space.

It's Time to Treat Dental Care as Essential Healthcare

Dental care must be considered medical care.

The reality is that the operational costs of dentistry are high—this is unavoidable. And dental practices deserve to get paid for their work.

To help do this, there needs to be greater shopability for those who can afford it, alongside the development of creative strategies for Medicare and Medicaid to reimburse dental care for those who cannot.

I emphasize "creative" because operational challenges make it unlikely that dental insurance will merge seamlessly with medical insurance. The two systems have entirely different billing structures, and transitioning to a medical billing model would be a daunting task, especially for smaller dental practices.

Additionally, dental insurance needs to better protect patients, and reimbursement rates for dental providers need to increase.

The time has come. Everyone deserves affordable and accessible dental care.

You’d think that working in healthcare, we would know the ins and outs. We should be able to find the best and cheapest care. Yet, at least for me, that’s not how it works.

The federal government mandated that hospitals and insurance companies publish negotiated prices starting in 2019. Compliance has gradually improved. However, issues with enforcement and data quality remain.

Even with tools that organizations have built for the public, the focus on giving patients the chance to be smart shoppers has not gained a ton of traction.

This is particularly relevant as the incoming Trump administration will likely push for these initiatives.

Most of the progress in making prices more public has benefited the B2B sector. Employers can also use price transparency data. This helps inform health plan decisions, negotiate better rates, and improve healthcare affordability for employees.

As well, recently, transparency has been seen to lead to uniformity in healthcare costs—but not necessarily lower prices.

So, can we actually get to a place where prices can be used to change market dynamics and decrease prices?

My answer, is that one of the biggest barriers is healthcare literacy. The overwhelming nature of where a patient should even start huge is a challenge. There is also the fear of who to trust.

Additionally, the healthcare billing process itself could still impede the impact.

Status Quo

Medical billing is often unclear, leading to confusion and delays for patients, providers, and insurance companies.

This increases costs and creates frustration for everyone. The lack of transparency and complexity in the billing process makes it difficult for patients to understand what’s covered, leaving them uncertain about their financial responsibilities.

For those seeking non-insurance options, direct pay clinics, such as Direct Primary Care (DPC), are available in both independent and franchise formats.

For those relying on insurance, challenges arise from deductibles, benefits, and the uncertainty of whether insurance will approve a procedure, making it hard to determine out-of-pocket costs.

For example, when visiting a hospital, the price shown for a service often doesn’t reflect the actual costs. Additional expenses, such as hospital stays, anesthesiologist fees, and lab tests, are often not included in the initial price.

This complexity makes it difficult for patients to understand the true cost of care, undermining price transparency and leading to unexpected financial burdens. It also makes it harder to compare costs between hospitals or service providers.

There are structural issues that need to be addressed before patients can truly engage with the market. Simply providing information may not be enough to foster meaningful change.

Where Prices Can Be Useful for Patient-Facing Products

It is challenging to obtain and integrate Total Incurred Cost (TIC) data, or any price transparency data, into an application due to poor data quality. Many hospitals post inconsistent formats, and each data set is massive.

Even if an organization does make sense of this data, the data must be user-friendly. Current tools need improvement to ensure patients can easily access and interpret the information.

A product should be designed to make it easy for users to search for prices, quality, and personal preferences of providers. It should also show where they stand with their benefits. This applies to the current insurance system.

In my view, this means not using CPT codes but presenting the information in a way that a layperson can easily understand.

It should create a shoppable experience, similar to Amazon.

Patients should be able to know the full, all-in cost upfront, rather than having to guess or assume based on incomplete information. The goal is for a product where patients can confidently know that a service will cost a specific amount, like $200, without hidden fees or surprises.

One example I’ve seen of this is Surest, a company under United Health.

And a product can't just focus on hospital providers, but also on individual providers. Currently, a lot of the engagement is on in-patient which significantly limits engagement.

And to provide a broader overview, here are some of the different product features I imagine would be helpful:

1. Retrospective:

   1. Use local prices in negotiating a hospital bill to a lower rate.

2. Prospective:

   1. Patients knowing the cost of planned, non-emergency services upfront to use that information to compare prices across facilities.

      1. Elective Procedures: Compare prices for surgeries like knee replacement or cosmetic surgery.

      2. Diagnostics: Choose cost-effective options for tests like MRIs or blood work.

      3. Therapies: Budget for treatments like physical therapy or counseling.

      4. Maternity Services: Evaluate costs for prenatal care and delivery.

      5. Chronic Care: Plan recurring expenses for managing conditions like diabetes.

      6. Dental/Vision Care: Select providers for fillings, crowns, or LASIK based on price.

      7. Preventive Care: Compare prices for screenings like mammograms or colonoscopies.

Keep in mind, though, that life happens, and care can be unpredictable, making the most important factor simply getting the best care rather than focusing on cost. The fancy term here being inelastic demand.

How Could Providers Respond to This

The foundation of all of this is foreign to both patients and providers.

For example, imagine we create patient tools that people use. My hunch is that to have competitive pricing between providers, there would be a bottleneck in costs due to an administrative burden.

Picture this.

Provider Side: Healthcare administrative costs are high for providers due to labor-intensive tasks like billing, insurance verification, and prior authorizations. Providers must invest significant resources in submitting accurate claims, ensuring proper medical codes, handling approvals, and addressing claim denials and appeals. These processes divert time and resources from patient care.

Payor Side: Insurance companies add to administrative costs through complex requirements like prior authorizations, medical reviews, and claims processing. Evaluating claims for medical necessity, verifying documentation, and managing disputes require significant resources, increasing administrative overhead.

Patient Side: High administrative costs lead to delays in care, confusion about insurance coverage, and frustration for patients. They face longer wait times, confusion about treatment coverage, and unexpected expenses due to coding errors or claim denials, negatively impacting their care experience.

Nowhere here do I think price transparency has any impact on administrative costs, which are 15–30 percent of healthcare spending.

One way this could change is something similar Mishe is doing, and something Yubin Park mentioned. Where an organization can predict and put the costs upfront.

Source: Yubin Park

Companies that can offer bundled pricing or cost predictions using RCM data are moving in the right direction. Bundling could simplify the complex billing system and provide a clear, all-inclusive price.

Providers could benefit from immediate payment, reduced administrative tasks, and guaranteed reimbursement based on pre-negotiated rates, which could significantly lower administrative costs.

More Steps Forward

While price transparency in healthcare is a necessary step, significant barriers remain, including complex billing, inconsistent data, and low healthcare literacy. These issues make it difficult for patients to fully benefit from transparent pricing, and administrative costs further hinder efficiency across the system.

To create real change, the industry needs solutions that simplify decision-making for patients and reduce administrative burdens for all parties. An intermediary that guarantees prices and bundles services could bridge this gap, offering clearer, predictable costs and driving a more competitive, consumer-driven market. This approach could change healthcare by providing patients with the confidence to make informed choices.

Let’s be honest: a lot of us use Google Reviews to find healthcare providers. But getting healthcare is different from finding the best restaurant in your area.

We carefully research our $50 dinner reservations but are forced to make blind decisions about medical care that could cost thousands.

Not only do we not know the prices, but we also don’t know the metrics of the outcomes of care.

It doesn’t have to be this way.

Part of the solution is to use unused data to make it easier to find providers. Another part is a CMS pilot program to create a nationwide provider directory.

Google Reviews as a Directory

First, we need to acknowledge Google Reviews limitations:

• Reviews tend to capture extreme experiences—either very satisfied or very dissatisfied patients

• Specialty care and rare conditions are underrepresented

• Some providers have very few reviews, making it hard to draw conclusions

• Review bombing or fake reviews can skew ratings

• Complex medical situations might lead to negative reviews even when care was appropriate

• Lack of knowledge about whether the provider is in network or not

• The best bed-side manner doesn’t equal the best quality of care

Hear me out, though—Google Reviews can be a reliable source for finding active providers.

While the reviews themselves may be iffy data to use, the fact that a user is leaving a review is valuable data.

This is because patients may actively update it based on their real-world experiences. When a doctor moves practices or retires, you may find this information in Google Reviews before it appears in official directories.

Other Directory Sources

These challenges are not specific to Google Reviews.

Provider directories across the healthcare system are notoriously inaccurate.

Insurance company directories? Often outdated.

Even modern platforms like Zocdoc, which aim to solve this problem, face these similar challenges.

Commercial solutions like CAQH DirectAssure attempt to address these issues by having providers attest to their information quarterly.

The closest thing to a national solution is NPIs with the National Plan and Provider Enumeration System (NPPES). Though even the NPPES:

• Providers don’t regularly update NPPES, leading to incorrect addresses and contact details

• NPPES lacks effective tools for connecting related organizations, such as hospitals and affiliated clinics, or linking providers across multiple locations, making it difficult to understand networks of care

• NPPES doesn’t indicate which insurance networks providers belong to, which is crucial for patients and insurers

These challenges can have a particularly negative effect on behavioral health, leading to what experts call "ghost networks" - where insurance directories list mental health providers who appear available but are actually unreachable, not accepting new patients, no longer at that location, or have stopped accepting that insurance plan.

This creates a mirage of mental healthcare access while patients struggle to find actual available providers, often making dozens of calls only to discover that their supposed network of covered providers is largely illusory.

Companies like Headway aim to address this issue by connecting patients with mental health providers listed in their directory.

The Complexity of "Quality" in Healthcare

Before we dive deeper into reviews and ratings, we need to address the complex relationship between patient satisfaction and clinical quality.

Here's an uncomfortable truth: Sometimes, the best medical care doesn't feel like good service. Consider these scenarios:

• A doctor refuses to prescribe antibiotics for a viral infection

• A physician recommends weight loss instead of ordering unnecessary tests

• A provider spends time explaining why a requested treatment isn't appropriate instead of simply agreeing

These are often examples of good medical care—but they might result in negative reviews. It's become a rite of passage for physicians to receive harsh online criticism for making clinically appropriate decisions that don't align with patient demands.

This creates a problem: How do we balance patient experience with clinical appropriateness?

There's an inherent information asymmetry in healthcare. Patients might be experts in their own experience, but they typically can't evaluate the clinical appropriateness of their care. This leads to a complex dynamic where:

• Good bedside manner is crucial for effective care

• Patient communication and empathy matter enormously

A More Nuanced Approach: Combining Data Sources

This is why combining different data sources becomes so crucial.

Using tools from mimilabs (a platform for analyzing and collaborating on public healthcare datasets), I started experimenting with:

1. NPPES Data: For basic provider information and locations

2. Google Reviews: To find active providers found through matching phone numbers on Google Reviews to NPPES

3. Quality Payment Program (QPP) Scores: Measure healthcare providers' reimbursed through Medicare performance on objective clinical quality metrics, assessing factors such as patient outcomes, care processes, and adherence to best practices in order to enhance overall healthcare quality and efficiency

The goal isn't to find providers with perfect reviews.

Instead, I tried to find active providers and linked this information to QPP scores in North Carolina’s Research Triangle area as a test case. I also highlighted the providers with the highest QPP scores in the area (which are the red flags).

Is this methodology the answer to finding providers?

Mostly not, but it starts an interesting thread on how we can enable patients to more easily find providers. Doing so with clinical outcomes and prices attached offers a lot of value.

The Cost of Inaction

The irony is that directories ultimately harm insurance companies too. When patients can't find in-network providers, they might:

• Delay care until conditions worsen and become more expensive

• End up in emergency rooms for non-emergency care

• See out-of-network providers out of desperation

• Get trapped in costly referral cascades trying to find the right provider

There's another crucial cost: inappropriate or poor-quality care often leads to a costly cascade of referrals and additional treatments.

A Path Forward: The CMS Directory Pilot

The good news?

The Centers for CMS recognizes these problems. They've just announced a pilot program in Oklahoma to develop an automated, centralized directory for Qualified Health Plans (QHPs) and providers.

This first-of-its-kind initiative aims to:

• Improve data accuracy

• Reduce administrative burden on providers and payers

• Lower costs

• Support better data exchange

• Enhance both patient and provider experiences

This pilot could be the first step toward a national directory of healthcare—a centralized database that could finally solve many of our healthcare directory problems.

This shift could pave the way for innovation in combining outcomes data and enhancing price transparency.

Which ultimately should enable more patients to have the power in the healthcare decision-making process.

In a small town, Sarah, a single mother of two, struggles to access reliable health care through her local community health center. Limited resources and long wait times leave her feeling frustrated and helpless.

Meanwhile, in a large city, David, a father of three and a Medicaid recipient, faces similar challenges. Despite living near top hospitals, he encounters long wait times, difficulties finding providers, and limited access to specialists.

Though Sarah and David live in different settings, their experiences highlight a common issue: skepticism around the phrase "all health care is local."

For communities to be healthy, there’s no choice but for health care to be local.

However, when access is compromised, health care is no longer effectively local—even if care facilities are geographically nearby. This disconnect is seen in the experiences of individuals like Sarah and David.

There are two key points I want to make by the end of this article. 

First, a community needs the ability to respond to health care needs in a way that enables healthy local market dynamics and regulations for accessible and affordable health care.

Second, I argue that it's not enough to focus solely on local health care; we must prioritize local population health.

The Push Back Against Health Care Being Local

Let me first address the claims you may have heard—that health care is no longer truly local. Several key factors contribute to this perception, including the rise of telehealth, price transparency, the appeal of destination hubs, and broader systemic challenges.

Each of these points has merit and reflects significant trends in the health care landscape.

I've broken it down into three key points below.

1. Telehealth

Claim: The growing demand for cost-effective and convenient health care has fueled a rapid rise in virtual care, with many patients turning to telehealth services for their accessibility and potential cost savings.

My view: I agree that telehealth is here to stay. However, despite its growth, most patients still prefer in-person visits with health care providers at least some of the time.

A 2023 study of 1,226 participants found that 71% favored face-to-face appointments, compared to 29% who preferred virtual care.

This preference is consistent even among Gen Z. Research by Springbank Collective and Able Partners shows that Gen Z "actually prefers convenient in-person health care within the four walls of brick-and-mortar clinics."

Additionally, as more telehealth companies evolve, integrating in-person visits is becoming a critical part of the patient journey.

I also think there's something valuable about connecting with clinicians and staff who live within your community. Loneliness is a significant challenge, and having local, personal connections can make a difference.

2. Destination Hubs and Specialized Care

Claim: The perception that health care isn’t local is partly due to the growing trend of patients seeking specialized care in destination hubs, often far from their immediate communities.

The reputation of renowned specialists and cutting-edge technology can overshadow local options, reinforcing the idea that comprehensive care isn't available nearby. This trend is exacerbated by rising medical debt, prompting patients to explore more affordable out-of-market options.

My view: There is definitely validity to this claim. Especially with highly specialized conditions, destination hospitals can offer a level of care that local general hospitals cannot match, potentially at more affordable prices. As highlighted in the book The Innovator’s Prescription, specialized care centers have a competitive edge, leaner and can be hyper-focused.

3. Affordability

Claim: As medical costs rise, many consumers face significant financial burdens, prompting them to seek lower-cost alternatives outside their local health care systems. The prevalence of medical debt forces patients to prioritize affordability over proximity, contributing to the perception that local health care is inadequate.

My view: The current health care system often doesn’t function as it should.

However, I don’t agree with the notion that patients are always in a position to be conscious consumers. While potential opportunities exist to compare prices and quality for elective procedures, it’s unrealistic to expect this in urgent situations. For example, if someone needs an emergency appendectomy, they can’t “shop around” for the best deal.

Patients should have access to local health care without fearing that a procedure down the street—or across the state—might cost significantly less.

The solution isn’t to ask patients to navigate a convoluted system; it’s to ensure the system works for us as patients.

A Path Forward For Health Care

For health care the real issue lies in the complex financial models that dominate our health care system and its fragmented structure. Fundamentally, these systems often prioritize profit and revenue generation over patient well-being, focusing on treatment rather than prevention.

To achieve both affordability and accessibility in health care, we must first address these underlying problems.

A key driver is that provider consolidation leads to higher health care prices, as payers lose leverage to negotiate favorable rates. As a result, patients bear the financial burden through increased premiums and out-of-pocket costs.

To address this, we need stronger measures to prevent large health care mergers and to support independent providers.

Current regulations, such as Certificate of Need (CON) laws, the Stark Law, and restrictions on physician-owned hospitals (POHs), protect incumbent providers and stifle competition. CON laws limit new facilities, allowing existing providers to block competitors, raising prices without improving care.

The Stark Law, while preventing self-referrals, favors large systems over independent practices. The ACA's ban on new POHs reduces competition and raises costs.

These regulations, driven by regulatory capture, benefit established providers at the expense of patients and innovation. Repealing or reforming them could lower health care costs and improve access.

On a similar note, we see comparable trends with Pharmacy Benefit Managers (PBMs), which have been criticized for their lack of transparency, potential conflicts of interest, and their role in driving up drug prices and limiting patient access to necessary medications through restrictive formulary practices.

Additionally, the growing trend of Direct Primary Care (DPC) offers a promising alternative to traditional models. DPC allows patients to pay a monthly fee directly to their primary care provider, enhancing personalized care and reducing administrative burdens.

This model can improve patient satisfaction and potential health outcomes by allowing providers to focus on preventive care without the constraints of insurance billing.

Shifting our focus briefly to value-based care (VBC), I believe it represents a positive step forward; however, substantial barriers persist, including the foundational issue of excessively high health care prices and administrative inefficiencies.

I’ll delve deeper into these challenges in a future article, but I’m currently less optimistic about VBC compared to the initiatives mentioned earlier in this section and the upcoming section.

As I conclude this section, I want to express my skepticism that market dynamics alone will adequately reduce health care costs in a meaningful way. I believe we also need regulations to control for greed.

Thinking at the Population-Level for Community Health

Local health systems should partner with community-based organizations (CBOs) to implement programs that address the social drivers of health, particularly for high-cost Medicaid and Medicare patients.

Take, for example, the case of high-cost patients, especially those experiencing homelessness. These individuals often turn to emergency departments for a wide range of issues because they lack access to alternative care options.

Although CBOs provide substantial benefits, their impact can sometimes feel ephemeral.

While Medicaid and Medicare can and should be enhanced to support interventions addressing the social drivers of health, significant improvements can also be achieved through population health initiatives in local communities.

I’d like to discuss where individuals are in their health journeys, referencing Maslow’s Hierarchy of Needs. This framework is important because 80% of health outcomes are influenced by social drivers of health.

When individuals are at the “Basic Needs” level, they struggle to maintain their health and often cannot travel long distances for care or shop around for services. This is not a niche problem; the Medicaid and uninsured populations total around over 100 million Americans—about a third of the country.

The majority of these Americans are lower-income, and as economic inequality continues to rise, it’s crucial to address these systemic issues. However, these social needs should not fall solely on the health care system. We don’t want to turn Medicaid into "medicalized poverty."

And addressing social drivers of health isn't just about targeted interventions; it's about broader, community-wide changes that affect the overall health of the population, even when access to health care is available.

And broadly speaking, are we misunderstanding the social drivers of health by focusing too heavily on individual solutions rather than addressing systemic, population-level issues?

While increasing, for example, financial security for certain individuals can be beneficial, does it truly address deeper, more complex problems like poor education, unsafe neighborhoods, or the daily encounters with racism?

These challenges aren’t simply personal failings; rather, they often reflect broader policy failures.

Shouldn't we approach social drivers of health with a more comprehensive, sociological perspective? How can we ensure Americans have not only financial security but also access to education that includes practical skills like budgeting, meal planning, and navigating essential services? 

This is the heart of public health. These efforts reflect the core responsibilities of Local Health Departments.

Now, from a health care perspective, part of what I’m getting at here is that chronic diseases, when they are preventable, cause significantly higher costs for our health care system.

Personal responsibility is certainly important—eating better and being more active are essential steps. However, relying solely on these individual choices, even with well-meaning public health campaigns, is not enough to create lasting change.

It’s superficial.

The real issue lies in the environments that shape our decisions. Without transforming the physical spaces, food options, and social settings where people live, those healthier choices remain out of reach for many.

Why?

Because the environments around us—our neighborhoods, stores, and restaurants—still promote unhealthy behaviors. People will naturally choose what's accessible, and right now, what's available is often not what's best.

By offering these opportunities within our local communities, we can make a significant impact on health outcomes and reduce future health care costs. Investing in preventive measures at the community level will lead to healthier populations.

Population Health Value-Based Care

Housing should be accessible to all, not just because it may lead to better health outcomes, but because it is a fundamental right that every American deserves.

And as mentioned earlier, value-based care (VBC) in health care has its limitations, particularly in a non-single-payer system where we are currently unable to capture true long-term savings effectively.

What if, instead of focusing solely on VBC in health care, we adopted a value-based population health model for each county?

For example, a chronically homeless person costs the taxpayer an average of $35,578 per year. This study shows how costs on average are reduced by 49.5% when they are placed in supportive housing. Supportive housing costs on average $12,800, making the net savings roughly $4,800 per year.

This is something I’ll be reflecting on more, and I would love to hear your thoughts if you have any.

Conclusion

For communities to be healthy, health care must be local, with a focus on affordability and accessibility.

The federal government must acknowledge that unchecked greed in the American health care system harms Americans. In conjunction, healthy communities require fundamental tenets such as affordable housing, fair wages, and access to nutritious food.

Unfortunately, local health systems often profit when more patients get sick. Making this is not solely about changing health care to be more aligned with social drivers of health; it’s about incentivizing local governments to make it much easier to be healthy in this country.

Ultimately, health care in America should be a right, not a privilege. Patients should not have to navigate a complicated system; rather, the system should intrinsically work for us.

I am optimistic we can get there.

I support Medicaid and Medicare because they have improved the lives of so many Americans.

I want to see these programs continue to be supported.

The challenge here is how to manage increased health care costs while continuing to invest in public health, which will ideally prevent more downstream expenses.

The big challenge is that 80% of health outcomes are determined by social factors, as well articulated by Sir Michael Marmot.

In this article, I investigate whether this trade-off has occurred and why continued investment in public health is so critical.

For context, Medicare and Medicaid are taking up a growing share of the federal budget. In 2023, these two programs together consumed about $1.85 trillion—roughly 26% of all federal spending.

• Medicare: Spent nearly $1 trillion in 2023 to provide health care for about 66 million elderly and disabled individuals.

• Medicaid: Used an estimated $849 billion in federal and state funds to cover around 90 million low-income Americans.

  • For states, Medicaid is one of the most expensive budget line items.

Critics argue that this may reduce spending on other social programs.

The concept referred to as 'squeezing' encompasses a range of social policy areas, including family benefits, unemployment benefits, housing support, and retirement supports, as outlined by the Organisation for Economic Co-operation and Development (OECD).

This issue, however, is not solely due to Medicaid and Medicare but is part of a broader problem involving how we allocate spending for social programs, the wider challenges of health care, and the current funding mechanisms of health insurance.

The Evidence of Health Care Squeeze

There is limited peer-reviewed data available to validate this claim, particularly when trying to establish causal relationships in changing political environments at the federal level. These complexities may make it difficult to prove through data alone.

However, examining state-level data can offer a clearer perspective on the validity of these claims.

One study highlights the complex relationship between health care and social spending in California.

In California, the rising cost of health care has significantly impacted the state budget over the last 25 years. Medical spending increased from 14% to 21% of the state’s budget during this period, leading to reductions in other critical areas, including public health initiatives.

Source: Public health and the economy could be served by reallocating medical expenditures to social programs

As health care costs climbed, public health funding fell by a similar percentage, demonstrating a clear trade-off between these two budget priorities.

One thing to note is that CalAIM has been working to more closely integrate public health and medical services, which was not included in this analysis.

Even with CalAIM, this does not account for the trends we are seeing in the proposed decreases in post-COVID public health spending for California.

This illustrates the critical need for more strategic and proactive spending decisions, ensuring that health care funds are used efficiently while also addressing other SDOH that can lead to better outcomes across the board.

Medicaid and Medicare Are Not Solely Responsible for the Rise in Health Care Costs

The solution is not necessarily to remove those on Medicaid and Medicare.

Private insurance spending per enrollee is most likely higher than Medicaid and Medicare, so it doesn’t make sense to push people off Medicaid and Medicare only to place them on a more expensive private insurance plan.

Commercial payers reimburse hospitals at 223% of Medicare rates on average (240% for outpatient services, 182% for inpatient services).

Commercial payers reimburse physicians at 129% of Medicare rates overall (144% for specialty services, 117% for primary care).

Medicaid reimbursement averages only 72% of Medicare rates nationally for physician services.

Medicaid rates can be close to or even exceed Medicare rates for certain states, while others are much lower.

Contrary to popular belief, hospitals don’t need to use commercial health plans to subsidize the cost of Medicare and Medicaid.

While there are real challenges with Medicaid and Medicare, as mentioned in Anderson et. al 2019, lowering prices in the U.S. will need to start with private insurers and self-insured corporations.

The Impact on Social Care Spend

In the U.S., social spending is disproportionately low compared to health care spending.

Source: Health and social services expenditures: associations with health outcomes

Papanicolas et al. 2019 found that spending more on social programs in a country doesn’t necessarily mean that country will spend less on health care.

Tikkanen et al. 2019 found this as well. However, they also found that although total social spending per capita may be similar in the U.S. and other high-income countries, the U.S. allocates relatively less to the social needs of families with young children and working-age adults.

What Tikkanen et al. 2019 highlighted is that, in contrast, the U.S. allocates relatively more to supporting older adults. This allocation may not optimize overall population health.

As the saying goes, an ounce of prevention is worth a pound of cure.

This means that a healthier population will require fewer resources in the long term, freeing up funds for other critical areas like education, infrastructure, and public safety.

Preventing minor issues from escalating into major, costly problems can reduce the long-term burden on the health care system.

This issue is reflected in poverty rates across different age groups. In the U.S., childhood poverty rates are nearly double those found in other wealthy nations.

Similarly, about 15% of working-age adults live in poverty, compared to 10% in comparable countries.

This underinvestment can lead to a cycle of intergenerational poverty, which, if not addressed, can have long-term harmful effects on health.

Getting Value from What We Spend

The key question isn't just about how much we should spend on health care and social programs, but how we can spend more effectively to enhance the health and well-being of Americans.

This isn’t just a matter of Medicaid and Medicare—it’s a broader challenge facing our entire health care system and is deeply intertwined with broader social and economic disparities.

Health care and social spending are about fiscal responsibility and investing in the health of the American people.

The federal government must understand that these two objectives are interconnected and mutually reinforcing.

Thank you, Sara Gallo, for your edits.

Some of the biggest challenges a healthcare company can face are sales distribution and having a product that is too closely tied to a single feature.

There is no right answer to solving these issues. Even former executives who were in the C-suite at major health plans and health systems struggle with them if they become founders.

You will most likely struggle with this too if you are a founder.

Yet, here are some lessons I’ve learned that will hopefully be helpful.

A disclaimer: If you are working on the idea I will be writing about or are involved in it, this is just my story, and you may have a completely different experience.

Over the past few years, I’ve iterated through a number of healthcare company ideas that I’ve bootstrapped. The one I’m writing about now is about AI language interpretation in healthcare.

The solution was to build an AI system that translates speech in real-time between patients and clinicians, as well as text for necessary notes for patients.

When building the company, I followed all the recommended steps I was advised to take.

I talked with dozens of different stakeholders. And made it a priority to find a pilot study at a health system.

All of this failed.

And when interviewing stakeholders who worked with interpreters, a clear problem emerged. They conveyed their frustration with having conversations with patients that take four times longer, as well as with the administrative challenges of finding an interpreter.

Yet, a potentially good product does not mean it will sell well in healthcare.

I also encountered a double-edged sword: although I benefited from the first-mover advantage, I was navigating an environment where regulations and guardrails were not yet established.

More generally, on a micro-level, here is why it did not work:

1. AI scribe companies were becoming prevalent, making the solution I was working on too close to a feature.

2. Communicating the nuances of fine-tuning a model, which differed from Google Translate, was challenging both from a sales perspective and in terms of convincing clinicians to use a specialized solution instead of a non-specialized product.

3. The product most likely requires an expensive validation study to prove its validity.

4. Translation companies are the ones with large datasets that allow for fine-tuning to create the best models. I tried engaging in a CVC partnership but found it tricky and encountered little interest.

5. These healthcare language translation companies already have the sales channels to sell their AI products. Additionally, there is a significant cultural shift for translators, who are concerned that LLMs might take over their jobs.

6. While the technology is needed, the total addressable market (TAM) for the product is not huge.

On a macro level, here is why it did not work:

There are a lot of "hair on fire" problems in healthcare; I should have been focusing on the "house on fire" problem.

Jessica Chao does a fantastic job articulating similar ideas. Even though I read her work back in early 2023, I learned these lessons the hard way.

This particularly stands out to me:

Thinking Bigger

So, I decided to focus on the translation product as a way to address broader challenges.

The concept was to target "cost concerns, mistrust, and lack of access." Theoretically, my approach made sense: by addressing one issue from the customer's perspective, you could build trust and eventually tackle more comprehensive changes.

Unfortunately, I've found that this approach doesn't align well with how things often work or with the challenges involved in addressing core problems.

How I think about this is in terms of local minimum vs. global minimum.

What I want you to take away from graph below is that you might think you've identified the root cause of the problem, but it could just be a local minimum.

The true root cause is the global minimum—the deeper, more fundamental issue.

In a non-D2C model, as you move closer to addressing the global minimum or root causes, the solutions tend to become more complicated and expensive based on my experience.

This makes raising money challenging, as you need more substantial proof points to attract investors.

However, this creates a chicken-and-egg problem: you need the product proof points to raise the money, but you need the money to develop and demonstrate those proof points.

Giving Up on the Idea and Not Myself

As a founder, you pitch your ideas to colleagues, friends, and family. You are excited, and they are excited.

You take leaps of faith. You spend your own money. You give your time and energy.

You feel like a wunderkind.

That this is your life’s work.

That this is a key milestone of why you were put on this planet.

Then the company just doesn’t click.

Unfortunately, I think there is a harmful theme in the startup world that you should always be resilient and never give up. Yet, one of the most important lessons I’ve learned is to know when to give up.

Thankfully, I never raised any capital for this company, so I was able to move on from this idea fairly easily.

And while I don’t agree with everything he says, Scott Galloway wrote in his great piece Quitting Time about how the more companies someone starts, the greater the likelihood of being successful.

It’s really only a failure if you don’t take the time to learn, reflect, and grow.

The journey to success often involves many hits to your ego. To truly succeed—not in terms of venture dollars but in terms of patient impact—you can’t let your ego be your goal.

What I've been realizing is that finding a balance between seeking hard truths and maintaining confidence in yourself is crucial.

One of the most important things I’m focusing on now is finding and maintaining relationships with people who are there for me in both good times and bad.

I’m optimistic that these learnings will enable me—and hopefully others—to improve our healthcare system and the means to get there.

More than 650,000 individuals in America are released from prison every year.

And upon reentry, approximately 80% of those individuals become eligible for Medicaid, either newly or reinstated if they were enrolled prior to incarceration.

The majority of individuals who leave incarceration are highly socially and economically vulnerable.

They are poorer than the average American.

They have lower levels of education.

They experience higher rates of mental illness.

They have been victims and experienced trauma themselves.

They suffer from substance use issues at higher rates.

They are more likely to have a disability.

The vast majority of adults incarcerated in federal and state prisons (94%) will eventually be released.

When people have access to Medicaid during the reentry period, they are more likely to find employment, more likely to utilize health care services, and less likely to go back to jail or prison.

Studies on the Total Cost of Care (TCOC) for reentry patients are limited, yet it is well-documented that individuals in incarceration have higher rates of certain chronic conditions and infectious diseases, disabilities, and face exceptionally high rates of mental illness compared to the general U.S. population.

This disparity, in large part, arises from the inadequate medical and mental health care provided in prisons and jails.

This leaves many who leave incarceration in worse health than when they entered.

The combination of subpar healthcare behind bars and the gap in post-release healthcare coverage are pivotal factors contributing to the heightened risk of death after release.

These conditions make people recently released from incarceration among the most vulnerable populations in our communities.

The 1115 Waiver Tailwind

To support incarcerated individuals' reentry, in July 2024, Illinois, Kentucky, Oregon, Utah, and Vermont received approval from CMS for the 1115 waiver.

The waivers, in this case, allow states to use Medicaid funds to cover pre-release services and implementation costs, which was previously prohibited under the inmate exclusion policy

As a result, these states will cover certain services during the 90 days before an individual's release from incarceration, ensuring a seamless transition without gaps in coverage.

They join California, Massachusetts, Montana, and Washington in this innovative approach.

Additionally in December 2023, Congress enacted national changes to the inmate exclusion by requiring Medicaid agencies to provide certain services to incarcerated young people beginning in January 2025.

CMS continues to expedite the approval of other state requests under this streamlined approach.

For incarcerated people these waivers mean:

• Increase coverage, continuity of coverage, and appropriate service uptake through assessment of eligibility and availability of coverage for benefits in carceral settings just prior to release.

• Improve access to services prior to release and improve transitions and continuity of care into the community upon release and during reentry.

• Improve coordination and communication between correctional systems, Medicaid systems, managed care plans, and community-based providers.

• Increase additional investments in health care and related services, aimed at improving the quality of care for beneficiaries in carceral settings and in the community to maximize successful reentry post-release.

• Improve connections between carceral settings and community services upon release to address physical health, behavioral health, and health-related social needs (HRSN).

• Reduce all-cause deaths in the near-term post-release.

• Reduce number of ED visits and inpatient hospitalizations among recently incarcerated Medicaid beneficiaries through increased receipt of preventive and routine physical and behavioral health care

Mental Health and Substance Use Disorders During Incarceration

Most individuals who are incarcerated were likely eligible for Medicaid prior to incarceration. However, due to the Medicaid Inmate Exclusion Policy (MIEP), Medicaid beneficiaries have their coverage suspended during periods of incarceration.

As a result, CMS oversight of healthcare delivery does not extend to carceral settings.

This is critical, because over half of people in state prisons and two thirds of individuals in jails have Substance Use Disorders (SUD), compared to 8.5% of the general population.

However, patients are not receiving the treatment they need.

For context, Medication-Assisted Treatment/Medication for Opioid Use Disorder (MAT/MOUD) is the gold standard crucial for effectively treating Substance Use Disorders by combining medications with behavioral counseling to prevent relapse and support long-term recovery. And only about 20% of jails have this treatment available.

A large part of this failure to deliver effective healthcare results in individuals reentering society after incarceration facing a mortality rate that is 10 times greater than that of the general population.

Healthcare funding and oversight within correctional facilities vary widely across states and counties, resulting in inconsistent care quality. The lack of standardized program evaluations and quality metrics, along with few transparency mandates, limits accountability in carceral health systems.

Addressing the mental health crisis and SUD could significantly reduce the systemic challenges that lead to incarceration and improve reentry outcomes.

No Support System During Reentry

The system is set up to fail those reentering society after incarceration.

70% of those incarcerated are rearrested within five years.

When individuals reenter communities, they often face "civil death," which refers to the barriers they encounter in finding housing and employment due to legal restrictions or societal stigma associated with their criminal records.

Individuals often have no support system when reentering. Resulting into a hard drop into reality, forcing individuals to do everything on their own now.

Because of this, after incarceration, people experience unemployment at high rates and report low incomes. Formerly incarcerated people are unemployed at a rate of over 27%, which is higher than the total U.S. employment rate during any historical period, including the Great Depression.

Why VBC Can Work Here

I have no doubt that this is an incredibly challenging population.

Given the vulnerability of this population, addressing social determinants of health is critical.

Because of this, ensuring that funds support CBOs in playing a pivotal role in reentry is critical. CBOs can provide the essential support system that these individuals lack.

The most important things being housing, then employment.

Thankfully, leveraging the 1115 waiver tailwinds I mentioned, along with the recently growing use of ILOS and Z-codes, can uniquely improve resources and address social drivers of health.

Integrating this reentry care model, along with the necessary infrastructure, is new territory. Given a company's expertise in developing care models and technology compared to state agencies, this expertise can be leveraged to the company's advantage.

Including necessary infrastructure updates to effectively integrate EHRs and payment systems between carceral healthcare and CBOs.

After having the ability to support CBOs, one of the other big challenges of VBC care models, particularly in a Medicaid population, is the challenge to effectively engage patients.

CHWs are of high value to help improve this.

Specifically, having CHWs who were formerly incarcerated is critical for building trust and improving engagement through shared experiences. This also serves as a dual effort to support formerly incarcerated individuals who may have trouble finding employment.

What Would a VBC Model Look Like?

If regulations allow it, a company can come in and contract with an MCO to deliver care prior and post release, which can now be covered by Medicaid.

Initiating relationships, prescriptions, and care prior to reentry can make a significant impact.

To better understand what has worked in the past for a care model after reentry let’s look into the care model developed by the Transitions Clinic Network (TCN).

The TCN is a national consortium consisting of 45 primary care-based programs across 14 states and Puerto Rico. These programs are dedicated to addressing the health needs of individuals reentering the community from incarceration.

What the TCN does:

• Provides primary care services immediately upon release.

• Integrates care coordination to manage follow-ups and referrals.

• Offers chronic disease management and preventive care to reduce hospital readmissions.

• Includes behavioral health services to address mental health and substance use disorders.

• Medications for behavioral health and chronic conditions before and after incarceration.

• Ensuring access to opioid use disorder medication before release and maintaining continuity of care.

Each TCN program is rooted in an existing community health center and focuses on delivering enhanced primary care to individuals released from correctional facilities, specifically targeting those with chronic health conditions or those over 50 years of age.

The TCN focuses on coordinating healthcare services, providing social support, linking individuals to community resources, and ensuring continuity of care to promote successful reintegration and reduce recidivism."

CHWs are critical in this model to provide peer support to patients and build relationships with public defenders and probation and parole officers and can add medical context to situations which might otherwise lead to recidivism, such as relapse to substance use or poorly controlled mental health.

Participation in TCN is entirely voluntary, with individuals typically referred by correctional systems.

The TCN did a study with 95 patients over a 12-month period.

Here is what the TCN study found:

1. The study did not find significant differences in Medicaid costs between the control group.

2. The program, catering to those with chronic conditions and aged 50+, yielded a $2.55 return on every dollar invested through CHW interventions.

3. ROI varies based on the investor and beneficiary perspectives. There state-centric analysis, focused on Connecticut's Medicaid and correctional systems, may not generalize to other states with different healthcare and incarceration models.

4. While financially neutral for Medicaid in Connecticut's FFS framework, TCN programs potentially offer broader societal benefits like improved health outcomes and reduced incarceration rates, aligning with state goals to manage healthcare and criminal justice costs.

Source: Cost savings of a primary care program for individuals recently released from prison: a propensity-matched study

The lack of decreased TCOC results in the study may have been due to a small sample size—only 94 patients. My guess is that this study also suffered from the same problem as the Camden Study, which was that the ROI of preventive care takes longer to showcase.

Even without demonstrating decreased TCOC costs, the leaders of the TCN are doing incredible work and have produced one of the most practical research studies I’ve ever read.

How to Make the Economics Work on a VBC Company

A company can take on different approaches, from things such as providing the technology infrastructure, care management, and/or delivering more of the clinical care.

While the TCN study found it was budget neutral, I imagine there are some options a company could explore to generate more revenue:

1. Recruit a state agency, such as a probation system, to provide an additional revenue stream that makes the model more sustainable and provides greater margins, particularly for a venture-backed company.

   1. In the state of Texas, for example, parole costs $4 per day per offender, whereas incarceration costs $50.

2. Find greater margins through utilizing patient-facing digital health apps alongside care management.

3. Create a parole officer-facing application to connect with patients, allowing the healthcare company to leverage more effective labor without additional costs.

   1. Parole officers and clinical care teams could collaborate closely to support individuals transitioning from incarceration to community life.

   2. This collaboration could involve sharing health data, addressing social drives of health, and providing ongoing monitoring and support.

4. Take downside risk, perhaps in partnership with a community health center, on the population to capture greater revenue.

Because there are a few players in the VBC Medicaid space, I imagine having a deep understanding of the population and former incarcerated peer support staff can be an effective value-prop and moat.

There is also significant potential to partner with community health center (CHC) services into the pre-release period.

The reason why this can be mutually beneficial is because CHCs have staff shortages, so the idea of passing along patients to CHCs after reentry is not a great value proposition.

Additionally, a company could benefit from a pilot study and/or channel partnership with the TCN.

A Great Step, Yet Policies Need to Continue

The VBC model I’ve been writing about introduces an interesting approach.

Typical VBC models in Medicaid may not fully account for the financial return of broader community benefits. However, there is an opportunity to collaborate with other high-cost state programs to improve outcomes and reduce costs.

More fundamentally, we must reinvest tax dollars to address root causes rather than just symptoms. Shifting from mass incarceration to more effective investments is crucial. Policies need to focus on crime prevention rather than just responding to it.

Care models like the one I discussed support successful reentry by expanding SUD programs and providing robust support systems to prevent justice system involvement.

As a nation, we must prioritize both prevention and providing second chances.

I’m optimistic that this reentry care model is a significant step in the right direction.

Get a Deeper Dive Through My Workflow Update

$50B in discounts are being spent on a healthcare program you may never have heard of.

40% of US hospitals participate.

All this is because of 340B, a program intended to help safety net providers.

The 340B Drug Pricing Program is now unambiguously the second-largest government pharmaceutical program based on net drug spending.

Yet, unlike Medicare and Medicaid, the 340B program lacks a regulatory infrastructure, well-developed administrative controls, and clear legislation to guide the program.

Some people say it’s a way for providers to abuse the system.

Others say it’s a critical lifeline for many providers.

Let’s dig in to understand this better.

What is 340B?

Established under the Veterans Health Care Act of 1992, the 340B Drug Pricing Program enables providers (covered entities) who serve lower-income patients to purchase medications from manufacturers at a discount — up to half the average sales price.

Providers can then be reimbursed at standard rates for the medications from payers, effectively capturing a larger profit by purchasing medications at a discount and receiving standard reimbursement rates.

The intent of the 340B program is to help providers serving lower-income patients stretch scarce federal resources, enabling them to serve more patients and offer more comprehensive services.

Initially, few hospitals participated until eligibility was expanded for general acute care hospitals in 2003.

Then in 2010, the Affordable Care Act (ACA) expanded the scope of the 340B program to include four additional types of eligible entities: outpatient settings of certain freestanding cancer hospitals, rural referral centers, sole community hospitals, and critical access hospitals.

This expansion also enhanced contract pharmacy arrangements, allowing covered entities to partner with external pharmacies to increase their reach and provide medications purchased through 340B.

As a result of these ACA changes and broader market strategies adopted by large health systems, the 340B program has evolved into a $50 billion-a-year revenue stream.

Again, keep in mind that the goal of the 340B program is intended to help support safety net providers such as FQHCs.

So, Does 340B Help FQHCs?

Yes.

Yet, only when an FQHC and other safety net providers have the necessary resources, staff expertise, and time to manage the extensive documentation and compliance processes of the 340B program can it fully benefit.

Unfortunately, many of the FQHCs do not have the capacity to navigate the complexities of the 340B program.

For those that can leverage it, the 340B program can be a lifeline to FQHCs, helping to increase their margins and provide better care to their patients.

While exact dollar amounts vary by health center, the impact is substantial. For example, one study found that 55% of rural hospitals used 340B revenue to stay open.

Where Things Have Been Going Wrong

While there are many challenges of the 340B program, both directly and indirectly, I have grouped four core problems.

1. Medication pricing.

2. The nonprofit status of health systems.

3. Too few direct funds to safety net providers.

4. Admin complexity of 340B.

Problem #1: Medication Pricing

Pharma companies say they want to reform the 340B program so they can sell their medications at a higher price, as they claim they are losing too much money from the 340B program.

I don’t believe them.

Medication pricing is excessively high, a problem further exacerbated by the lack of transparency in pharmaceutical pricing and the negotiations with pharmacy benefit managers (PBMs).

This opacity creates significant challenges for payers and healthcare providers who are striving to make informed decisions about cost-effective treatments.

This lack of clarity not only hampers the ability of providers to deliver affordable care but also places a substantial financial burden on patients who are often left with high out-of-pocket expenses.

These issues are not unique to the 340B program, but the overarching problem of high medication prices suggests that 340B alone cannot resolve this systemic issue. In fact, 340B actually benefits from this system because providers get reimbursed the higher price.

Problem #2: The Nonprofit Status of Health Systems

Some have argued that at times the 340B program has turned into a slush fund for unintended purposes for some of its participants, particularly large, ostensibly nonprofit hospitals and health systems.

These entities purchase drugs at significant 340B discounts and then charge payers, the uninsured, and cash-paying patients exorbitant markups. The resulting profits bolster the hospitals' financial reserves and provide substantial capital for them to take over and consolidate local markets.

Again, one of the main intents of the 340B program is community reinvestment. However, financial gains for hospitals have not been associated with clear evidence of expanded care or lower mortality among low-income patients.

And as mentioned, not only have these health systems not reinvested this money back into their communities, but they have done the opposite. They have engaged in activities such as consolidation, which has been shown to increase healthcare prices.

This has drawn scrutiny, as some large health systems and for profits PBMs were found to have diverted millions of dollars that should have gone to patient care.

The strategy involves building clinics in wealthier neighborhoods, where patients with generous private insurance could receive expensive drugs, while on paper making these clinics extensions of poor hospitals to leverage the 340B program.

These health system appear to have retained "just enough" of a clinic in a poor neighborhood to qualify for 340B funds.

Problem #3: Too Few Direct Funds to Safety Net Providers

FQHCs and safety net systems have low margins.

Lawmakers knew this, which is why they built the 340B program to fund greater margins in their system.

Yet, this results in perverse incentives to prescribe more medications that are higher priced.

I don’t think that the vast majority of FQHCs and other safety net systems are doing anything malicious here. I do think that the foundational funding mechanism to help fund FQHCs is odd.

The 340B program was most likely the most politically feasible way to secure funding for safety net providers, particularly given the historical context of the Omnibus Budget Reconciliation Act of 1990 (OBRA '90) and the Medicaid Drug Rebate Program (MDRP), which set a precedent for government-negotiated rebates and discounts.

This provides a complex subsidy for 340B covered entities achieved through requirements imposed on drug manufacturers.

Though as a result, not only did policymakers not directly fund FQHCs and other safety net systems, but they also missed the greater issue of regulating medication prices, which is causing significant harm to most Americans.

Problem #4: Admin Complexity of 340B

The administrative burden and intricate regulatory requirements often pose significant challenges.

The 340B program's admin complexity stems from:

• Strict eligibility and compliance requirements.

• Intricate inventory management.

• Frequent audits and reporting.

• Ensuring duplicate discount prohibition.

• Managing contract pharmacy arrangements.

• Lack of pricing transparency.

• Need for advanced technology and data management.

Many FQHCs lack the necessary resources, staff expertise, or time to manage the extensive documentation and compliance processes, thereby missing out on the potential benefits of the 340B program.

This situation underscores the need for increased support and streamlined procedures to help these vital healthcare centers access the benefits they are entitled to, ultimately improving healthcare accessibility and affordability for the populations they serve.

Recent Legislative and Regulatory Environment

I believe we're heading into a situation where regulations will significantly influence the four problems I mentioned above.

As of June 2024, there are a few important things that have been happening on the policy-side for the 340B program.

Recent legislative actions focus on increasing transparency, preventing abuses, and ensuring the program's benefits reach the intended populations.

Here is a brief overview of some policy happenings of the 340B program.

House Energy and Commerce Subcommittee

Congress has launched an investigation into how 340B entities are spending their program revenue. A bipartisan group of six U.S. Senators also released a draft of legislation that intends to provide “clarity, transparency, and accountability in the 340B program.”

The investigation and proposed legislation regarding the 340B have seen some developments, but significant changes have not yet been fully implemented.

ASAP 340B & 340B ACCESS Act

The Alliance to Save America’s 340B Program (ASAP 340B) is a coalition consisting of community health centers, patients, providers, consumer advocates, and leaders from the biopharmaceutical industry. They aim to address perceived issues with the 340B program.

In response, the 340B ACCESS Act, sponsored by U.S. Reps. Larry Bucshon (R-IN), Buddy Carter (R-GA), and Diana Harshbarger (R-TN), takes a comprehensive approach to reforming the 340B program. It addresses concerns of Community Health Centers, including those related to contract pharmacies, clarifying the program's intent, and addressing PBMs.

340B PATIENTS Act, H.R. 7635

Advocates argue that this initiative aims to improve medication access for underserved patients by challenging restrictions imposed by drug companies on how covered entities in the 340B program dispense discounted drugs.

They contend that easing regulations to allow hospitals and clinics (covered entities) to use contract pharmacies for distributing discounted drugs would enhance accessibility.

Advocates also assert that preventing drug companies from imposing limits on these arrangements is crucial to ensuring patients can obtain the medications they need without unnecessary barriers.

Potential (Overlapping) Opportunities to Build in the Space

1. Enhanced Data Analytics Integration:

   • Utilize third-party administrators (TPAs) to collect and analyze data from both covered entities and contract pharmacies.

   • Implement retroactive analysis to determine 340B-eligible prescriptions.

2. Streamlined Procedures and Support:

   • Develop streamlined processes to facilitate easier access to the 340B program benefits.

   • Provide increased support to healthcare centers to navigate complex compliance requirements effectively.

3. Improving Healthcare Accessibility and Affordability:

   • Focus on initiatives that leverage the 340B program benefits to enhance healthcare accessibility and affordability.

   • Target populations served by healthcare centers to ensure they benefit from improved medication affordability and access.

4. Remote Patient Monitoring (RPM) Integration:

   • Integrate RPM technologies to enhance patient medication adherence.

   • Leverage RPM data to optimize healthcare outcomes and patient care management.

Thoughts on Next Steps

I’m not quite sure yet about the right next steps for the 340B program.

What I do know is that the covered entities who truly give back to their communities and who desperately rely on the funds from the 340B program to stay afloat must be able to continue receiving them.

However, if the primary goal of the 340B program is to fund safety net providers, a more direct approach to funding them would be more effective than the current rebate system within the pharmacy supply chain.

This approach could help mitigate the flaws within the 340B program, which are symptomatic of broader systemic challenges in our healthcare system.

In the context of the 340B program, here is what we can also address:

1. The IRS can update Schedule H of Form 990 to make nonprofit hospitals list: how much they save from not paying federal, state, and local taxes (separately); savings from tax-exempt bonds; any money they make from the 340B program, if they use it; and how much they get in charitable donations.

   1. This reporting requirement helps assess whether hospitals meet the criteria for participation in the 340B program and provides transparency regarding their financial benefits and charitable activities.

   2. This will hopefully lead to greater transparency and steps to exclude covered entities that are not meeting the program's intent.

2. Lower drug prices, remove negative PBM practices, and increase transparency.

   1. Implementing a Medicaid fee-for-service pharmacy carve-out, paying pharmacies directly, offers a solution to reduce the influence of for profit PBMs. States can enhance control by developing internal capabilities to manage pharmacy claims and operations, minimizing reliance on PBMs and ensuring more transparent and efficient Medicaid pharmacy services.

All of this is politically challenging. I don’t doubt it.

Yet, if we’re talking about making true change in our healthcare system to make healthcare affordable and accessible, these changes are needed.

I’m always learning. If you have any thoughts, I’d love to hear them.

Get a deeper dive with my new 340B workflow update

Imagine being a patient on Medicaid. You’re struggling to make ends meet, and you have a cough that you tried to push through over the past few weeks, but it’s getting worse.

You have few options to receive medical care that will accept your insurance.

Fortunately, you have a Community Health Center (CHC) in your area.

CHCs are essential access points to primary care for almost 29 million US patients, of whom 47% are Medicaid enrollees. Yet, CHCs desperately need more predictable income and more funding to scale services for Medicaid, Medicare, and uninsured patients.

As a result, the core of the healthcare safety net is in jeopardy.

Why CHCs Are an Ideal Investment

Better CHCs are a win-win for Medicaid agencies because Medicaid agencies also need predictability, and CHC stability is crucial for this and for reducing the total cost of care (TCOC).

For reference, CHCs as the primary source of care was found to reduce the TCOC for Medicaid patients by 24% compared to other primary care settings.

Value-based payments (VBPs) offer hope for more predictable and potentially greater reimbursement.

The Center for Medicare and Medicaid Innovation knows this because they announced in October 2021 that one of its strategic goals for the next decade is to “create more opportunities for [FQHCs and other safety-net providers] to join” VBP models.

Why Would a CHC Want VBPs

While VBPs have the potential to increase revenue for CHCs, the primary goal is predictable income and to redirect incentives from volume to value. This approach focuses on achieving better health outcomes and enhancing patient experiences at lower costs for underserved populations.

This stability can help CHCs better plan their finances and operations.

VBPs are also intended to address the limitations of the Prospective Payment System (PPS). The COVID-19 pandemic highlighted the vulnerability of a payment system that relies heavily on the volume of in-person visits, even in an era where telehealth is prevalent.

Money saved from VBP models are usually flexible and can be utilized for a variety of purposes.

These benefits may include shared savings or bonuses awarded by payers as a reward for achieving better health outcomes and reducing overall costs.

This includes:

• Funding services beyond “medically-necessary primary health services” and “qualified preventive health services”

• Paying for services furnished by someone other than an ”FQHC Practitioner.”

• Delivering care at any location.

• Aligning payment with good care.

• Funding innovative pilot programs.

• Achieving sustainability for interventions currently funded by grants.

Terminology You Need to Know

• Upside Risk for CHCs: If a CHC achieves cost savings compared to a predetermined baseline, they receive a percentage of those savings as a financial incentive. This encourages CHCs to efficiently manage resources and reduce costs while maintaining quality care for their patients.

• Downside Risk for CHCs: In this scenario, if a CHC achieves savings relative to the baseline, they receive a percentage of those savings. However, if costs exceed the agreed-upon baseline, the CHC may be required to pay a portion of these additional costs or losses. This model motivates CHCs to carefully monitor expenses and strive for cost-effective care delivery to avoid financial penalties.

Here's why the above is important:

• When CHCs take on downside risk, they are exposed to financial losses if they fail to meet performance targets.

• However, in exchange for taking on this risk, they often have the opportunity to earn a larger share of any savings they generate if they perform better than expected. This can include sharing in savings achieved through better care coordination, reduced hospital admissions, or improved patient outcomes.

• In contrast, in models with only upside risk (where there are bonuses for achieving targets but no penalties for missing them), the financial rewards may be more limited because the organization does not bear the same level of financial risk.

Therefore, while downside risk does involve financial risk for CHCs, it also offers them the potential to earn more substantial financial rewards if they successfully manage patient care and reduce healthcare costs beyond expected targets.

Something to note is that downside risk can only be undertaken when a CHC is under an ACO or IPA.

However, the razor-thin margins on which CHCs operate make it challenging for CHC leaders to pursue downside risk.

Source: Community Health Centers and Value-Based Payment

(If you want to learn more on VBC, check out my VBC resource directory.)

Here Are Some VBP Options For CHCs

1. Prospective Payment System (PPS):

   • Description: This is the payment model most CHCs are currently on. CHCs receive predetermined payments for each patient episode of care or for managing the healthcare needs of a specific population over a defined period. Payments are fixed and based on predetermined rates for services provided.

   • Risk Level: Moderate risk as CHCs must manage costs within the fixed payment amount while maintaining quality of care.

   • Example: Capitation payments or bundled payments for certain services provided by the CHC.

2. Shared Savings/Risk Contracts:

   • Description: CHCs participate in agreements where they share in the savings generated if healthcare costs are below a predetermined benchmark, or share in the financial losses if costs exceed the benchmark. Payment structures often involve a mix of fee-for-service, per member per month (PMPM), or percentage-based incentives tied to cost and quality outcomes.

   • Risk Level: Significant risk as CHCs share financial risk based on cost and quality outcomes.

   • Example: Participation in an Accountable Care Organization (ACO) where CHCs are incentivized based on performance metrics related to quality and cost.

3. Bundled Payments:

   • Description: CHCs receive a single payment for a bundle of services related to a specific episode of care, such as managing chronic conditions or delivering maternity care. This lump-sum payment covers all services within the defined bundle, requiring careful cost management to avoid losses.

   • Risk Level: High risk as CHCs are responsible for managing all costs associated with the episode of care provided.

   • Example: Receiving a bundled payment for comprehensive diabetes management services provided to patients.

4. Full Capitation with Downside Risk:

   • Description: CHCs receive a fixed payment per member per month (PMPM) and are also responsible for paying back a portion of any costs that exceed the fixed amount (downside risk). This model holds CHCs fully accountable for managing all healthcare costs and outcomes for a defined population, with potential financial penalties for exceeding the agreed-upon budget.

   • Risk Level: Highest risk as CHCs are fully accountable for managing all healthcare costs and outcomes for a defined population.

   • Example: A CHC that is part of a CHC ACO contracting with an MCO. This CHC must manage healthcare costs within a capitated budget and may need to reimburse payers if costs exceed the agreed-upon amount.

Below, Shin et. al does a great job at understanding how CHCs should start to adopt VBP models:

Reasons Not to Purse VBPs and Barriers

A major challenge faced by CHCs is the growing number of uninsured patients they serve. CHCs need to care for insured patients to subsidize the cost of uninsured patients.

This is one of the reasons why CHCs are different when it comes to VBPs. CHCs have an obligation to care for uninsured patients and the community at large.

Among those CHCs that do not participate in VBP arrangements, the most common reasons include not having enough Medicaid patient volume to realize significant benefits, lack of understanding of their financial risks, and perceived fear of change.

And for those that do choose to participate in VBP agreements particularly as CHCs scale up to take on greater risk, significant barriers hinder their implementation of VBPs.

To overcome these barriers, partnerships are key.

Partnerships with other CHCs.

Partnerships with the local health system.

Partnerships with MCOs.

Partnerships with CBOs.

Partnerships with a CHC’s state Medicaid agency.

Partnerships between providers and the CHC leadership.

With these partnerships, the primary bottlenecks may still exist: data sharing and care coordination.

Technology for Risk Stratification & Quality Reporting

Successful implementation of VBPs hinges on robust data systems for monitoring and reporting population health. Key components include data aggregation, analytics, risk adjustment, coding, and care coordination.

Accurate data and analytics is needed to assess risks and set fair payment rates. State and health center data discrepancies often lead states to use their own data for negotiating terms in their favor.

These tools also enable CHCs to effectively identify and oversee high-risk patient populations, particularly those with chronic conditions or frequent healthcare needs. Leveraging population health management tools facilitates proactive interventions, preventive care strategies, and personalized treatment plans.

This is necessary because you are now making your money on the value you bring to patient health outcomes.

From a billing perspective, you also need to be able to report on your quality metrics set with the MCO.

Workforce Support Needed for Engagement & Coordination

Despite having the necessary technology, CHCs may lack additional staff—such as care coordinators, community health workers, and data analysts—to effectively coordinate and engage with patients.

VBPs enable the coverage of staff who can support integrative care teams in ways that PPS cannot.

However, fundamental shortages of providers in rural areas persist and CHCs struggle to compete with local health systems in more densely populated regions for hiring.

Implementing VBC without careful consideration may further strain already overburdened providers.

Moreover, staff members require extensive training to grasp the operational implications of VBC on a daily basis.

CHCs also need significant lead time to negotiate, adopt, and adapt to new payment structures.

In other words, even with the necessary capital, staff, and technology, changing workflows at CHCs necessitates a big shift in workplace culture.

Some Barriers for VBC for CHCs

1. Collaboration with other entities to share risk and resources.

2. Technology.

3. Work culture changes.

4. A lack of infrastructure and resources around addressing social drivers of health.

5. Securing capital for implementation.

6. Staff retraining.

7. New coordination, engagement, and administration staff may need to be potentially added.

8. Adapting workflows.

9. Clinical resources and capabilities.

10. Lack of being clinically integrated.

11. Legal compliance challenges.

Some Potential (Overlapping) Opportunities To Build

There are some players in the field, but in my view it is still not a saturated market.

1. Risk stratification and quality reporting software. (There are some interesting companies that exist. Some of the biggest challenges, in my view, are a lack of margin, workplace culture changes, and having the workforce to act on clinical insights.)

2. Facilitating partnerships. Including contracts with MCOs and between other CHCs.

3. Social drivers of health VBC contracts between CBO-MCO-CHC.

4. Taking a specific and complex tech-enabled clinical service off the plate of the CHC.

5. Workforce training and recruitment.

Is Now the Right Time for CHCs

Yes.

Though, I think there is a chicken-and-egg problem—CHCs need initial resources for this transition, such as the barriers I mentioned, but lack the funding to invest upfront.

As mentioned above, the best way to achieve this is by pooling resources together through a CIN (Clinically Integrated Network), PCA (Primary Care Association), IPA (Independent Practice Association), or ACO (Accountable Care Organization).

This is particularly critical because CHCs may have relatively small numbers of patients to take risk on, so they might struggle to reach the number of patients with a given payer needed to have actuarially-sound risk pools.

And, as mentioned earlier, engaging in an IPA or ACO arrangement allows CHCs to take on downside risk, which facilitates shared risk management. Margins are so low for CHCs that if downside risk did not work, a CHC may have to lay off staff.

Additional funding sources may also come from:

• MCOs.

• Policy, such as the 1115 waiver.

• Partnerships working with a third-party company.

Conclusion

Keep in mind that true VBC should remove as much administrative burden as possible to deliver patient-first care.

With greater scale comes greater emphasis on staying lean while being effective.

And on a final note, VBPs have the potential to improve CHC predictability, the ability to enhance patient outcomes, and potentially increase revenue.

Yet even with VBPs at capitated payments with down-side risk my current view is that CHCs still need more federal funding to expand coverage to both insured and uninsured patients. VBPs is part of the solution, not the whole solution.

This is particularly critical due to Medicaid unwinding where CHCs are not seeing enough Medicaid patients to be sustainable.

CHCs are ideally positioned to scale healthcare and social services to communities to deliver healthcare outcomes for the most vulnerable Americans. Policy leaders need to view this as a part of a beneficial way to reduce the total cost of care of patients on Medicaid.

I’m always learning. If you have any thoughts, please let me know.

The Workflow Update

CHCs & VBC

www.figma.com/board/gvrtGmKZm3dTiit2Q8QLR8/How-Healthcare-Works?node-id=2186-680&t=IbVZt58mS1TpqQOJ-1

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80% of health outcomes are influenced by non-clinical factors, which is particularly crucial for Medicaid and Medicare care.

A record number of Americans face housing instability and homelessness, food insecurity is increasing, and one in four adults struggles to afford their medications—demand for Community-Based Organization (CBO) services consistently exceeds available resources.

CBOs help with housing, food, etc., enabling patients to overcome non-clinical factors.

More recently, there has been a push for healthcare organizations to pay CBOs for their services, either through MCOs' "in lieu of services" (ILOS) or through funds from the 1115 waiver.

Recent CMS guidance outlines requirements for states to clearly define ILOS, the target populations, and processes for determining medical appropriateness and cost-effectiveness in MCO contracts.

It seems like a win-win-win scenario.

Instead of CBOs having to raise money through private sources, they can make money through healthcare dollars.

Patients get foundational social needs met.

And MCOs should get to decrease the cost of care by addressing critical social needs.

While studies are sparse, it's my current view that integrating CBOs into healthcare can improve patient outcomes and CBO stability, but several barriers exist. Here are some:

• Social drivers of health are complex to address

• Coordination between healthcare providers and CBOs is challenging

• Patients often don't follow through on referrals by themselves

• Patients find the social service system hard to navigate and may mistrust it

• Barriers like transportation, language, and time hinder access

• CBO interventions are rarely evaluated for effectiveness (this is critical because services have to result in positive health outcomes)

To tackle some of these barriers in states with the 1115 waiver, social care networks have been used.

Currently, here are some of the things on my wishlist to integrate CBOs into healthcare:

• Form MCO-CBO partnerships ensuring CBOs are paid

• Provide data showing CBO capacity

• Enable CBOs to close care gaps with AI or CHWs

• Allow CBOs to show patient outcome data

• Create or leverage distribution channels to reach eligible patients

• Provide low-interest loans to help CBOs get initial funds and support the reimbursement period of services

Aligning incentives for preventative care and supporting CBO participation and formation are key steps.

Despite challenges, greater inclusion of social services is vital for improving care and controlling costs.

Read About It More in My New Workflow Update

Healthcare-CBO

I'm always learning, and I would love feedback. What did I miss?