Managed Care Contracting for Health Tech Startups

Welcome back to the VBCA podcast. I'm Alex Yarijanian and today we're going deep into a topic that's make or break for health tech founders.And way too often this very same topic is totally misunderstood. And that's managed care contracting. Yeah, I know. Not sexy, definitely not trending on X.But if you're building in health tech and you don't understand how payer contracts work, you're building on sand. Let's be real. You can have the best clinical AI, the slickest ui, the perfect patient experience, all of it good.But if the reimbursement model doesn't support it, you're just giving demos and sending PDFs no one reads. Today's episode is a blueprint.This blueprint is for founders, operators, and even some health plan folks who are trying to figure out how to actually work with innovation. Instead of slow rolling it to death. We're going to break it down into three parts. 1, what makes managed care contracting so brutal for startups? 2. Strategies to not just survive it, but win in managed care contracting. 3. Some real world startup case studies that crack the code. Let's get into it. Let's start with the obvious. You're a health tech startup.You're coming into this world with about as much leverage as a high school intern at a pharma conference. No one knows who you are. You've got no volume, and unless you have ACO level data, no one believes your outcomes. Yet.Point blank payers are risk averse and your company is, well, risk. You're now stepping into a regulatory minefield. There is hipaa, state regs, prior authorization, utilization management.It's like trying to do parkour while reading a legal brief. And all you've got is one lawyer retainer and a COO who hasn't slept since the last SOC 2 audit. Then there's data, or actually the lack of it.Health plans have armies of actuaries. You've got a couple dashboards and a clutch analyst who's also dubbing as your product manager. So what happens?You either get stuck in pilot hell or worse. You sign a bad deal just to get into the door and now you're locked into a contract that's bleeding you out and a pair will not come to the table.Let me tell you something. You do not need to be massive to win. You just need to be smart. Structured, surgical. Let's break down a few plays. Play 1.Use tech to punch above your weight. Contract management platforms. Yeah, I'm talking about tools that bring order to the chaos can help level the playing field.From control to audit trails to structured review processes, having clean operational infrastructure builds credibility and saves time. Now, all of these things that I said, from control to audit trails, et cetera, processes, you might be thinking, let's just get started.But remember, when you start, you need to have a direction you don't get, usually in an airplane and just tell the pilot to take off. You typically have to have a location, you have to have a destination to go to, otherwise the plane would likely not take off.All of that to say, don't show up to negotiations with vague intentions. Show up with data transparency and the operational maturity to scale. When you first sign a contract, you're not done right?You have an effective date, you have a contract in place. Ask yourself, do I have a plan for renegotiating this? Folks often think renegotiations come later. Yeah, they do come later. But guess what?If you start thinking about what your negotiation strategy is, what some of the threshold and kind of criteria to trigger this negotiation, what you're trying to get out of the negotiation, what outcomes are you seeking? Now, you don't just suddenly decide, okay, I'm going to negotiate this contract, so what data do I need?Sure, you can do that, but it's best that you think about what outcomes do I want from a negotiation? Play too. Too many founders try to figure this out as they go.Don't find someone who's done this before, former payer executive, a health system lead, someone who's been through three Medicaid car routes and still shows up to work. Hey, the rules are not written anywhere. They're learned in the rooms you haven't even been invited to yet. So find someone who's been in those rooms.Play three. Sell financial impact. Do not sell features. That's a flag, red flag. No one's buying better ux, they're buying results.Frame your language in their language. Lowering utilization, fewer ED visits, improved adherence, operational lift.If you don't tie your value to cost containment or quality improvement, you're just a line item they don't want to fund. Now, be careful about this. In some markets, such as California, you can talk about ER and ED and hospital visits as much as you want, right?But folks, eyes will glaze over. That's if you get a meeting. Why? Because the payer simply pays the hospital a drg and it's up to the hospital to figure the rest out.They're not going to pay anything more than they're paying. So be careful how you Frame your value, but make sure you frame it in their language. Startup war stories, who actually got it right.Let's walk through three case studies really quickly. These are real startups with real challenges and, hey, real progress to show for it. Case one is Innovate Health. They were building.I chuckle only because these vague names and everything has a word health and everything has care in it, but it is so Innovate Health. They were building remote monitoring technology. Clinically solid, but no network access.You can be as clinically solid as you want, but if there's no network to access your clinically solid product, then hey, it's not going to be out there. But what worked? I have three bullet points I want you to think about. One, they brought in a former health plan contracting lead early.Now, watch out with this.If you go and poach someone from a United or Humana or an Aetna, any one of these major corporations, make sure that they understand the startup culture right. These folks are typically not used to the moving fast, breaking things, a rapid iteration and the business needs of a startup.These folks are used to simply being in a corporation, a large organization, and it operates very differently than a startup. So make sure that you consider that.So don't just quickly pause this podcast and go find someone from United and bring them in, but make sure you ask them the right questions.Make sure that you watch for cues that are outside of just the interview to make sure that person understands that they're coming into startup and understands that something that is set today, a strategy of today, could change tomorrow, could change again the day after, and it could change again Monday when you come to work. So make sure that you're not just spending money on some person you got from a health plan. That won't be a good fit.Might seem like an obvious thing to say.That's why I didn't want to say organizational fit, cultural fit, but specifically a health plan corporate person needs to fit into the fast paced environment of a startup and they need to be okay, right? With things changing every day, every other day. Two, structure the contracting process from the jump.So what Innovate Health did was that they structured the totality of their contracting flow and process from the very beginning. And three, build an outcomes dashboard. That's what they did.They built an outcome dashboard to show real value and they did this before the pitch, not after meeting with the health plan and saying, hey, yeah, we'll send you some data. And then scrambling to build a dashboard. Yeah, so that is very important. They walked in with Proof, not potential.Landed three regional payer agreements within one year. And these aren't just your basic kind of agreements. Right.These are actually, I'm going to put in air quotes for the listening audience, enterprise agreements. So these are actual contracts that could bring in some tremendous value. I want to talk to you about case number two. That's MedTech Solutions.So it's a telehealth platform. Signed, they signed two early contracts that nearly tanked them. And I've seen this happen in many different points of my career.I'm tempted to name names but I won't do that here. Essentially don't just eagerly sign a contract that you don't understand.So these people did that, they signed two early contracts and that very thin margins and way too much risk. I've seen this happen when I was at Humana and essentially certain provider took on tremendous amount of risk.So global risk, part A, Medicare, part A, B and D. So a hospital, B, physician, D, drugs. They took all of that risk for a certain percentage of premium that did not allow them to breathe.They were at the door, knocking at the door, essentially needing to renegotiate, let's say that. So what Medtech did was they retooled and they collected granular data from a small pilot.They built a value proposition around avoidable cost reduction and negotiated better terms with shared savings triggers and they added stop loss limits. So that was missing from their initial agreements. Now they're in five states live growing in multi year agreements.Okay, the last one I'm going to bring up is Health Wave. Every all of these have a word health in it. So that's an AI diagnostic tool. Incredible science. I'm sure their program is working.They were totally unprepared for compliance reviews. What they did was pause external negotiations to tie up their internal process. It depends on your team size. You don't always have to do that.They rebuilt their contract workflows and approval checkpoints to make sure that essentially things weren't just going so fast that they were flying under the radar and they engaged a regulatory consultant to harden their deal structure. Now again, depends on type of organization you're running.You don't need a regulatory consultant for your kind of behavioral health teletherapy platform and these types of things. But it is important that you make sure to bring in the pro period experts early on in the process. Otherwise you're wasting time and money.Right, and time is money and money is time. So you're wasting your resources.And as a startup I don't need to tell you, you know yourself pretty well that all you have is your time and that's your most valuable asset. So once the house was in order, Health Wave landed. Commercial and Medicaid contracts. And they did this within six months.Here are some final thoughts. And 8. This is not optional. Let's wrap it up here. Managed care contracting isn't a line item. It's your business model. You have to take it seriously.If you're a startup in this space and you don't understand how your product fits into a health plan's actuarial model, their quality strategy or cost saving goals, you are not ready. This isn't about being liked. They like you. It's about being contractable. And that's a word.And being contractable means you can speak the payer's language, you can prove your impact, and you've got the infrastructure to deliver what you promise. Because hey, if they sign that deal with you and you don't deliver, guess what? You don't have that deal anymore.If you're serious about scaling, get serious about contracts in closing.Startups seem to think if they just throw these three words, value based care, into some PowerPoint or a Google Slide presentation, export it as a PDF and email it out, investors will simply throw money at them. The rest will take care of itself. Health plans will rush to contract them.It's like saying you want to be a world class chef, but forgetting that you actually need to buy some food, that's a problem. And what you need to do is make sure that you're not one of these startups. Because guess what? Such startups exist.So to the extent to which you're not one of these startups, you're already sticking out as a competitive advantage, right? So I want you to think through this and if you have a negotiation nightmare or a contracting question you want unpacked, send it in, let me know.We might cover it in a future episode and I might address it directly. I like doing that. This is the VBCA Podcast. I'm Alex Yarijanian. No fluff, no theory, just what it takes to build healthcare and do so for real.Catch you next time.