Payer? Payor? Either Way, A Tough Sell

I have advised (and continue to advise) a number of companies large and small about go-to-market strategies and how to think about launch and market entry.  There are, as you can imagine, huge differences in how to approach these depending on whether one is a pharma/medical device company, a health services company or a digital health/health IT company.  But the one market that all of them ultimately try to crack is the insurance company segment, generally referred to as Payers or Payors (depending on who you ask).  I’m going with Payer because I said so.

Health services companies generally deal with payers all day long and most often by becoming part of their provider network.  This doesn’t usually involve deep engagement on complex contracting, other than when value-based payments are involved, because things that come out of the claims pool and relate to ICD codes that are generally relatively straightforward for payers and their claims systems.  This doesn’t mean that uptake will be high or coverage guaranteed in all circumstance, but it means that the amount of brain damage from a payer negotiation will be less challenging than, say, climbing Mt. Everest in winter.  Most of the time.

For the other types of healthcare companies – pharma, medtech and digital health—it gets a lot more complicated.  Like quantum physics-level complicated.

Pharmaceutical companies are starting to engage more with payers, especially around value-based pricing models, but other than trying to get included in the formulary, they are not often facile in thinking from the payer perspective.  It is very unusual for medical device companies, especially young companies, to have deeply engaged payer relationships or even to know how to interact with them, much less understand how they think.  Each of these sectors has grown up thinking that the provider systems are their customers (or the physicians themselves, which is nowhere near as true as it used to be), not the payer.  Unfortunately, it is a tough adjustment to realize that is mostly no longer the case.

When it comes to digital health companies and tech-enabled services companies, which are often looking to get paid for more than a standard network provider health service or a reimbursable product with a code, it is head-spinningly challenging.  In this case they are often seeking to get paid outside the medical loss ratio (MLR), which is to say outside of the claims pool.  This means they are wanting to get paid for what are generally unreimbursable services in the traditional coding sense of the word.

Payers have a regulatory requirement regarding how much of their spending needs to be considered medical spend and thus count toward the MLR (generally 80-85%); as a result, they have what amounts to a hard cap on their non-MLR expenses (the pool that pays for everything else other than medical claims).  Because of this, they are unabashedly cautious about taking on new services and technologies and strongly prefer those that can be appropriately construed as medical spend.  There are ugly financial consequences for getting out of whack on the MLR:Non-MLR ratio so they simply cannot ignore the math.  In other words, payers have 99 problems, and math is basically all of them.

Let me lay a little more payer math on you.

When payers think about adopting new programs there are other numbers they tend to care about.  Yes, this is going to be some gross oversimplification coming at you, but it’s not that off base, and I know this from hearing payers tell me these numbers as recently as this week.  And they are pretty universal, by the way, at least when it comes to the large national payers.

• For a program to be considered a priority, it has to impact 5-10% of the total covered population. By that I mean, if they have 100,000 Medicare members, the program has to be applicable to 5000-10,000 people per year, not just 5%-10% of people who have the condition targeted by the program.  In other words, if they have 10,000 members with a particular disease and 100,000 members total, and your program targets that disease, then you will likely get some attention.  If your program serves 750 people a year, it isn’t what they are worrying about, whether you think they should or not.
• For a program to be considered worth the effort, it must have a measurable Return on Investment (ROI) within 12-18 months. This means that the measurable savings must return more than the cost of the program AND have some other material value or else it will not be a priority or even of interest.  There are a few exceptions, such as when a program is considered a huge marketing advantage in a geographic region or when a specific employer demands it and that employer is a large customer, but otherwise, nope.  FYI, they don’t believe your ROI claims.  They have heard it 1000 times before and will not believe your ROI claims until they can see it proven out in their own population under their own conditions.  I hope you like pilots, because that is coming first.
• Your product or service can’t subtract from the value of another of their products or services. In other words, if your program results in a material revenue reduction in their wholly-owned Pharmacy Benefit Management system, uh…nope.  You need to think about these companies wholistically.  Yes, it true that the divisions don’t always coordinate or talk, but if someone in the decision-making line sees into both P&Ls, subtraction is not your friend.

There are also non-math issues to consider when selling to payers.  They include:

• There aren’t many national payers and so you don’t get a lot of shots on goal. If you manage to sell to one at the national level, you get merely a hunting license to go after their subsidiary regional or state-by-state plans.  Rarely do local subsidiaries adopt off these centralized contracts without you selling the program all over again to local leaders.  Better carb up, because the marathon is a long one.
• If your program relies on a patient trusting the entity recommending, then payers are not always your best channel. Payers are not great at marketing to their own members because patients/consumer generally don’t trust payers and don’t want them mucking about in their medical decisions.  When payers promote programs, patients often assume there is an ulterior motive that isn’t aligned with their interests.  It isn’t always true, but it is pretty much always assumed.  Patients would rather turn to their physicians for product and program recommendations, or to their friends and peers.  I cannot think of one time anyone ever told me that they didn’t know what to do health-wise so they called their payer to ask.    That means that if you sell the payer, you must also sell to the provider, at least sell them on recommending your product or program.  And that is tough to do through a payer unless the providers are wholly owned by the payer, which happens, but not often.   So now it’s a three-step sale:  national provider, regional subsidiary, physician.  If you wonder why it takes so long to get to market in healthcare, wonder no more.
• A payer in Medicare has very different incentives and financial requirements than a payer focused on Medicaid and they both vary widely from payers focused on Commercial populations. Medicare plans are often focused more on acquiring new members and/or risk adjustment opportunities than other things; meanwhile, back at the Medicaid ranch, it’s all about savings.  In the Commercial plan world, it’s all about price sensitivity and keeping what little margin there is.  This means you can’t have one sales pitch for “payers.”  It’s like having one sales pitch for “women,” like they are all one homogeneous population.  Yes, for those of you who have had one sales pitch for “women,” that is why it fails.  Just like snowflakes, payers, plans and women vary pretty significantly from specimen to specimen.
• There is so much job turnover at large payers that by the time you are nearing the end of your sales cycle, you get the thrill of starting all over again to convince new players. This is not always true, obviously, but it is a constant musical chairs battle.  Make sure to divide and conquer and not put all your eggs in a one-person basket.

It is worth noting that it is much easier to acquire smaller regional payers as customers (not easy, just easier) and I am not clear why more young companies don’t just start there.  Everyone wants to catch a whale it seems, but once you catch them, where are you going to store them?  No one has a freezer that big.  So, start smaller and get good at what you do before you bet it all on black at the United, Cigna, Elevance (the new and improved, lemon-scented Anthem), Aetna table.  They don’t mean to crush small companies, but they do.  Kind of like when you invite a whale to a pool party and…oops, they rolled over on the guests.

Payers can be great partners and customers but think about it in that order.  How do you help them help you?  When the partnership is good, it has a payoff for everyone in the mix and is based on a shared understanding of incentives.

As with all healthcare go to market strategies, follow the money.  If you don’t know how the money flows, you don’t know how your revenue grows.  I just made that up, but it should be on t-shirts at all the medical conferences where young companies hang out.    Don’t “decide” your best market is payers, providers, employers and/or consumers until you actually test it with people who aren’t your friends and who do not have equity in your business.  Talk to a lot of each of them before you try to sell them stuff.  Understand how they get paid, how they get rewarded and what else drives their decision-making.  I see so many entrepreneurs spending so much time assuming things while building their go-to-market plans that it’s a wonder they have time to shop for the perfect Patagonia vest.

By the way, some of these thoughts were recently verified and amplified by actual real life payer people in leadership roles at the biggest whales.  Thanks to those of you who helped me further crystallize my thinking.