The Digital Health Guy Gets the Expert Opinion: Andy Slavitt, General Partner, Town Hall Ventures
During his career, Andy Slavitt has led many initiatives that have shaped our national health care system and improved the lives of millions of Americans.
In the 1990s, Andy was the founder and CEO of HealthAllies, a digital health company that served the un- and under-insured. He then he spent a decade at Optum, which he conceptualized and led from before its launch until it became one of America’s most important insurance providers with an annual revenue that exceeds $80 billion. Andy next served as the Acting Administrator of the Center for Medicare and Medicaid Services (CMS) under President Obama.
As we write this book, Andy is General Partner at Town Hall Ventures, a venture capital group launched in 2018 with the high mission of building companies that provide needed health care to underserved populations. Town Hall Ventures’s portfolio companies include, Bright Health, Cityblock Health, Somatus, Strive Health, Landmark, and Welbehealth.
In light of his long and varied leadership roles, it is hardly surprising that Andy has become a highly recognizable authority on health care, with a column in USA Today and regular appearances on CNN, MSNBC and Fox. He was recently recognized by Modern Health Care as one of the 10 most influential people in health care.
We are very excited that Andy took the time to share his opinions about where health care has been, and where he believes it should be going next.
About the Genesis of Town Hall Ventures
Kevin Pereau: What led you to start Town Hall Ventures?
Andy Slavitt: We are now, as a society, in something that is called digital health, but back in the 1990s, it was called dot.coms. I was in the private sector then, running a large health organization called Optum, which today is an $80 billion business.
Coming out of experiences like that, I felt that I perhaps had a lens that allowed me to focus on the most pressing problems to address in health care, those that needed the biggest focus. When it came to innovation, my point of view has been that many entities in health care have invested a lot of money in places that do not really move the needle on improving care for the people that need it most and spend a lot of our resources in places where we really don’t need to.
Kevin Pereau: Where should we be investing?
Andy Slavitt: Where do we really need to invest and innovate? Let me point out that we have 120 million people in America who spend about $1.3 trillion on health care every year. Generally, they have very ordinary needs, with relatively the same diagnoses that you and I have. We have health care issues that are being relatively well served. Instead of investing in companies that address the needs of underserved people, many venture capitalists and other investors ignore them. I see some companies where there are groups of 35-year-old men who are deciding that it would be good to invest in technologies that appeal to people just like themselves, or to 70-year-old men who go running every day while wearing two Fitbits. And those people are not the root of the health care problem in America, or the biggest or most important market.
We have to think about the woman who lives two bus rides away from her dialysis treatment center, or she can’t get there. She misses the bus, or the scheduled hours of her treatments don’t work around her job, so she goes into renal failure and spends a lot of time in the hospital and probably dies. Now, many of the investors I see are perfectly empathetic to a woman like that, but they aren’t thinking about her. They look at the problems through their own lens, and are thinking about the wrong needs of the health care system.
Another issue is that when we are trying to improve the overall system, we often focus on assessing the needs of companies that provide coverage for their employees. In other words, when we set out to fix or invest in the overall care system, some of us think only about the needs of employer-based coverage.
That could explain why to date, many investments haven’t generated significant ROI for investors. We have been focusing on the wrong part of the problem.
Our view when launching Town Hall Ventures is, let’s innovate in creating opportunities to care for people in ways that consider their needs and the relatively extraordinary lives they lead, and produce real and needed change. A minority of the people in the U.S. are great at being self-advocates. Most Americans do not eat in a healthy way or exercise the way they should. They can’t afford their prescriptions. They have so many barriers to overcome. They can’t find quality health care in their neighborhoods. They’re single parents. They can’t find or afford good housing. When they need behavioral counseling, there is no way to find that where they live. So a number of challenges exist because there is no easy access to resources.
That is where health care costs explode, and that is where we are looking to invest. We want to invest in and build 15 great companies that are involved in improving the way care is delivered for large pieces of the population. Underserved populations. That could mean frail, elderly, hospitalized, disabled. It could mean that they need intervention in specific areas like maternity care. This is where Town Hall Ventures sees real opportunity to invest. We see some great companies evolving in this space, many of which are community-based, and we are looking to help build those companies. That is why we started Town Hall.
Health Care as a Moral Imperative
Kevin Pereau: How do you get others to care about what you are doing and share that viewpoint, perhaps to see health care as a moral imperative and a universal right?
Andy Slavitt: You have to make the business case for it to be doable and repeatable.
If you look at Medicare, over the last 10 years, we have built in more incentives to make it work. Think about since Medicare Advantage, all the innovative companies that have been launched to serve the population, and how primary care services are redesigning themselves. No one cared about the Medicare population until MMA, right?
Something happened that disrupted, and made it change. You have CAHP Scores and all these things, and so that happened in Medicare. The same thing is happening in Medicaid. Seventy-five percent of Medicaid is now managed care.
You talk to hospital CFOs and you say to them that 30% to 40% of the patients they serve are on Medicaid. It is the lowest paid book of business. But you can then say to them, “How much do you lose on your average Medicaid admission?” Most of them will tell you something like $5,000. Every time they admit somebody into their system who is on Medicaid, they lose $5,000.
One of the best ways to make money is to lose less money. So if you can prevent those individuals on Medicaid from getting admitted for something that they could find treatment for in their community instead of in the ER, hospitals can lose less money. So even if you are building these models for better care, incentives are already built in. There are already incentives built in to help make that change happen. So people who are caring for this population understand its suboptimal opportunity. It is being addressed right now.
So the question is, how do you attract investment in order to address that kind of equation? People will invest if they see ideas and solutions. And then another question is, how do you attract entrepreneurs like Cityblock Health, Omada, and Landmark, which have all launched in the last few years?
What traits do the people at those companies have in common? Well, many are entrepreneurs who are probably less than 40 years old, maybe 35, 37, 38. Incredibly mission driven and smart, tech-savvy, and what they deliver is enabled by technology. Yet the smartest of them don’t expect people’s lives to change just because they developed an app. They are actually using technology to deliver better care.
They’re funded by really strong venture firms. Landmark is probably the best example, because they’re furthest along. They’re aggressively growing and going into people’s homes and changing the way care is delivered. Plus, they are getting superior outcomes.
And then once that that happens, lemmings appear. There are probably 10 versions of Landmark out there right now. We are receiving tons of business plans from people who want to do what Landmark does, and to be that.
And so overall, we’re not having as much difficulty pushing uphill as it once was. People are increasingly focused on getting at these issues. And I think that the fact that investors have been supporting a lot of entrepreneurs who are focused on the right things is what all the difference has been.
Kevin Pereau: How do you differentiate Town Hall Ventures from other firms that invest in health care? Is it the partners and alliances that you have? If I’m sending a pitch sheet to Town Hall vs. other venture investors, what will I see that is different about the way you consider my proposal? Why do innovators want to work with you?
Andy Slavitt: So, we have a different approach. Number one, we are stage agnostic. We will look at anything, from an idea on a napkin to a fully developed company that’s in a growth stage. But it’s got to be mission-specific. Because of Oxeon Partners (Town Hall General Partner Trevor Price is CEO and Founder of Oxeon), we can build great management teams for lots of entrepreneurial companies. So we are not afraid of building and creating the first clients, based on people connected to us, and my own experience and the experience of our General Partners.
We are not competing against other venture firms or private equity firms, in the following way. Usually, we will not lead in later rounds of funding. We will start companies from scratch. Or we will come in after a year, or even in later rounds. But somebody else has to lead the round. So our model is to get involved after we have been invited in by the lead investor, so we don’t compete with them. We aim to be sought after as a value-added part of a syndicate that can make companies successful.
So we look for investment partners who are interested in deals that fit our thesis. And that allows us to be very, very choosy. Typically people have found that it helps them limit the deal if they can bring us to the table to have us involved with the CEO. In the case of CityBlock Health, there were three different teams competing for the deal. But we were part of the syndicate, no matter who won the deal, because the CEO wanted us, and all the firms knew us.
So we have a little bit of a different approach in that we don’t view ourselves as competing. In fact the point is that our fund, whatever size it is, have enough capital to invest in this space. Our goal is not to invest $100 million or even $500 million in this space. Our goal is to attract $5 billion of capital into this space, and to use our involvement to leverage other firms.
Areas of Health Care to Work On
Kevin Pereau: Are there “areas of pain” in health care that you are excited about working on?
Andy Slavitt: As it gets to national issues, mental health is huge. Kidney care and a new way of doing dialysis will be huge. Autism will be an enormous opportunity. Healthy baby delivery, and first 1,000 days of care, and family planning.
Did you know that Medicaid pays for half the baby deliveries in the country? And it pays for the care for half the kids in the country. So Medicaid should evolve toward thinking about smarter ways of doing what it does, and realize that it’s about moving a lot of things together. I see great importance in the cycle of supporting individuals in planning pregnancies, in improving healthy baby delivery, and focusing on the first 100 days of care. Someday, somebody will turn that into a bundled payment which will look not only at maternity care and delivery, but also the outcome of having a healthy three-year-old.
Some of the things I am talking about are obviously nearer term opportunities, and some of them are bigger-picture, more challenging opportunities. But those are all kind of key spaces.
And of course, there is a lot to be done in primary care, primary care coordination, especially for senior, frail, elderly programs. Those are areas that are seeing a little more activity, but there should be a lot more.
We are very focused on helping to build businesses that focus in vulnerable populations, and helping to build those markets. Any company that views those populations as part of what challenges them to be in health care, that’s an interesting place for us to invest and work. And of course there is a lot in primary care and care coordination. There has been a lot of activity in those spaces historically, but there needs to be a lot more.
I think that the thing we have to be careful of, is that we don’t concentrate solely on digital technologies that focus only on the population that already has high-speed Internet access, smartphones, and other significant advantages, like the freedom and resources to limit how many hours they work.
Kevin Pereau: So it again comes back to that working woman who lives two bus rides distant from her dialysis center, right?
Andy Slavitt: Yes. And another obstacle is that we tend to think about health care as averages. How many people can we get to increase their blood pressure compliance, for example? How many more people can we get to take their medication? As opposed to worrying about the variations. Because our biggest problems in health care are caused by the variations, not by the averages.
Sixty percent of us do fairly well in managing our health care. When we create a health care system that only serves those of us who are in the high end, we make the overall situation worse and worse. So the averages move up only a little bit because we only reach the highly capable people.
When the underserved population continues to be underserved, we wonder why the whole system doesn’t get any better. If we have people in health care that are not focused on the whole community base that we need to serve, they are going to find themselves frustrated. They’re making little bits and pieces of the equation better, but nothing fundamentally changes.
Making a Real Difference
The kind of consumer Andy Slavitt describes – the one who has a hard time getting to a dialysis center, who has little access to good local food or services, and whose health is in genuine peril – is not someone he is making up. Consumers like that are all too real. We can provide care for them at home, or see them in emergency rooms.
They might not know it, but the improvements in the care they receive are due to the efforts that health care visionaries like Andy Slavitt are making on their behalf.
 The Medicare Modernization Act, passed in 2003 – ED.
 Consumer Assessment of Healthcare Providers and Systems, a rating scale introduced by the U.S. Department of Health and Human Services, in 1995 – ED
Andy Slavitt is General Partner, Town Hall Ventures. During his career, Andy has led many initiatives that have shaped our national health care system and improved the lives of millions of Americans. Prior to launching Town Hall Ventures, he was Acting Administrator of the Center for Medicare and Medicaid Services (CMS) under President Obama.