A Product Market Fit Show | Startup Podcast for Founders
00:12:18 · AJ Loiacono
[00:12:18] S0: Well, that's exactly it. And, you know, I would say there's some science behind this. So most people, if you are accepting your prescription at the register, you're going to see pickup of like 96%. So think about it. If you're testing how people respond to higher and lower price, if the house knows, in this case the insurance side, that 96% of the time you're just going to take whatever I give you, that's a pretty good number, you know, to work with. And so again, the variability was artificial. This was my big observation. And, you know, the other thing you come to in the gritty days, I can't be the only person that's making this observation. And the reality is other people are, but they're on the payroll of the model. So if someone's like, hey, I'm a consultant or a broker and they get paid on product. You want to know who loves bad product? The person who's getting commission on the product. And so now you're not just up against three giants, you know, CVS Cigna United, but you're also up against all the people on the payroll of CVS Cigna United. And that is deep and wide. And so you become enemy number one because you're basically calling out the insurance industry for what it is. Uh highly opaque, you know, what I would say overly complex profit-seeking entity. And you're also going after the people that represent the companies that you want to move over. And you're saying, I'm calling people out. And I always want to be fair with this statement. The smaller the employer group, usually the shadier the broker. And what I mean by this is they're going to be like, I'm going to get paid on everything and anything. The larger the client, you start to see, I would say, some professional behavior here and some more disclosures around compensation. But the point of it is we had to fight against everyone, back to hand-to-hand combat, fix bayonets here. And because everybody in my mind was rotten.
00:14:36 · Pablo Srugo
[00:14:36] S1: This is kind of like classic, you know, counterpositioning, if you want to look at it that way. Everybody's making money a certain way on a certain business model. You're going to go and deliver a similar product, maybe a better product, but in a completely different business model that, you know, is more aligned. But because of the setup, you know, sometimes you get lucky where it's kind of like the big guys just ignore you, like, ah, yeah, let them let them do that. You know, the Netflix example being the obvious one. You know, let them run DVDs, whatever. But in your case, probably not. I mean, how do you get started? Where do you go? Because I'm thinking to convince the buyers is probably not easy, to convince the VCs is probably not easy. I mean, you have a track record, so maybe that helps. But, anyways, how do you get started on something like this?
00:15:12 · AJ Loiacono
[00:15:12] S0: Yeah, you bootstrap. I'm going to use the honest one. And I want to be fair. Health technology was starting to become interesting, you know, 2016, 2017. So there was a market there, but pharmacy benefits was observed to be this impossible fortress to get through because it was dominated by three massive players. And no one had really had commercial success kind of overturning them. And what I mean by that is there have certainly been other pharmacy benefit managers, but they replicated the model. They did the same exact thing as the leaders in the market segment, and they grew to a certain point, and then they flatlined. No one had ever scaled and started to take money from what I would call the two most valuable categories are Fortune 500 because they're large and prestigious. The second being health plans, because they're even bigger than Fortune 500 customers. So if you could service a health plan on the benefit and technology side, that's a huge deal. But no one had been able to do it. So, how do you get started? We bootstrapped. And when you bootstrap, you might have this vision of this powerful platform that's going to process claims and administrate patients and workflows. But you're going to start with a small build and you're going to license third-party software. You're not going to be thrilled with what you're given. You're going to have to rely upon third parties, you're going to have to license a network, you're going to have to work with other vendors, and you're not going to have a great product. But you have to be willing to make some concessions, stay true to your principles, and understand if we do this correctly and we're able to scrap our way through these first couple of years, we'll start to build the platform we envision. We'll have the opportunity to contract directly with pharmacies and other providers. And that's exactly what we did. But, you know, it's bootstrapping. And then in our second year, we did our Series A. So we finally felt with kind of the product market fit moment of that end of the second year where we had this inbound call from a prestigious customer. We felt like we had something that we could show. The growth, the model was working, and that if someone would give us the money, we could scale it to be the organization we are today.
00:17:36 · Pablo Srugo, AJ Loiacono
[00:17:36] S1: Aaron Powell Did you raise like right out of the gate, like as soon as you had the idea? [00:17:39] S0: So as soon as I had the idea, because in healthcare, you're going to have real costs because you have to register in states as a benefit manager or TPA. You're going to carry costs of personnel. You know, you're going to have service people, billing, finance people, et cetera. So you have real costs in your first year. So we raised uh three and a half million dollars, I think was the exact number. We closed in March of 2018. So I often say we were an operating company in healthcare, call it April. [00:18:14] S1: And what was like V1 of the product? One of the things I'm wondering is how much tech is there in this offering, in this product? Yeah.
00:18:21 · AJ Loiacono
[00:18:21] S0: Back then, not a lot. And I want to be fair, there was technology, but it wasn't ours. We were forced to license someone's claim processing platform. We were forced to license someone's prior authorization workflow tool, someone's formulary management toolset. We were outsourcing everything from reporting to printing solutions, you know, for cards. Um, so early days, the only thing that was proprietary from a technology side was how we were doing what we would call underwriting. So we would bring in claims data, look at it, understand what we could do and how we could manage this account to a lower cost. But over time, it would become an incredibly technology-focused company in the sense that at the core of our company is Judi, you know, and why are we called Judi? Judi short for adjudication, which is a fancy word for claim processing. And so adjudication, in order to do it, just to visualize it, is hundreds of administrative workflows, like eligibility, who's in and out of a plan, plan design, like financial rule sets, what's her copay or coinsurance or out-of-pocket max. It's also clinical rule sets. Can I have this medication? Did I meet the criteria therapeutically for this category, et cetera? You know, it's everything from billing to reimbursement to call center, client management, data and analytics, compliance, hundreds of work streams that in my competitors, many of them doing this stuff manually. So they'll have different systems and they stitch it together. Our vision was could we effectively create what I call a supply chain version of healthcare, like an ERP, an enterprise platform for healthcare, where all of these work streams are operating in harmony next to each other, which will reduce costs. So, you know, today, you know, we probably have about 1,600 employees, of which 500 is product and engineering.
00:20:25 · Pablo Srugo, AJ Loiacono
[00:20:25] S1: And is Oscar Health, like are these kind of like health benefits platforms, are those comparables, are those competitors, or are they kind of approaching a different piece of the market, especially like at the beginning? [00:20:35] S0: Yeah, a different piece of the market, you know, is one to be fair, is we started with pharmacy benefits. So in the UnitedHealth States, pharmacy and medical are actually administrated separately for what we call large companies. So if you're self-insured in the UnitedHealth States, if you have a thousand covered lives, which is roughly you have 500 employees, you usually double it with the dependents and you have a thousand-person plan, you're self-insured. Why do you want to be self-insured? Because your premium costs would be lower versus fully insured. You could pay your own bills effectively. And what we did is we focused on the self-insured marketplace and we started with pharmacy. It was my background, plus, I felt as if we had, I think, a very unique business proposition back to the product market fit. And so that's where we started. We would we would later expand into what I call TPA services, third-party administrator on the medical side. So again, similar product on the administrative side to pharmacy, same concept, focus on self-insured. So I go back to, you know, our competitors are CVS, Cigna UnitedHealth.