Author’s note
Last week, I had a call with a portfolio founder that was my “only new mistakes” thesis in action.
A deeply experienced executive and operator, who has sold and executed years-long, population-scale programs into multiple national plans, sat with a portfolio founder seeking to do the same. Both have dedicated this leg of their careers towards meaningfully bettering the human condition.
The conversation was extraordinarily valuable to anyone building for and selling into managed Medicare and Medicaid, and with their joint permission I’m sharing it here stripped of identifiers.
The founder is under a year into building care coordination for a vulnerable Medicaid population, working toward outcomes the system has long sought and rarely reached. She sells to critical access hospitals and FQHCs today and knows the company only scales through health plans.
The operator spent years contracting a care model for a high-cost chronic population with Medicaid plans at full risk on total cost of care representing millions of member lives and billions of dollars of medical expenses.
What follows is his playbook, organized in the order a founder would run it, with my own commentary where I disagree or where I have seen the same pattern elsewhere.
TLDR
Price against the plan’s three revenue lines, not against your own cost.
Medical expense savings, rate-cell timing, and the state quality withhold (0.5% to 5% of premium) each land on a different executive’s scorecard.
Contract as a provider through a professional corporation and bill one bundled monthly code.
Provider spend counts toward the plan’s medical loss ratio; vendor spend comes out of administrative margin, and the CFO treats the two differently.
Skip the white paper and bake the published evidence for your care model into the pro forma as the baseline.
The operator behind this piece closed total-cost-of-care deals without one; the single system that demanded one was the deal he lost.
Hire a chief medical officer who opens payer doors, and pay in equity if cash is short.
A former MCO CMO or state Medicaid director should outperform any deck; 0.25% to 3% is the range depending on startup stage and CMO time commitment, and the sales cycles they shorten a lot yet still run 18 months to five years.
Start with the national MCOs rather than the regionals.
National value-based contracting teams have the staff to move; regional plans want to be nimble and mostly are not.
Sell the health system now and parlay it into the system’s affiliated plan.
The first plan contract comes from a provider customer that owns lives, and the plan will deliberate long enough for you to build whatever is missing.
Contents
What a Medicaid plan is buying.
Map your program to the plan’s three revenue lines before you set a price.
Pull the state’s quality withhold methodology and the plan’s measure-level NCQA scores before the first meeting.
Size the value from public data, then let an actuary argue with you.
Build a five-year pro forma from the plan’s own website and public enrollment data.
Pre-empt the regression-to-the-mean objection by triangulating the population you are accountable for.
Turn a cluster of clinical problems into a top-five line item.
Name a construct that bundles your conditions into one budget owner’s problem.
Do not write the white paper.
Anchor outcomes in the published evidence for your care model; keep your proprietary data to engagement and retention.
Sell at the top, and hire the person who gets you there.
Target theCMO, and the state plan president who missed their numbers.
Structure the first deal so a named person inside the plan gets promoted on it.
Nationals move faster than regionals.
Sequence plans by whether they field a national value-based contracting team.
Check whose carve-out you are leapfrogging before you pitch full risk.
Be the provider, not the vendor.
Form the professional corporation, bill a single monthly code at a negotiated rate, and land inside the medical loss ratio.
Sequence the motion: health system now, plan next, build while they deliberate.
Convert a provider customer with at-risk lives into the first plan contract.
Write missing certifications into the contract with a cure period instead of waiting to be ready.
1. What a Medicaid plan is buying
[001] The founder’s question was the one every founder asks at this stage: what do plans care about, how do I price, and how much data do I need before they take me seriously. Her company ran its first clinical pilot at the start of the year, went to market this summer, and closes health-system contracts in the low six figures. She has a pilot pending at a large health system’s two highest-Medicaid sites, traction in a half dozen states, and retention above 70% across the full episode of care. What she does not have is a payer contract or a model for pricing one.
[002] The operator’s first move was to refuse the word “payers.” Medicaid plans differ by state, and within a state the MCOs differ from one another; an MCO in the Northeast does not buy the way a Blue plan in a midwestern state does. Every one of them does ask the same two questions, though: how much value are you creating for us, and how much of it are you asking to capture back. Founders answer the first question with medical expense savings and stop there. His point is that medical expense is one of three revenue lines the plan is looking at, and the other two are frequently larger.
[003] The second line is the rate cell. A Medicaid plan’s capitation is a spreadsheet of cells, and a member whose status qualifies for a higher-acuity cell earns the plan a higher monthly rate than the same member did the month before. Identify the qualifying status two months earlier and the plan collects the higher rate for two more months. Eligibility windows change the arithmetic further. A state that lengthens coverage for this population from two months to twelve extends the window over which a plan collects premium on the member, observes your program working, and attributes the savings to you, from two months to a year. A founder who keeps a member enrolled and on the plan through that window is protecting revenue the plan is otherwise entitled to and does not collect.
[004] The third line is the quality withhold. States hold back a slice of premium, 0.5% in California and up to 5% in the strictest states, pending the plan’s performance on the state’s own quality measures. The methodology sits in a long PDF on the Medicaid agency’s website next to the rural strategy. Take a plan with a billion dollars of annual premium: the difference between zero withheld and five percent withheld is $50M. In a specialty, let’s say five of the fifteen measures in a typical state touch a population, so if a cohort moved those measures at the population level a high-impact solution can be the difference between the plan keeping that withhold money and losing it. NCQA publishes the plan’s rating measure by measure, zero to five stars, about two years stale but directional. In commercial a four-star rating is decorative. In Medicaid it is cash.
[005] Before the first meeting, pull the state’s quality withhold strategy/methodology and the plan’s NCQA measure-level scores, and mark which measures your program moves and which of those carry withhold dollars. Bring that list to the first meeting. Enter the conversation with a thesis about which measures your solution can impact the most and which of those the prospective customer needs the most help with. Ask them where they might want the most support with their quality measures over the next 5 years.
2. Size the value from public data, then let an actuary argue with you
[006] The operator did not have outcomes data when he got in the door. He had a national plan as an anchor customer, which he calls an unfair advantage, and he had a spreadsheet built from sources anyone can reach. The plan’s website lists its Medicaid enrollment, by county if the plan cares about rural versus urban. If the age breakdown is missing, assume each year of age is about 1% of the population. Split the book into TANF, ABD, and expansion, since the cost profiles differ. Where the plan discloses nothing useful, take statewide Medicaid enrollment and multiply by the plan’s market share. He did this state by state, and the numbers were close enough to price against.
[007] The pro forma follows from that top line. Population at the top, the share you expect to engage, the value you deliver per member per month, five years out. Cost of this population without you, cost with you, with the reductions lined up by event: ED visits, avoidable admissions, courses of treatment for the complications your program heads off, and the catastrophic stays that run to a million dollars each. Work the math out in front of the plan rather than jumping to a number; the CFO wants to see which cells you touched. A regional Blue plan’s Medicaid director had already handed the founder the storyline: half her state’s counties have no local access to the relevant care, members skip the visits that would catch problems early, the catastrophic admissions follow, and then the member churns off the plan before it can realize the next year’s risk adjustment. Even a small improvement in keeping members engaged through the episode was, in that director’s words, a meaningful conversation.
[008] The pushback will be regression to the mean. A high-cost cohort gets cheaper on its own, and the CFO will ask how much of your savings is that. The operator’s answer is triangulation across three questions. Who is the most expensive population for the problem you solve? Where does your program deliver the most value? And how do you demonstrate accountability for that value, so the plan gets its share, you get yours, and the quality measures move? The uncomfortable part of the triangulation is the second question. A program that enrolls everyone it feels right to help will not save money on most of them; a program that names the high-cost slice it is accountable for will.
[009] Then bring in an actuary, and do not assume you cannot afford one. The operator’s chief actuary came from the anchor plan’s Medicaid business, where he had underwritten the operator’s own deal from the plan’s side of the table. An investor recruited him to work fractionally across two portfolio companies, which is how a seed-stage company paid for a chief actuary. He now runs a fractional practice, and he is not the only plan-side actuary who does. Build the five-year pro forma yourself from public data first, so the actuary is refining a model rather than inventing one, and so the back-and-forth with the plan’s own actuaries is between peers.
3. Turn a cluster of clinical problems into a top-five line item
[010] Point solutions lose on the plan’s cost ranking. In his specialty, each clinical condition that a center of excellence targeted showed up as the plan’s problem number nine, or twelve, or twenty. The operator’s company bundled the whole cluster into one named construct and taught plans an acronym they had not been using. That construct is now a category with a dozen companies in it. At the time it was a reframing of a clinical cluster into a single business problem large enough for a plan CEO/president to care about.
[011] The founder’s version writes itself. The handful of complications her program prevents, and the missed visit that precedes all of them, are each too small to be anyone’s line item. Bundled into one named construct and sliced across the plan’s members in this population, they are a top-five concern with a dollar figure attached. The pitch he ran, and the one I would run here, is chief medical officer to chief medical officer: an evidence-based care model that delivers a few hundred dollars of value per member net of fees, which across your population is double-digit millions a year at maturity. Name the construct before the first meeting, then find the slicing that makes it one budget owner’s problem instead of five clinical committees’ problems.
4. Do not write the white paper
[012] The operator refused to produce one, and he lost exactly one deal for it. Every company he had watched publish a white paper found it was never enough. The sample was too small, the paper was not peer-reviewed, the analysis was in process, and the plan’s team tore it apart because tearing it apart was their job. His response was to decline the genre. His company was tech-enabling models of care with decades of published evidence behind them. Why would a plan need a white paper to show it what the literature already shows? He baked the literature’s baseline outcomes into the financial model, positioned his company as likely to outperform the baseline, and priced the reduction in high-cost events at what the care model was already known to deliver. UPMC called that a non-starter and walked. Everyone else accepted it.
[013] His chief medical officer carried the rest of the burden. When the plan asked whether the model worked, the CMO could say that he had done this work before, and the plan did not press on whether “before” meant inside the company or during his years running a state Medicaid program. That is what a credentialed CMO buys you in a room where you have no outcomes data of your own.
[014] The founder’s situation differs in one useful way. She has engagement and retention numbers, and those are exactly what the Blue plan director asked her to start tracking. Retention through the episode is her proprietary data; the outcomes case belongs to the published literature for her care model. Keep the two separate in the pitch. Your data proves the plan’s members will stay enrolled; the literature proves what happens to cost when they do.
5. Sell at the top, and hire the person who gets you there
[015] I asked which title owns NCQA scoring for the founder’s outcomes at a plan. His answer was that no single person does, and if accountability had to roll up to one desk it would be the plan CFO, who does not know the measures. The people he sold to were the plan president, and, easiest to reach and most influential on the decision, the chief medical officer. At the national MCOs you might work one level up: the regional CEOs of the national plan’s Medicaid business can point to the state-level plan CEOs/presidents, with a question that does the sales qualification for you. Who missed their numbers by the widest margin this year and needs a Hail Mary? www.healthmanagement.com paid subscriptions give access to MCO P&L data, Medicaid enrollment data, RFP updates, and more.
[016] The hire that can make CMOe meetings happen is the startup CMO, a physician who had run a state Medicaid program and held a prominent public-facing post. The intro email wrote itself. Would the CMO at the plan like to meet our CMO, who wants to bring you up to speed on an evidence-based model that should move the dial on your book? The founder has a stacked medical advisory board and no CMO, and the operator said that was good, because the common mistake is hiring someone clinically excellent who is not the celebrity in the specialty. The person you want is a distribution power player who opens doors, and if you cannot pay them, pay in equity: a quarter of a percent to three percent depending on how full-time they are, and do not go to three unless you must. Payer cycles run 18 months to five years, so you want that person at the table for years, not for a launch.
[017] The second lesson is about the people below the CMO. Once one national plan’s specialty subsidiary saw his model working, it repriced the model internally on top of his chassis, added a markup, and took credit for the revenue. His counterparts got promoted on the margin. The founder’s reaction was that this came at his expense, and it did, up front. My reaction is that it made the renewal resilient. Slightly fewer dollars in year one bought a set of people inside the plan whose careers were now attached to the contract. He described the halo that follows: once a plan sees a two-to-one return and millions flowing through the system because of you, everyone in the building stops treating you as a startup risk and starts being friendly. Structure the first deal so a named person inside the plan wins on it, and accept the discount that costs.
6. Nationals move faster than regionals
[018] One might assume regional Medicaid plans would be nimbler, when regional Commercial plans are often nimbler. The opposite held. The people who are best at executing value-based contracts, and the MCOs that field national value-based contracting teams, sit at the big plans, and the big plans move faster because they have the staff to move. You might want the regionals to step up and compete, and if anyone has examples of this happening, please let me know.
[019] His favorites, for what one operator’s experience is worth: two of the national MCOs and the specialty arm of a third, where his counterparts were excellent. The regional plans he liked had not reached the scale he needed.. Sequence plans by whether they have a national VBC team, and before you pitch full risk, find out whose carve-out you would be jumping.
7. Be the provider, not the vendor
[020] The question that changed the call was structural. The operator asked whether the founder operated as a professional corporation with an MSO, and whether she was a vendor or a provider. She is a vendor to health systems, has no clinicians, and never drops a code; the platform coordinates the interactions between patients and the providers they already have. His answer was that for payers she should consider becoming a provider anyway, and the reason is the medical loss ratio.
[021] A plan must spend a set share of premium on medical care. Spend that counts as medical expense is money the plan was going to spend regardless; spend that counts as administrative comes out of the plan’s operating budget and, in effect, out of profit. A vendor is administrative. A provider is medical. The same dollars, routed through a provider services agreement instead of a vendor contract, land on the side of the plan’s accounting where the CFO is indifferent to them rather than hostile. The founder had heard a version of this from the Blue plan director, who told her that if she could bill CPT codes as a provider rather than hit the plan’s P&L, the conversation changed. It did not click until the operator laid out the mechanism.
[022] The chassis is a professional corporation. You bill as a provider on a monthly case rate, deliver something minimally clinical through the PC, an annual well visit through a remote provider will do, and run all of your services through that entity. You send the plan one bundled monthly code for everything you do, and you are not bound to the fee schedule for that code; the rate is negotiated against the work. The operator pointed to a care coordination company in California that did exactly this under the state’s enhanced care management program, becoming a provider without trying to replace the providers its members already had. Tele911’s ED-diversion contracts look to me like the same shape, though I have not asked Ramon Lizardo to confirm it.
[023] Form the PC before the payer conversation, so that when a plan asks how it would contract with you the answer is “as a provider,” and the paper is a provider services agreement they already have a template for.
8. Sequence the motion: health system now, plan next, build while they deliberate
[024] Health-system contracts in the low six figures and payer contracts in the millions are different businesses, and the operator’s advice was to use the first to reach the second. Some health systems carry Medicaid lives at risk, and some own a plan. Sell to those systems with the motion that already works, do the work, and parlay the relationship into the affiliated plan. The first plan contract comes from a provider customer that owns lives, not from a cold pitch to a plan president. The founder’s traction with critical access hospitals and FQHCs, where she is not hearing many no’s, is the asset here; the growth is slower than she wants, and it is the bridge.
[025] I asked when in the arc she should build the enterprise pieces a plan will require. His answer was now, because plans move so slowly, whether you want them to or not, that you will have time to build anything you need. The one long pole is security certification. The rest of the paper is standard: a data use agreement, a business associate agreement, and the provider services agreement from section 7.
[026] He started engaging payers six months before his first funding, which sounds early until you remember he = had payer relationships. The founder was worried plans would see an eight-month-old company as a toddler. They will, and it does not matter, because a cycle that runs 18 months to five years means the company that starts the conversation now is the one that is three years old when the contract signs. Better to know the timeline than to be surprised by it.
[027] The checklist, in the order the operator would run it. Pull the state’s withhold methodology and the plan’s measure-level scores. Build the five-year pro forma from public enrollment data and get a fractional actuary to argue with it. Name the construct that makes your conditions a top-five line item. Anchor outcomes in the published evidence and keep your own data to engagement and retention. Recruit the CMO who opens doors and pay in equity. Start with the plans that have a national VBC team, and find out whose carve-out you are jumping. Form the professional corporation and bill one monthly code at a negotiated rate. Sell the health system that owns lives, and write the missing certifications into the contract with a cure period. None of this requires outcomes data you do not have. Start before you feel ready.
Vadim Gordin writes Healing Healthtech, on the companies, founders, and capital quietly fixing what’s broken. Subscribe for a twice-monthly dispatch of free and paid field guides, and forward this to a founder who is about to send a plan a white paper.