Primary Care's Win-Win-Win

0:03Welcome to Running Through Walls, a Venrock podcast featuring conversations between investors and entrepreneurs. Each episode, we offer a behind-the-scenes look at pivotal moments in time.

0:25Hi, everyone. Welcome to Running Through Walls. I'm Siobhan Nolan Mangini, a partner at Venrock. And I'm joined today by my partner, Dr. Bob Kocher. We're speaking with Patrick Nellie, founder and CEO of Aligned Marketplace. This is a network of primary care doctors who are super high quality and can see you quickly. Aligned has built a marketplace that connects self-insured employers to more than 3 ,000 high-quality primary care doctors and clinics across the United States, with 85 % of Americans living within a driving distance of a network provider.

0:54Bob Kocher: We're really excited to have just led Aligned Marketplace's Series A. We love the model of care, which gives people better access to excellent primary care. And we're excited to get into Patrick's journey to becoming an entrepreneur and CEO of this company. Patrick, thanks for joining us today. Thanks so much for having me. Patrick, your path to Aligned, I think, is really unusual and unique and one that definitely resonates with me. You spent almost a decade at Health Catalyst, a company where you had many different roles, ultimately becoming CFO. You took the company public, and then you became president.

1:25And you decided after that journey to actually build something from scratch, from the ground up, which I admire tremendously. So maybe you can give us a little bit of detail around your path to entrepreneurship and healthcare and how you decided to build Aligned. Thanks, Siobhan. In college, I realized that I was going to have to be working most of my waking hours. So if I was going to be doing that, I wanted it to be towards something that I felt passionate about. And that's different for every person. For me, it was the healthcare space. I realized I wanted to try to maximize the positive health impact I could have.

2:04But it's been a journey to figure out the best way to do that. I started out doing drug discovery research in the laboratory. Turns out it takes a long time to turn raw research into a new drug. So I wanted to shorten that feedback loop, went to the investing side of healthcare, which was very intellectually interesting, good overview of the space. But I realized that I wanted to see what it was like building product, building a company. So that's where I went to what was a startup at the time. And to your point, I had multiple roles while there in internal operations, analytics, growth, finance, product.

2:44I realized at that time that I was not going to be satisfied in life if I didn't try to give it my all and try to start something in the healthcare space of my own. So it was, to your point, kind of a journey to go on to ultimately feel ready to really try to make an impact as an entrepreneur.

3:05Bob Kocher: I'm curious. You just said feel ready to be an entrepreneur. And every entrepreneur I know, I think, never feels ready after they become one. Can you talk a little bit about what is the biggest change from being, you were president and CFO at Health Catalyst, and you spent nine years there in that company that really evolved. What are the biggest differences now that you're the CEO and founder? On the founder side, what's so interesting is how often the role switches. The context switching is extremely high. Determining the biggest bottleneck of a business can change on a weekly or monthly basis.

3:42So it's having to both assess what the biggest bottleneck of the business is and then put not just the organization's attention, but also my attention on what that biggest bottleneck is at that point in time. And part of that is having to persuade yourself that it is worth this week, this day, this night, this month, working on growth, product operations, recruiting, and that can change regularly.

4:10Bob Kocher: When did you know in your life that you wanted to be a leader or something? Were you like president of your elementary school student council? Or when did the idea that you want to be the guy that's out in front, like bringing people along on a journey? I was president of the student body. Yeah, it's interesting. So humility is one of our company's cultural attributes. And humility is one of my personal cultural attributes that I try to live by. But I think whenever founding a business, there is an element of arrogance that comes with it. But I think from a first principles perspective, it's from a good position because it is the belief that if you're going to change the world, it is hard.

4:56It is rolling and pushing a rock uphill. And that if no one else is going to do it, then it's up to you. It is your responsibility. Patrick, well said. And I'd love to dig in a little bit more in terms of where you decided to found Aligned. It turns out primary care has been known for a very long time to be a way to make people healthier, to reduce total cost of care. And yet it's been super difficult to scale. Employers have been wanting to fix primary care for a very long time. And I would argue that no one other than maybe one medical, which is now part of Amazon, has actually been able to achieve scale.

5:33And I say this from also a point of humility. I was at Cast Light Health building and scaling that business for many years. We wanted to be in this space. It was very challenging from a navigation standpoint. I've been involved with on-site clinics, on-site primary care clinics, where you're trying to provide primary care to employees by being on-site. That also has been subscale. And so you bet on something, I think, very different. It turns out there's thousands of doctors across the country that are actually sitting outside of insurance. And this is through subscription models or you have to pay a fee to get access to these primary care doctors.

6:07And you brought them into a network of over 3 ,000 providers. But I'd love to hear you just talk about how you came upon this idea and what caused you to decide to found Align Marketplace. This is also one of the benefits of getting years of experience in the healthcare space, is it was a combination of data points. At my previous company, we served primarily large hospital systems, but also independent primary care organizations, health insurers, life science companies. And we kept seeing in the data that the best results came from keeping people out of the hospital, that most of the health outcomes out there are not related to acute care, but proactive care or also just human behavior, socioeconomic factors.

6:58I also saw that there was a lot of innovation going on in the primary care side within Medicare, but there was less going on in commercial. And analytically, this didn't sit right with me from a systems level approach, because if we want to maximize the positive health impact, we need to reach and engage and influence individuals in their 30s, 40s, 50s and 60s before they go to Medicare. And then also being in the CFO role at Health Catalyst where benefits reported to me, we started to get exposed to these better care models in independent, advanced and direct primary care, more accessible subscription-like care models.

7:42But they were hard for us as an employer to access and purchase because we had members all over the country and these clinics are inherently local and healthcare is inherently local. So there was a few data points that kind of led to almost systemic issues preventing employers from scaling this nationally. And what we loved about this problem, myself and founding team members, was that it is a win-win-win where it can help both employers, clinicians to access these better care models and plan members.

8:16Bob Kocher: Can you explain to people listening what you mean by these better care models? You used the word, I think, advanced primary care. Most people have just been to a primary care doctor. And what's the difference? What's better about it? These care models, these better care models start with being more accessible. So these clinicians are set up in a way, oftentimes, so they have smaller patient panels. So they can spend more time with patients, have longer appointment times. build relationships. Oftentimes a member is given their cell phone number, the clinician's cell phone number. So it actually feels in some ways like hometown clinicians from several decades ago.

8:59All of that is enabled by a different payment model where these groups are paid instead of per visit, paid to keep individuals healthy. You could think of it as an all-you-can-eat subscription for primary care. And so for a member, it really starts with access. But for an employer, it's also about getting them access to a clinician who is independent, who will prevent them from needing downstream care to drive cost savings.

9:29Bob Kocher: And who pays them? It sounds like they don't take insurance. They're paid by the patient or the employer. There's a few different ways that individuals are accessing these care models today. One is an employer could sign a direct contract with an independent advanced primary care provider, oftentimes in one or a handful of markets. Another is a number of these groups are open to individual consumers in the U.S. paying a subscription out of pocket to access these better care models. People may have heard of them as membership-based type care models. A lot of individuals have started to have their physicians move to these models, sometimes referred to as concierge, if you will, but it's at a price point that is affordable for both members and employers.

10:20And now thousands of these exist all across the U.S.

10:23Bob Kocher: And it sounds like this isn't so expensive. So employers can afford to do this. It's not the bougie concierge medicine that people in Silicon Valley go to that's thousands of dollars. That's exactly right. We really look for win-win-wins. A lot of these groups are priced at a rate that's roughly equivalent to what an employer would be paying for primary care today through their health insurance network. Did you build this with a certain size of employer in mind, like given you went out and built a full national network, were you thinking, is it going to be for large employers or do you think it's relevant for small employers or, you know, even insurance networks?

11:00I'm just curious. We built this specifically to start for geographically dispersed employers. With the thinking being that, once again, coming from a place of humility, if an employer is geographically concentrated, they can sign a direct contract with one of these groups. And that's wonderful.

11:20Bob Kocher: Patrick, can you talk more about just how the money is saved here? I mean, people have talked about for years, like primary care is good, that they prevent diseases and things, but it seems like their record's more mixed. Sometimes they do, sometimes they don't. Maybe it depends on the patient. You've been having really impressive cost savings for your early employers. Can you just talk about where that savings comes from and why it's really beneficial? Because it's good for the patient, good for the employer, and good for the permacodoc. The way these groups drive savings is a fewfold. The first two have to do with keeping someone out of the hospital.

11:55The first is around lower unit pricing of downstream services. So lower cost imaging, lower cost labs, lower cost procedures, lower cost infusions, that by steering someone to an independent advanced primary care group that has no misaligned incentives, that clinic will steer members to the highest value downstream care. Hospitals have been consolidating and have a lot of pricing power. But the good news is there's been a growth in independent options out there, independent imaging centers, AS ambulatory surgery centers, independent specialty infusion companies. So there's more and more opportunity to steer members towards lower unit price downstream care.

12:37That's the first. The second is around reducing downstream utilization. By being more accessible and available, it reduces members' need to go to the emergency room because they can reach their PCP. Reduces hospitalizations, reduces specialist visits. So lower utilization of downstream services is the second. And then the third is actually improving someone's health. That third one does not show up typically in year one. The first two can from a savings perspective. and improving individuals' health is actually better managing chronic conditions, changing member behavior. That takes a longitudinal relationship-building process that takes time.

13:20So those are the three key savings areas that we've seen.

13:24Bob Kocher: I want to go back also to another thing you said about how by sending people downstream to the independent people that deliver specialty care, that's better. I'll just kind of remind listeners, when you send people to the independent downstream team specialty providers and testing providers what's good about that is that it's not just will or cost but they're much more likely to be on time have free parking and because that's all they do they have to do it really really well if you've ever been to a hospital you probably had to get a map to try to find where you're supposed to go and then you wait a long time and the magazines from like seven years ago because that's when they made magazines and the whole thing doesn't feel good and when people actually experience the non-hospital employed stuff they're like wow like they're really much more service oriented and actually they tend to be higher quality so So it's a neat thing that you do.

14:06So maybe just to follow up, you started to talk about this, but an employer, let's say, selects aligned. Can you maybe just talk about how you serve them, like from the very beginning to then serving the entire population once they deploy aligned? So at the highest level, we strive to provide employers with free, independent, high-quality doctor options that their members will love. We use that term free provocatively. Employers don't have to make this care at no cost to their members, but we strive for it to be so high quality, so high access and drive savings that they desire to make it free to a member.

14:42What we've done specifically is we're the only national and value-based advanced primary care and specialty care marketplace for the commercial market. We have over 3 ,000 clinics on our marketplace with 50 state coverage, and we work with employers to engage their members, especially their high and rising risk members, with these great care models. And then we do the busy work, if you will, in the background to ensure there's payments across all of these groups, to measure performance across all of these groups, so that these better care models that exist all across the U.S. can easily fit within an employer's benefit ecosystem, which we believe is important, taking the friction out so an employer can access these care models without having to make big plan changes.

15:36I love that you are having this so it's actually free for many employees. And so is that something that you typically recommend, is that this becomes kind of a free benefit to employees to get access to the Align marketplace? It is. There is an affordability crisis in the U.S. when it comes to health care. But interestingly, high value services are oftentimes not that expensive. Primary care only accounts for about 6 % of total spend in the commercial market, but can influence up to 90 % through referrals, chronic condition management, transitions of care. So we highly advise, but it's up to an employer, but we highly advise them to make these very strategic, high leverage, high value activities, such as advance and direct primary care, at no or low cost to a member.

16:30So that a member goes there first before going to the emergency room or urgent care or a specialist.

16:38Bob Kocher: Interestingly, it's been shown a lot of times that if you have a primary care relationship, your odds of going to an emergency room or low-quality urgent care center goes down dramatically. And so taking away any barrier to establish that relationship feels like a really smart move by employers and delightful for the employee because they're going to experience a model of primary care they've probably never seen before, like one that's really responsive to them and convenient, and actually you can get an appointment tomorrow. I think it's really powerful because in an era where so many people who've moved to high deductibles, we've seen such, like to your point on the affordability crisis, such a rationing of care from individuals until they need to go to the ER.

17:14And so I think it's a, to your point, a beautiful thing to be able to provide people with access to free primary care and obviously have the stomach savings at the end. It's great.

17:25Bob Kocher: Patrick, when I talk to big employers, I feel like all of them complain to me about not being able to get their employees into primary care, as Siobhan said, and it feels like you have a lot of tailwinds in demand right now from employers. Can you talk a bit about what's driving that and the fact that you're going to grow by multiples in the next year in terms of numbers of people you're serving? I would say that the biggest tailwind in demand is cost containment for employer. Employers looking for cost containment strategies, but also wanting to do it in ways that are wins for members. Employers have the perfect incentive of all entities in the healthcare space, where they want to have as high value of healthcare as possible since they're paying for it.

18:09And they want members healthy and they want their members happy. So one of the things that's been great is that advanced primary care has been shown and it's becoming more commonplace as a key strategy for cost containment in a way that's a win for a member.

18:26Bob Kocher: Okay, Patrick, you're building this business at the same time as AI is taking over, like the world. How is AI changing how you're building the business? And how does it change also how you think about your competitiveness and your durability as a business? It is so fun to be living in this time and the changes that are enabled every day, every week, every month, every quarter with AI. We leverage AI extensively to create a better member experience for internal operations. A lot of the clinics on our marketplace leverage AI to create a better patient experience. But an interesting part of any trend in my mind is figuring out what is going to change dramatically from that trend and what will stay the same.

19:16And our view is that individuals forming a longitudinal relationship with a person on the other side will be an important part of behavior change and primary care for many years to come. So we actually see, we actually believe that the industry will barbell and that on one side, there will be these telehealth, very AI driven solutions that will become more prevalent and are a good thing that will be low cost and very efficient. The other side of the barbell will be high-touch, high-experience offerings of advance and direct primary care. And what gets gutted is the middle fee-for-service taking three months to refill a prescription.

20:04We've seen this happen in other industries like retail with Amazon being one side of the barbell, local Main Street and luxury retail being the other side. So we think AI will actually drive the same change within the U.S. primary care ecosystem.

20:18Bob Kocher: Siobhan, I absolutely agree with your barbell analogy and that it's the middle that's going to go away. And what's great is that actually the high-touch, high-quality longitudinal model that you're building becomes more valuable and more important. Because if people get more complicated, this is actually even better. So we like to provide some practical advice to folks who are listening and are thinking about founding a company in healthcare, IT in particular. I'd just be curious. You just talked a little bit about, you know, building AI native. What would be some advice you'd give to a healthcare founder today if they were to be starting something?

20:50The first would be to find a problem you really care about. Changing the world is hard and there are ups and downs and you need to have conviction around that mission to get through the troughs and valleys. The second one, though, would also be you need to love your customers. I think it is very important to assess who you're serving and why you're serving them. It's something we tried to do early on at Align Marketplace. We love employers. We are capitalists and believe in the economic engine of America and want employers to thrive. We love clinicians, and clinicians deserve to operate under the care models that they envisioned as kids when they were thinking about becoming clinicians.

21:36and ultimately, most importantly, we love members, patients. Our mission is to increase America's healthy years. That's why we wake up every morning. That's why we do what we do. But I would think deeply about ensuring that you love your customers because that's ultimately, you know, why a business should exist. I love that, Patrick. And when I think about you, I think about how aligned to me is your life's work. Like you gave a little bit of your story at the very beginning, but truly like this company feels like your life's work and something you will be spending your life building. And I think it does come from what you said.

22:10You love the problem and you love your customers, your members, your providers. And so that resonates very deeply. So I'm curious, as you were maybe early in your career or thinking about starting Aligned, is there a piece of advice that you receive that you hold dearly and keep in mind as you've been building aligned? The best advice I received, or maybe the best actions that I observed, tried to learn from, was actually from Dan Burton, who was CEO of Health Catalyst for over a decade. And he's the best human being I've ever worked with. And what he really taught me was building a great culture, which everyone talks about wanting to build a great culture, really comes down to some basic timeless principles that have been around for millennia, that you want to treat others like you would want to be treated.

23:02You want to operate respectfully, with transparency, with humility. So I think we sometimes overcomplicate a lot of the cultural elements of building a company when it really comes down to timeless principles. And I think that can help in a lot of aspects of business.

23:19Bob Kocher: We look forward to spending many, many, many years helping you build a really large company and serving the mission with you. We'd like to wrap up with some rapid fire questions that we ask all of our guests. What's your favorite place in the world? Skiing anywhere with my family. Anywhere. That's broad. That's good. Early bird or night owl? Early bird. Favorite interview question when you're hiring someone? You are now the CEO of your company. What would you change and how would you change it? Dogs or cats? Dogs. This has been an awesome conversation. Thank you for being here, Patrick. Thank you all.

23:53I really appreciated it. I'm Siobhan Nolan Mangini from Venrock here with my partner, Bob Kocher. And today on Running Through Walls, we've been speaking with Patrick Nellie, founder and CEO of Aligned Marketplace. Thanks for listening. Thank you for tuning in to Running Through Walls, a Venrock podcast. Special thanks to Willie Wisely, who designed our theme music.