CASE MEMO
Pricing PatientPing 9 -818-017 O C T O B E R 3 , 2 0 1 7 Senior Lecturer Frank V. Cespedes, Associate Case Researcher Julia Kelley and Case Researcher Amram Migdal (Case Research & Writing Group) prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. Data in this case has been disguised but is useful for discussion purposes. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2017 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. F R A N K V . C E S P E D E S J U L I A K E L L E Y A M R A M M I G D A L Pricing PatientPing In March 2017, PatientPing CEO Jay Desai prepared to discuss pricing with Head of Growth Brian Manning. PatientPing notified health care providers in real-time when their patients were admitted or discharged anywhere. For instance, a primary care provider (PCP) could get pinged when her patient visited the emergency room (ER). With these real-time notifications (“Pings”), providers could coordinate care and ensure timely follow-ups to prevent dangerous hospital readmissions, identify patients receiving out-of-network care to reduce patient leakage,a and ensure patients received care at the highest performing health care facilities. Since PatientPing’s founding in 2013, it had focused on expanding its customer network, which included provider organizations (e.g., physician groups), admitting sites (e.g., hospitals), and post- acute care facilities (e.g., skilled nursing facilities). PatientPing had helped one Massachusetts provider organization reduce the length of patients’ stays at skilled nursing facilities (SNFs, pronounced “sniffs”) by an average of ten days, saving $400-$500 in daily care costs. PatientPing generated Pings off an admitting site’s admission-discharge-transfer (ADT) feed. (See Exhibit 1 for a glossary of acronyms.) PatientPing charged customers to receive Pings when their patients were admitted elsewhere. Some sites simply published their ADT feeds to notify others when patients were admitted at their facility, a service that PatientPing offered at no cost. PatientPing had tried several different pricing models, and Desai needed to respond to several pricing issues that the company currently faced. Building PatientPing Desai had worked in finance, led business development efforts for a medicine distributor, and then pursued his interest in health care policy, first as a Coro Fellowb and then, after Wharton, at the Center for Medicare & Medicaid Innovation, which was created as part of the United States Affordable Care Act (ACA). Desai explained: The idea for PatientPing was driven by observations of systemic barriers that made it difficult for health care providers to coordinate care. Hospital A wanted to know when a a Patient leakage occurred when a patient associated with a certain provider network chose to go to a provider outside of his or her network. For example, a patient might go to an out-of-network hospital because it was the closest hospital to his or her home. b The Coro Fellowship focused on public affairs; recipients gained experience in non-profit, business, and government. For the exclusive use of E. KEMP, 2021. This document is authorized for use only by ELYRIA KEMP in 2021. 818-017 Pricing PatientPing 2 patient goes to Hospital B and vice versa, yet nobody was sharing! Other industries, such as banking and telecom, had networks between competitors that improved the customer experience for all. If providers don’t know when and where their patients receive care, they end up repeating tests and procedures. It felt like a baseline functionality that needed to exist for our health care system to operate more effectively and efficiently, and the market didn’t have a good solution. In September 2013, Desai left the Innovation Center to begin working on a platform that would notify any provider in real-time when their patients were admitted or discharged anywhere. He launched the business in Boston because of the area’s high concentration of hospitals and health care companies and the booming technology start-up ecosystem. In 2013, Desai met David Berkowicz, an IT director at Massachusetts General Hospital who had trained as a physician and spent 18 years trying to solve problems related to sharing patient data across different health care providers. Berkowicz recalled, “One freezing cold night, we sketched out the plan for PatientPing on the back of a pizza box.” Berkowicz, who assumed the role of head of technology, began working on the product part-time.1 By the end of 2013, PatientPing began selling the first iteration of its software, first to accountable care organizations (ACOs) and then to SNFs, home health agencies (HHAs), and other providers. In March 2013, PatientPing raised $1.6 million in a seed round followed in May 2015 by an $8 million Series A round led by Google Ventures, Fidelity Investments, and First Round Capital.2 In late 2016, the company raised $31 million from Andreessen Horowitz and Leerink Transformation Partners.3 By early 2017, the company had nearly 400 customers in fifteen states, had about 70 employees, and planned to double its staff4 and expand to 30 states by 2018. PatientPing’s product was a web-based platform that aggregated and interpreted data from health care providers in PatientPing’s network. When a patient was admitted to or discharged from a facility, the patient’s other health care providers received a Ping. In early 2017, providers received Pings through PatientPing’s web application, while text, email, and mobile applications were also being developed. (See Exhibit 2 for a visualization of PatientPing’s user interface.) For the most part, PatientPing’s potential customers were already trying to track patient care internally but did not have electronic systems in place to get visibility across different facilities. Instead, they were often using whatever means were available, including faxes, phone calls, and in-person visits. The U.S. Health Care Landscape In the United States, people received health care from emergency rooms (ERs), physicians’ practices, hospitals, outpatient facilities, and other entities. Some physicians formed physician organizations (POs) to manage costs and care. Individuals generally went to a primary care physician (PCP) for most care. PCPs referred patients to more specialized care as required (e.g., to a dermatologist to treat a skin condition). For acute conditions such as a broken leg or an asthma attack, patients often went to a local hospital’s ER for immediate care. Some acute-care patients also required long-term, post-acute care (e.g., someone who had hip replacement surgery could need several weeks of physical therapy at a SNF). The U.S. health care system operated primarily on a fee-for-service payment model. Providers billed patients for each appointment, procedure, test, or prescription. In most cases, patients paid insurers a monthly fee (a premium), and insurance providers paid for patients’ medical expenses and prescriptions. Patients were generally responsible for a partial payment (a copay), which went toward the full cost of the visit; insurance plans typically had a limit on the total amount patients could pay out of pocket annually net of copays and other fees (a deductible). About 50% of Americans received For the exclusive use of E. KEMP, 2021. This document is authorized for use only by ELYRIA KEMP in 2021. Pricing PatientPing 818-017 3 health insurance through employers; 20% through Medicaid (a government-funded program for low- income and disabled individuals); and 15% through Medicare (a federally-funded program for individuals over age 65).5 The ACA established accountable care organizations (ACOs): groups of health care providers— including individual doctors, POs, and hospitals—that coordinated care for Medicare patients and often worked closely with post-acute health providers, including SNFs. Although ACOs used the fee- for-service payment model, care coordination was expected to cut costs by minimizing unnecessary procedures and reducing administrative overhead.6 Patients could go to providers that were not part of the ACO (out-of-network providers), but ACO providers benefitted by keeping patients within the ACO (in-network providers) when possible, both to coordinate care and to maximize revenue. Medicare-funded bonuses rewarded ACOs that kept Medicare spending under a certain threshold by reducing per-patient cost of care across all providers in the ACO network. For instance, if an ACO could reduce the number of days a patient spent at a SNF without harming the patient’s care, Medicare expenditures for that patient’s care would be reduced. (If an injured Medicare patient was transferred from the hospital to a SNF for daily rehabilitative services, Medicare fully covered the first 20 days of SNF care,7 and one study found that the average length of stay for SNF patients was 26.4 days.8) Similarly, if a previously discharged SNF patient returned to the hospital, the hospital’s ACO could coordinate with the SNF to readmit the patient to the SNF instead, which was less expensive. To manage costs, ACOs had historically assigned administrators to monitor the care history of high-risk patientsc and schedule follow-up visits with these patients as necessary. The ACA had been controversial, and by 2017, there was a significant chance that Congress would repeal or alter the law, including its ACO-related provisions. The potential effects of health care legislation changes on the digital health market were unknown. Some analysts predicted that spending on health IT would decrease in the short term due to shifting incentives for providers.9 Others predicted that efficient data exchange to improve patient outcomes would be perceived as more important.10 PatientPing Customer Segments The addition of hospitals and their ADT feeds significantly increased the number of Pings received by other providers, as most care was delivered in emergency rooms and hospitals. PatientPing’s network included paying customers, as well as non-paying senders that permitted access to their ADT data. Paying customers were primarily health systems (ACOs and POs) and post-acute