Aledade is the “build an ACO out of small independent primary care practices” company. It was founded by former ONC Director Farzad Mostashari and has been growing fast and profitably in the last few years, having raised just shy of $300m. Farzad recently both tweeted out the latest and put up a slide deck about their financial and business progress. Aledade also announced a major star signing in Mandy Cohen, previously Secretary of HHS in North Carolina, who is becoming CEO of a new division called Aledade Care Solutions. I had a wide ranging conversation with both of them about what Aledade has done and what it is going to do, as well as the general state of play in primary care and risk taking–Matthew Holt

TRANSCRIPT (lightly edited for clarity)

Matthew Holt:

Okay, it’s Matthew Holt with THCB Spotlight. I’m really thrilled to have Farzard Mostashari and Mandy Cohen with me. So, both of these two doctors have spent a lot of their time in public, much of their career in public service, Farzad for many years was in New York City, and then later was at ONC. Mandy was at CMS, and more recently, was Secretary for Health in North Carolina. In fact, towards the end of the Obama administration, Farzad was doing venture capitalism in a bar and got given a check and founded Aledade. And the news just recently, was that Mandy, who has just finished her term in North Carolina, is now going to join Aledade and start a new division there. So, I thought we would chat about how Aledade’s doing, what it’s doing, and what it’s going to do in the future and hopefully, yeah.

So I’ll start with you, Farzad, a couple years ago, you got all grumpy because I said, well, you were arguing with-

Farzad Mostashari:

Rushika.

Matthew Holt:

Rushika! Oh you remember what I am talking about? And I said, oh, it was like two fleas arguing who owns the dog because at that stage, the idea of having risk-based primary care that works in a different way compared to the rest of American Healthcare were still relatively minor, but you put together a pretty impressive presentation recently, for the JP Morgan conference, which you also showed to the world, which was unusual. And it looks like you guys are growing fast and doing pretty well, so my first question is about how Aledade’s working? So, most people understand that you are providing the backing to small, independent primary care doctors to become like an ACO, it’s a little less clear exactly how those clinicians are getting paid and how you are turning all their different revenue streams and insured people into an ACO. How does that actually work?

Farzad Mostashari:

Yeah. Matthew said, “You guys are fleas on the back of a dog arguing about who’s more important.” And the reason I took exception to that Matthew, was that suggests that the new payment models and the new delivery models that we’re talking about are superficial, that they are incidental, that they don’t matter, and I think that they are. It is correct that we still have a lot of room to grow, that 90% of the market is still probably Fee for Service, but what’s different is, we are at the heart of the problem. We’re not skimming the surface here, we’re at the heart of the cancer in American health care, which is misaligned incentives. So, I think that it would be in that light to take a look at, what is this new payment and delivery models? And what have they accomplished? And how fast are they growing?

Farzad Mostashari:

So, we’re growing year over year, over year, by 40% exponential growth. We went from $11 and a half billion dollars under management to $17 billion under management. Now, look, there’s a trillion dollar a year opportunity there. So yeah, you could say, “Oh, but you guys are small.” But if you extend out exponential growth a few more years, we’re going to begin to matter nationally. And we already matter a great deal to the thousand primary care practices who are working with us every day. And that’s to explain my fit of peak.

Matthew Holt:

You may have guessed, I was trying to stir it up a bit! But let me ask you about the question, because if you go back to that session where you and Rushika were discussing, he was talking about everyone has to be capitated and the medical one extent, you don’t have that pattern at Aledade. People come with different payment mechanisms of insurance companies, and I know Mandy, they were working in North Carolina quite extensively with the Blues there. But how does that work for a clinician who may be faced with a Fee-to-Service patient and a capitated patient? How does that translate?

Farzad Mostashari:

So, where our models are similar to other fellow travelers is that we all recognize that primary care is at the heart of this new payment delivery model, advanced primary care. Where I think we have charted our own unique path is that, we partner with existing practices, we don’t build or buy practices from the ground up, and we work across all kinds of independent practice, from solo docs to federally qualified health centers. And we don’t focus just on Medicare advantage, the second is a consequence of the first, because these practices have their existing patient panels and some of them are Medicare advantage, some of them are traditional Medicare, some of them are Blue Cross, some of them are whatever. And so, to truly get the behavior change, it’s reinforcing to have as many of their lives in these value-based contracts as possible.

Farzad Mostashari:

20 years ago, when I was doing this work, I would say to you, “You got to treat every patient the exact same, right?” We can’t possibly change practice for this person, but not for this person. And we now have the means to do, what I would say is, more precision population health, where the technology that we’re using is a big part of what makes this thing scale, which is, you identify the patients, you prioritize them, you do risk profiling, use the claims data from the payer to glean a huge amount of intelligence in terms of who needs to be reached out to, and then you create workflows where, when that patient goes to the emergency room, they get a phone call from their practice.

Farzad Mostashari:

Now, if I don’t have the claims data from that health plan, if I don’t have the amount of panel from the clearing house, I won’t even know, that patient will be left behind. So, the practices patients who are not in risk contracts, yes, they’ll get some benefits from the practice’s transformation, they’ll be able to get a same day appointment, more likely, they’ll be able to have better coordinated care, but they’re not getting the full benefits of, if they are in a value-based contract with us. And our goal is, over time, to just continue to extend and broaden the number of patients in that practice who have this new kind of treatment arrangement.

Matthew Holt:

Mandy, before we get down into what you’ll be doing, looking as an observer of health care across the board, and –while I’m teasing 90% fee with service versus 10%, it’s probably more than 10% now in primary care, but nonetheless, we’re not near a majority yet–how do you think that big buyers like a Medicaid program or a Blues program? I know you guys in North Carolina work closely together, how are they thinking about that transition to, value or to risk-based care?

Mandy Cohen:

Yeah. Well, I’ll speak from my experience in North Carolina. We just went through a major transition in our Medicaid program to manage care. For the first time, we had the largest state that hadn’t done it, and we absolutely put the foundation of that transformation at the feet of primary care, and invested in advanced primary care, I think it’s incredibly important. And as where Farzad started, which is, incentives matter and aligning those incentives is so, so critical. We tried to do that in the Medicaid program by aligning to what we saw in the Medicare market and the commercial market in North Carolina, because we know Medicaid has market power, but not as much market power as some others. So, the alignment was really important for us, but investing in primary care. So, when my tenure came to an end in public service, I certainly wanted to continue the mission, and I see Aledade as, really, a continuation of the work that I was doing in the public sector from a mission perspective.

Matthew Holt:

Fantastic. And then, how far ahead of the curve do you think you and North Carolina were? Or do you think many other places are going the same direction, in terms of moving that government commercial access towards money based?

Mandy Cohen:

I think there are some places ahead of North Carolina, but we’re doing a lot of the right things in terms of alignment, and that started with the fact that, there was Medicare ACOs, there were commercial interests as well, as moving in that direction, and I credit Blue Cross Blue Shield in North Carolina for accelerating that momentum. And then, they partnered with folks like Aledade, but we also, I think, created a policy environment in North Carolina around innovation for companies like Aledade and many others to come in and want to invest and innovate here in the state. We did some of that investment from the state perspective, we put infrastructure in place to make these models additionally successful.

Mandy Cohen:

Things like, building the shared platform, NC Care 360, which links to electronic health records and social care navigation in a closed loop way. That was something we invested in at the state level and that everyone, Medicare, commercial, Medicaid can all take advantage of. So, I think we’ve done lot of things right here, but I’m not Pollyanna and saying, we have a lot of things to do better in North Carolina. One of them is expanding Medicaid, haven’t done it, big black eye for North Carolina, got to get that done. But I think there are a lot of really important ingredients in the state.

Matthew Holt:

Fantastic. All right. Well, let’s come up today, right? So, Farzad, you’ve done two big acquisitions. One is Mandy, I don’t know if we’re talking about European soccer transfer markets here, but certainly, you’ve brought in a big star here. And the other one is a small company, I think your first acquisition, Iris Healthcare. So, they’re in the advanced care planning business, which, it’s phenomenally important, but presumably, is only part of what you are trying to add here. So perhaps, you could explain what the new group, which is Aledade Care Solutions, is going to do to wrap around the other stuff you’re doing, and that’s what Mandy is going to start running shortly. I know she’s still on vacation right now between jobs, but could you explain the philosophy, presumably what you’re saying is not what you’ve got so far is great, but not quite enough. So, what’s the next?

Farzad Mostashari:

No, I’ll give the how we got here and then, I’ll ask Mandy to talk about what it’s going to look like moving forward. And I’m so, so pleased to have Mandy joining us here. So our core model is, we help primary care practices do advanced primary care and have the contracts that reward them for it, have the technology, the data, the workflows, the playbook, but so much of that is just, what can you do within your four walls reasonably in the time and the space that you have as a primary care practice? And you know what, it works. When you give people more primary care, better primary care, more informed, more engaged primary care, fewer bad stuff happens, more good stuff, less bad stuff, right? Like fewer ER visits, fewer hospitalizations.

Farzad Mostashari:

And that model is now working and our cohorts now, who’ve been at this, are getting year over year, over year improvements in savings, which translates to more money in the pockets of the docs, better care for the patients, better outcomes for society, lower cost for Medicare and for the payers. So, that core engine is spinning faster and faster and faster, and we’re on the good side of cohort math, right? Which, it takes a while for these things to start to bear fruit, but now, they’re bearing fruit and now the whole enterprise is profitable. So now what? Well, obviously we’re going to keep spinning that core engine, but what we realized is, we now have the opportunity to leverage and, people overuse this term, but it’s a platform, right? This is something you can build on, you can build new businesses, it’s easier for us to both, create value and capture value than someone who tries to do this on their own.

Farzad Mostashari:

And Iris was the perfect example of that, where, it’s a great company, it’s a great need, they do good things for society. But they have trouble targeting the right patients, but we have millions of patients with linked clinical and claims data, and we can better target who would benefit from this. They had trouble getting engagement when they call on behalf of a health plan, but with our practices giving a warm handoff, it’s a huge difference in terms of how much engagement they can be make. And then before, they were getting paid fee-for-service.

Farzad Mostashari:

So they have to try to feel like one of these PMPM piranhas that are going after every bit of every premium dollar, but now, we already have a total cost of care contract and we can capture all the value that we’re creating. So, we think that, that’s a repeatable play and that a lot of folks, who are doing external innovation, those three main advantages that we have, we can apply to more and more businesses, whether we build them ourselves, whether we acquire the business, whether we partner with others, and that’s when we brought in Mandy, to help us envision and take forward.

Matthew Holt:

Mandy, I’ll bring in Jessica DaMassa’ss quote, which is where everyone ends up in the same place. She says it better than me, something along the lines of, everyone’s going to do virtual primary care with a side of mental health, with adding navigation built on their own EMR in a value based care system, tah-dah! What are the pieces that you’re going to do, obviously, the first one there is advanced care planning, but there’s a lot of other stuff you can do. You can think of a lot of other digital health companies who you could either acquire, compete with, partner with, doing all kinds of chronic care management, all kinds of other stuff. Where do you think you are going to be targeting, with this new group?

Mandy Cohen:

Well, what I would say first and what I love about Aledade is, they go right to the data and evidence, and they try to figure out, not just what is the right care model, but for who, and how do you best integrate that into primary care? They are the quarterback, and what I think Aledade brings together is the data, the trusted primary care, as well as the value context for all of that, which makes Aledade different, which was why I was excited. So, I think a lot of the things you mentioned are what our primary care can do, a lot of them are already doing virtual care in different ways or behavioral health. But that’s not every practice, and we work with a lot of different practices, so we may be able to help, particularly small and medium sized practices, to really expand what their capacity is to serve the patients that they want.

Mandy Cohen:

We all know, particularly in rural areas, for example, it’s really hard to hire. So, this is an ability for us to help those practices expand what they can do. And from an equity perspective, I’m really excited about that opportunity, but what you will see us do is test things, really make sure we get the targeting right, and knowing what patients we need to identify for what kinds of interventions really work. And we know what makes patients sick and go to the hospital, and there are ways we can keep them out of the hospital and keep them well. And so, I think those are the things you’re going to see us focus on.

Matthew Holt:

That sounds a little more that you’re going to be experimenting around the edges before you start running stuff out, than actually have a plan to say, “We have a problem with diabetes or mental health, and we roll out a massive thing across it.” How long would you expect? Maybe questions, how long will Farzad give you, to get up to speed and figure out what’s really going to move the needle?

Farzad Mostashari:

She’s the one who’s pushing us!

Mandy Cohen:

I think there are things we know we can bring to scale immediately, right? The advanced care planning is absolutely one of them, but then, there are different kinds of care modalities that we are definitely going to want to make sure we understand that we get right, and then you hit the gas on them. So, I do think it’s going to be a combination of, plant a few seeds, make sure we’re getting, particularly, the integration into primary care. I think there are a lot of folks who are saying they’re doing these things, but can they really get into the workflow? Are they trusted? Are we getting the data back on these interventions to really evaluate them?

Mandy Cohen:

And the nice thing is, as far as I’ve said, Aledade’s strong, they’re successful, they’re growing already. So, we have the ability to really, test a lot of things in different places in the country to understand what works better in certain regions, or with certain patients, or in certain size practices. So, I think there’s a lot of learning to do, but I don’t have a lot of patience, I want to move fast. So, we’ll do it as fast as we can, but the learning’s really important.

Farzad Mostashari:

One of the things that made Mandy such a natural fit with us was, sharing the values, not only of service and being accountable, but also, of curiosity and evidence. And there’s a lot of talk, as you know, in the digital health space, and there’s a lot of stuff that, maybe works, maybe doesn’t. And so, having a framework in a platform, for being able to actually test rigorously against health economic data, right? We know what the actual impact is, and we have the ability, as we did with Iris, the comprehensive, advanced care planning company, to do a randomized trial. We’re not going to do a randomized trial on everything, but the ability to say, “We’re going to take a list of patients, we’re going to cut in half, and we’re only going to get a hand off half of the list.” Is an incredibly differentiating thing that we have the ability and the inclination to do.

Matthew Holt:

Exciting. Let me ask you two more questions just to run out. The first one is about, the patient experience and the technology and the reach out. So what is it like today for an Aledade patient? What do they get on the app? What do they see? How’s the communication? And then, given that many of the companies that, I suspect you’re going to end up competing with, partnering, whatever, are so consumer and coaching-focused rather than condition-focused. What do you think that will look like in a year’s time after Mandy’s done her magic?

Farzad Mostashari:

I’ll do the first part and then, would love to hear Mandy’s thoughts on the second. So right now, as I said, everything we do is filtered through our practices more or less. So, what might be is, we have an included telehealth solution and so, the patient might be getting a telehealth visit from their own primary care doc, not someone who they’ve never met before. From their own primary care doc, but while they’re talking to the patient on the Aledade app, on the right pane, they’re seeing information about that patient that they normally wouldn’t see in their electronic health record. They’re seeing that they didn’t fill that prescription that they ordered for them, they’re seeing that they went to an emergency room, they’re seeing someone else did the mammogram, they’re seeing that there’s an alert because their last blood pressure was elevated.

Farzad Mostashari:

So, there’s a outside world of information and data, that’s then squeezed into these key insights, they’re not breaking eye contact with the patient while they’re seeing all the things. So, what is the patient’s experience of that? The patient’s experience is, “I don’t know what happened, but now, when I go to the emergency room, I got a call from my primary care practice. Can you believe that? How do they even know? I went to the emergency room, not only did they know, but they cared, and they called me.” So, their experience so far, has been mostly, telehealth, but also telephone like, “How are you doing?” And when they show up at the office, there’s a poster there that says, “Call us first.” We want to see you before you go to the emergency room, call us first, we’re available. So, the patient experience has mostly been a better primary care experience.

Mandy Cohen:

And I think where things will go into the future is, we want it to feel seamless for patients, that they are still getting that trusted quarterbacked feeling from primary care but now, primary care is able to offer them more things. So, if you have someone, maybe your kidneys are failing and we see dialysis in your future, then we’re going to help you transition, and you can do that while you stay embedded in the practice that knows you and wants to continue to take care of you. I think our work over the next year, years, is to make sure that, that integration and that feel, feels like that for the patient, that it’s seamless for the practice, of course. But also, seamless to the patient, to be like, “Okay, doc. The doctor or the nurse coordinator wants me to have a sit-down on advanced care planning today and talk through what my wishes are.”

Mandy Cohen:

And it feels very integrated in their work, certainly it’s a, all teams are aware of what’s happening. Closed loops happen, both with the patient and the practice, so I think we have work to do on the product side. But I’m excited to dig in. If you get this right, you can see the potential of scale there, because if you can get that to be integrated and simple and understandable in the workflow, that’s really powerful. So, it may take some time for us to figure all that out and make sure that we get it right. But that’s the work ahead, I’m excited to get started.

Matthew Holt:

Very exciting. So, final question. Farzad, you were presenting at JP. Morgan since, if you’d done it a year ago. I don’t know if you did present a year ago, but at that point, digital health stocks that were public with sky high, crazy evaluations, now they’re all off 80%. As we mentioned at the start, you did get quite a number of large checks from some venture capitalists over the years, you raised about $300 million. And it’s probably an uncertain market as to what happens next, now I know that Bob Kocher (Venrock) fellow is very nice, but he probably wants some money back at some point, and you guys are profitable. I don’t know if that’s how you judge that, but if you look across the board of many of the digital health companies that are providing care, you don’t see a lot of profit

Farzad Mostashari:

Generally accepting accounting practices is how we judge that.

Matthew Holt:

Well, put it this way. You don’t see a lot of green income on the income statements of Oak Street, or One Medical and many others. So, where do you think that leads, both you as a business in terms of, do you start spending a lot more, investing a lot more out of the profits earned on the money you raised? Or do you stay where you are, in terms of cash flow? Where do you think the eventual exit for Aledade is?

Farzad Mostashari:

We’re definitely going to invest in more growth and more savings–we’re not going to give dividends. We are investing a lot in the scaling machinery at Aledade enablement, so that we can continue to grow exponentially on the number of practices we serve and importantly, built for the future in terms of R&D and more ways of helping more patients and more practices and Aledade Care Solutions, that Mandy is going to be leading, is a big part of that. And these investments that we have made and will continue to make our vision, Matthew, really is a long-term vision.

Farzad Mostashari:

For us, and people like Mandy who join us, this isn’t the goal. An exit is not a goal. And the investors that we have, really look at this as a, once in a generation opportunity, to change how healthcare is delivered and paid for, and they’re in it for the long run with us. So, we’ll do whatever is best for that mission, and whenever it’s best for that mission. We don’t have any constraints on that.

Matthew Holt:

Fantastic. Well, that’s good to hear, you haven’t chosen the easy path. Okay Farzad, let me ask a related, but certainly different question. You’re around about a thousand practices, about 10,000 clinicians now. What does good look like in a couple of years? We talked exponential growth, but to stop being the flea and take over the dog, which is the ultimate goal. What does growth look like for you over the next few years?

Farzad Mostashari:

Yeah. For us, we’ve been growing really, really rapidly and we intend to continue to accelerate that growth and invest a ton in that. We’re not releasing specific numbers now, in terms of future growth trajectories, but rest assured, we’re going to be a bigger and bigger part of that dog’s ecosystem.

Matthew Holt:

And are you going to stay for now? Are there enough independent primary care docs out there?

Farzad Mostashari:

Oh yeah, we are at 5% market share right now. And everybody else, all of our fellow travelers is another 5%, and then there’s 90% that’s available.

Matthew Holt:

All right. Well, looking forward to seeing how the fleas and the dogs get along, when we’re back in two years. I’ve been speaking with Mandy Cohen and Farzad Mostashari from Aledade, thanks for your time.

Farzad Mostashari:

Thank you.

Mandy Cohen:

Thank you.