Changes in government policies create markets for startups in highly regulated industries
A thought I haven’t seen someone write out explicitly:
In highly regulated industries, changes in government policies create markets for startups.
Changes in policies create a time bound¹ period of change and confusion where processes + incentives can be rewired by startups.
As a result, a startup targeting that new market during this post policy period is much more likely to capture it.
3 years ago, I interviewed Reshma Shetty, one of the co-founders of Gingko. In reflecting on policy, she said something along the lines of prolonged uncertainty in policy can be more detrimental than changes in policy directly. I’ve been curious about changes in federal policy and startups that closely react to those changes since. In this particular piece, I flesh out what this looks like in health tech.
In part 1, I walk through 3 examples of startups that exemplify this idea:
1. Oscar Health
2. Aledade
3. Turquoise Health
In Part 2, I consider the example of a startup that is operating in markets affected by recent federal policy changes.
4. Fortuna Health
Fortuna is a startup that is very thoughtfully positioning themselves as the primary solution for the Medicaid market amidst complexity brought on by significant recent sweeping policy changes.
In this time bound period, Fortuna has an opportunity to rewrite the industry’s Medicaid playbook and build a market moat that is long standing.
I wrote this section a while ago but saw that Fortuna announced their series A yesterday! You’ll notice right in their launch tweet they describe how their product directly solves for the shifting policy landscape.
Part I
1. Oscar Health
“Lastly, it is hard to overstate how much of Oscar’s business model feeds off provisions in the Affordable Care Act (ACA).
As they write in their S-1, Oscar saw the ACA’s creation of direct-to-consumer insurance markets in 2014 as a challenge but also an opportunity, where an upstart insurer could establish traction quickly by offering a superior product.”
-Scott Xiao on Oscar Health’s S-1
In 2013, the Affordable Care Act insurance exchange was announced to go live in January of 2014 where people could buy individual health insurance plans. The Affordable Care Act created 2 radical changes to the insurance market:
8 million new people signed up for individual insurance through the ACA: The ACA banned insurers from denying coverage based on prior health history and provided subsidies. This meant many people previously excluded from the insurance market could now participate.
Market share was now reflective of customer experience: As “The buyer and user were the same person (vs. employers who pick insurance plans for you)” , customers could pick new insurance plans each year under the ACA. Comparison was also easier given all companies were listed on a single exchange.
A product native to a distribution channel will look very different than one that’s testing a channel out. Oscar Health, as a startup, could afford to curate their entire product to the launch of the ACA insurance exchange in New York City. At time of launch, here is a quick overview of Oscar’s differentiators vs a legacy provider:
Or as Nikhil Krishnan put it aptly in Out of Pocket
When I needed insurance, the enrollment portal sucked so hard that I literally just went to Oscar’s site directly to sign up.
Oscar’s success today is undeniable: They recently hit the Fortune 500, have 2 million users and as of 2024 are profitable.
The next company Aledade Health, similarly entrenched themselves in the market for ACO’s due to another policy in the ACA around value based payments.
2. Aledade Health
In 2010, as part of the ACA, the Medicare Shared Savings Program (MSSP) was created. The MSSP created the ability for individual private practices to form accountable care organizations (ACO’s) to participate in value-based payments in Medicare.
What are accountable care organizations (ACOs) and why are they important?
ACO’s are groups of doctors, hospitals or health care providers that voluntarily come together to coordinate care for Medicare patients.
Medicare sets a forecasted spending benchmark for an ACO. If the ACO keeps costs below that benchmark while maintaining standards of care, it shares the savings with Medicare.
ACO’s are a key part of the shift from fee-for-service ($/ procedure) to value-based care ($/ outcomes).
New policies in the ACA created a market where individual private practices could participate in the financial benefits of value-based care through ACOs
That is where Aledade comes in. In a sentence, Aledade is a company that was founded to make it easy for independent primary care practices to form ACOs and benefit from this ACA policy on value based care.
Aledade does this through a range of features (pulled from demos on their website). These include:
Recommending preventative actions for most in-need patients
Contracting patients in need of outreach
Identifying potential and subjected diagnosis and care gaps
Offering patient care programs and patient engagement tools
Supports tracking of metrics required by Medicare
The company went on to be valued at $3.5 billion after their series F funding round in 2023.
While Oscar Health and Aledade are the by-products of an initial wave of health tech startups that were founded after the ACA, this “policy to market to startup” timeline has occurred in more recent memory as well. This is evident in our next example: Turquoise Health.
3. Turquoise Health
“Right now, 10x differences in prices paid for the same healthcare service from the same doctor between insurance plans is not uncommon.”
- Chris Severn, Turquoise Founder
In 2018, President Trump announced, with bi-partisan support, the CMS Final Rule on price transparency which required hospitals to publish their standard charges by January 1st, 2021. Why was this price transparency policy important and so popular?
Consumer pain point: The cost of even simple, routine procedures at many hospitals was a complete black box and patients often had no idea what they should expect to pay. In the cases where there was a listed price of a procedure at a hospital (called a charge master), it was often the markup price used to bill insurance companies and not the actual cost to the patient.
Business pain point: Prices paid by the patient were negotiated behind the scenes between healthcare/ insurance providers and had taken years to reach agreement in certain cases → Making this process more efficient is what Turqouise primarily monetizes on
In 2020, founders Chris and Adam both worked in healthcare consulting and recognized the significance of this new CMS policy. If Turquoise could successfully do the work to locate, clean and gather this data, they could create a software platform where pricing negotiations between healthcare + insurance providers occured.
The day the policy went live in 2021, Chris and Adam were prepared:
“We really rushed the punch, we were ready on New Year’s Eve with this data. We published it [around] January 17 with 1200 hospitals. So the first 17 days of January were wild, and then quickly soon after it became a big talking piece.” - Chris
While they launched with no major customers, they benefited from the media tailwinds that referenced them as a solutions provider for the policy. Their focus as a business today remains broadly B2B:
Creating pricing files for hospitals and payers that meet the compliance formatting requirements of the No Surprises Act
Searchable dashboard of nation wide pricing
Clear Contracts: Saas tool that enables end to end negotiation and process on payer- provider contracting
Sell customizable reimbursement data
In early 2024, 3 years after the CMS policy went live, they raised a $30 million series B.
To summarize, the price transparency law led to publicly available pricing data that was previously private. The Turqouise Health founders recognized that a consequence of this federal policy was a new market for a software solution to gather this data and automate price negotiations between insurance companies and healthcare providers.
I’ve looked at 3 companies that have navigated this in the recent past above. Let us consider the present.
Part II
What is a real time example of a startup that is thoughtfully approaching the opportunity to capture a market in the aftermath of policy changes? Fortuna Health would be my answer.
4. Fortuna Health
Medicaid is set to go through a series of foundational changes over the next few years including:
Increased frequency of income and residence checks in Medicaid to every 6 months, from ~1 year
Increased cost sharing (higher co-pays)
Work requirements: adults must prove 80+ hours/month of work to maintain coverage
Retroactive coverage dropping from 3 months to 1 month
These changes will inevitably lead to consumer confusion and revenue cycle management/ churn concerns for health systems. Fortuna Health is building the Turbotax for Medicaid and government coverage: Helping patients understand their eligibility, enrolment and renewal steps (More details here).
Fortuna was founded in 2023, but the “Big Beautiful Bill Act” signed earlier this month confirmed changes above. My marketing eye was pleased with the thoughtful content + communication Fortuna is doing to position themselves as the primary solution for Medicaid.
If the healthcare industry and patients leave this period with the perspective that solving for Medicaid = Fortuna, the startup will be poised to benefit from a long standing lead in this market.
Founder led communications directly addressing policy changes and Fortuna’s role to support even before the bill was passed. Example here.
Content marketing providing clarity: Their LinkedIn is full of guides and comprehensible descriptors of policy changes.
Product first: Ultimately the best marketing is in service of a product that successfully solves user pain points. In this case, Fortuna is not just talking about changes in Medicaid, they are building features like low lift verification that provide a direct solution. That is the only reason #1 and #2 are valuable.
Fortuna health is clearly a company paying close attention to the fact that recent top down federal policy changes will significantly alter the Medicaid market and they have a unique opportunity to emerge as the solution provider for patients².
Conclusions:
Markets in the west face more bureacracy than ever and healthcare is a convoluted system with competing incentives. In highly regulated industries in particular, changes in policy lead to a time bound period of confusion where processes + incentives can be rewired.³
If you are an aspiring healthcare founder + investor: paying attention to these moments of asymmetry is important as it provides a unique opportunity to rewire the market in the favour of your users and product.
Notes:
¹I recently read the book Bubbles and the End of Stagnation. A core idea I took away from it is periods of innovation are characterised by time bound fomo towards a specific goal. This broadly furthered my idea that there is a time bound nature to startups being uniquely able to rewire the way things are done in highly regulated industries.
²Another example I considered here is Lively. Up to 20 million more Americans will be able to make an account as a result of changes in the Big Beautiful Bill such as patients in a bronze and catastrophic ACA health plan or Medicare now being able to enrol.
³The trends described here apply to other industries that are highly regulated by policy (biotech, crypto etc) as well
Many of the ideas in this seemed obvious to me but I noticed when I would share them with people they were surprised. There’s something to the “what you’ve thought a lot about and as a result, seems obvious to you” being a thing worth writing about.