2019 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion CB Insights is a tech market intelligence platform that analyzes millions of data points on venture capital, startups, patents, partnerships and news mentions to help you see tomorrow’s opportunities, today. WHAT IS CB INSIGHTS? CLICK HERE TO LEARN MORE 2 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion Table of Contents WHAT SETS OSCAR APART 5 • CONCIERGE • VIRTUAL CARE • NARROW NETWORK • CLAIMS PROCESSING OSCAR BY THE NUMBERS 17 • ENROLLMENT • MEDICAL LOSS RATIO • NET UNDERWRITING PROFIT 3 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion Health insurance upstart Oscar has raised more than $1.25B to fund its goal to disrupt traditional health insurance by building a direct relationship with its members. In simple terms, the company’s goal has been to put a human face on private health insurance. It aims to make its customers love health insurance — as opposed to seeing it as a necessary evil — and put Oscar at the center of people’s health and wellness needs, acting as their “healthcare guide.” The company has weathered its share of challenges while burning through hundreds of millions of dollars: participation in the individual exchanges has been far lower than initially expected, and Oscar has faced an uphill battle in the small business market. In summer 2018, news mentions of the company skyrocketed with the announcement of a $375M investment from Google parent company Alphabet. The tech giant now reportedly holds a roughly 10% stake in Oscar. Oscar has tried to disrupt health insurance with a focus on customer experience and technology, but has had trouble finding its market. As the company launches a third product offering in Medicare Advantage, we look at what its future could hold. 4 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion As Oscar matures, its strategy is beginning to take a new shape. Our analysis finds Oscar is slowly managing to contain its costs, generating an underwriting profit in recent years by sending members to the lowest cost care setting, bringing key functions like claims processing in-house, and expanding its virtual care offerings. All three of these strategies will be important as Oscar hopes to gain success with its third product offering in Medicare Advantage starting in 2020. But while Oscar is beginning to control its costs and improve its tech and experience, will this be enough to win out against existing incumbents and bring the company to profitability? And will its strategy of tight integration with doctors and hospitals, while limiting the number of in-network providers, win over enough consumers? Using CB Insights data, we examine Oscar’s strategy, membership numbers, partnerships, and strategies for the future. 5 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion Oscar set out with the goal of creating a patient experience that, in co-founder Josh Kushner’s words, is “like having a doctor in the family.” This means providing access to care when needed, helping patients navigate the complex healthcare system, and avoiding unnecessary care and expenses. OSCAR APP Oscar’s app serves as members’ front door to the health system. It’s the medium through which members can interact with that figurative “family doctor.” Flush with cash, more startups than ever before are choosing to forgo the public market and stay private for far longer than in years past. Through the app, members can access anything from medical records and lab reports to virtual care and physician recommendations. This “front door” approach differs from traditional insurers, who have a gained reputation as gatekeepers focused on limiting access to care, rather than widening it. From the beginning, Oscar has highlighted its high-touch services, including telemedicine and an “Ask your concierge” feature that connects users with a health insurance advice team. Oscar dedicates a concierge team and a nurse to each individual to answer health questions and guide patients through the system. What sets Oscar apart 6 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion When a member asks a question through the app, they receive a response from a member of their care team. The company sees this high-touch model as a way of gaining a competitive edge, stating it routs 43% of members’ first visits to the doctor. This helps contain costs by keeping members in-network and out of costly emergency rooms. Oscar also gives a dollar a day to members that hit step tracking goals, boosting its relationship while encouraging them to be more active. It tracks steps using an assortment of step-tracking wearables as well as Apple’s built-in step tracker in the iPhone and Google Fit on Android. The tracker also gives members a reason to visit the app regularly, encouraging engagement and allowing Oscar to remind its consumers of the insurance brand, even when they’re not actively seeking healthcare services. Oscar claims 41% of its members are monthly active users of its web and mobile apps. 7 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion THE SHIFT FROM FEE-FOR-SERVICE TO VALUE-BASED CARE The premise of value-based care can be boiled down to one goal: aligning incentives so all parties involved (patient, provider, and insurer) achieve the best possible outcome, delivering the best care at the lowest cost. While the above goal may seem obvious, the healthcare system is currently set up so providers actually benefit from delivering unnecessary care. The fee-for-service model generates fees for providers based on the quantity of services they perform. Patients, put in a situation where they only pay a fraction of the costs they incur to the healthcare system as a whole, also do not have a major incentive to reduce the quantity of care they receive, provided that extra care isn’t harmful. This concept is defined as “moral hazard” by economists, and is one of the drivers of rising deductibles across the insurance industry over recent years. With a higher deductible, members have to pay more out of pocket before their insurance policy kicks in. The rationale is that members having more skin in the game will result in patients being more conscious of their health expenditures. But while insurers are the ones that set out-of-pocket expenses to avoid “moral hazard” and disincentivize patients from receiving unnecessary care, they also bear the burden if a patient does not receive necessary care. When this happens, a patient could get even sicker and incur more costs for the insurer. 8 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion CUSTOMER EXPERIENCE & CONCIERGE Competing on scale, price, and distribution was always going to be difficult for Oscar, due to the sheer size of health insurance incumbents — but when it comes to customer experience, the company has seen opportunity to compete. The health insurance industry at large is notorious for low net promoter scores (NPS). (NPS measures how many customers would recommend a product or service to friends.) Oscar, however, reports having an NPS that is 3x as high as the health insurance average. To serve customers, Oscar aims to be a patient’s first touchpoint with the healthcare system, as opposed to an afterthought. And to do this, its concierge service is key. Oscar’s concierge service works with members to offer them personalized value-based care. Concierge grants members frictionless access to the healthcare system. Upon enrollment, each member is assigned a dedicated care team consisting of several care guides and a nurse. Each time a member contacts Oscar with a question regarding their care, someone on their care team answers. Over time, this familiarity 9 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion helps build trust between Oscar and its members. Notably, Oscar’s Concierge team can guide members towards lower cost, higher quality care. When applicable, the team can direct members to nurses instead of doctors, or urgent care centers instead of hospitals. Surgeries at inpatient hospitals and outpatient surgery centers achieve comparable results, though surgeries cost significantly less in an outpatient setting compared to in a hospital. In this model, care can be both lower cost and effective. According to CEO Mario Schlosser, “If members of Oscar realize from the beginning that if they need a doctor, if they need help, they can come to Oscar first — they can go and search in the app, they can talk to their Concierge team, they can use us to make appointments, and we will take care of all of that. We will have the right data flows, the right tools, the right metrics, to make sure we hold the doctors accountable and make sure that whatever happens to you, whether it’s a small thing or a really big thing in your life, you’ll get the best possible care at the right point in time.” 10 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion Oscar has had particular success in getting older and more clinically complex members to use its Concierge service. More than four out of five members above 55 or in the clinically complex category have utilized Oscar’s concierge. 11 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion VIRTUAL CARE Oscar’s telemedicine service also has the potential to help it cut down on unnecessary costs. Oscar uses its app and Concierge services to push video appointments when appropriate, and its members use telemedicine 5x more often than the national average, according to its latest annual report. Using asynchronous messaging (where a message is placed in a queue, rather than immediately responded to), members can send a text or take a picture of their symptoms, and doctors can provide care or divert members to care. This allows a significant number of cases to be settled without even having to speak to a doctor. Ideally, this should result in patients with minor symptoms seeing fewer barriers to care. For example, suppose a member wakes up with symptoms of pink eye. He may not want to inconvenience himself by making an appointment with a doctor or going to an urgent care center, instead opting to go to work without seeking care. While pink eye is not a major condition, it is highly contagious and can spread through an office rapidly. But with Oscar, the member can take a picture of the condition, request a call with a doctor, and receive a quick diagnosis, all through Oscar’s app. In addition to providing the patient with care, this system can pay dividends for small businesses that chooses Oscar as their insurer, preventing illness from spreading through the office and saving employees from missing mornings to deal with minor health issues. 12 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion The graphic below highlights three situations — pink eye, minor superficial injuries, and asthma — in which Oscar estimates it has leveraged telemedicine to save ~75% per episode compared to in-person visits. 13 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion NARROW NETWORK A third way to cut down on costs is to ensure that members receive the best possible quality of care (thus avoiding repeat visits or other care needs). To accomplish this, Oscar has gone with the model of creating “narrow networks,” partnering with fewer providers in each area. The benefits of a narrow network model can be seen in Walmart’s Centers for Excellence program. Through the program, Walmart pays for employees seeking certain healthcare services to travel to national “centers of excellence” (top medical centers like the Mayo Clinic, the Cleveland Clinic, Geisinger, and Johns Hopkins). This helps ensure care delivered is both high quality and necessary. The results of the program have been so good to date that it has gone from an executive-only program, to being available to all employees on an opt-in basis, to a requirement for a subset of expensive procedures, such as joint replacements, cancer treatments, and transplants. 14 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion As with Walmart’s model, Oscar builds most of its networks by partnering with reputable health systems in each market. For example, the company jointly promotes a plan with the Cleveland Clinic in the greater Cleveland area. Its partner networks also include the UCLA Health System in the Los Angeles area and Mount Sinai Hospital in New York. There are additional benefits to partnering with a single provider. In cases where Oscar co-brands its plans, such as its partnership with the Cleveland Clinic, both payer (Oscar) and provider (the Cleveland Clinic) manage risk and are aligned with the patient to ensure quality and that costs are as low as possible, rather than maximizing fees. In this type of arrangement, providers themselves encourage patients to receive care in the lowest acuity setting, because providers share in both the costs and savings derived from the care provided. Research has shown that patients have better outcomes and incur lower costs when their provider bears risk. Oscar’s narrow network strategy can help it partner with high quality providers that might not join Oscar’s network if it were broader. Where Oscar may lack scale in a specific region, it can partner with a quality local provider with the promise that it will send most or all of its members to that provider — meaning that even if the total number of Oscar members is not massive, Oscar can still get quality providers at reasonable negotiated rates. 15 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion CLAIMS PROCESSING One function Oscar is bringing in-house is claims processing. Most health insurers outsource large parts of their claims and process them in batches, and in its early days, Oscar did too. Now, to improve the customer experience, Oscar has begun to handle claims in real time. Oscar CEO Mario Schlosser spoke about some of the company’s new capabilities brought about by its claims system in an interview with Wired: “If we tried to give you a discount for where you get an MRI or for going to a doctor in off-peak hours … that literally wouldn’t work right now because the most common claims format … does not have a time of day field on the claim… To get to the point where we have the utmost flexibility in configuring smart incentives, in getting rid of weird authorization rules, in configuring more risk sharing and risk taking providers into the system, we thought we needed our own claim system.” 16 Oscar Strategy Teardown: How The Health Insurance Upstart’s Patient-Centric Vision Is Driving Its Expansion Oscar’s in-house claims system has other benefits as well. It sends information about patients in real time, keeps provider information up to date, and speeds up authorizations. The company now processes claims in an average of 6 days, compared to an industry average of about two weeks — an advantage that may attract more providers to Oscar’s network. In its latest annual report, Oscar noted that it continues to build out its in-house claims system. It is working on more capabilities that will increase ease of use for members, providers, and the insurer itself, including: • Real-time claims operations that will support point-of-sale integrations and provide immediate response to signals of fraud, waste, and abuse • Real-time eligibility processes like enrollment processing and bill generation • More accurate cost estimates for members searching for care It’s important to note that Oscar spent several years and likely tens of millions of dollars in its effort to build out its new claims system. This was a big bet that will only pay off in the long term if the offerings the system enables are compelling enough to attract more patients and providers. 67 Microsoft Teardown The full report is available to CB Insights clients WHERE IS THE REST OF THIS REPORT? CLICK HERE TO REQUEST A DEMO