Rock Health has one of the most interesting views of the digital health market having been around since 2011 first as an accelerator and now as an early stage venture fund. Matthew Holt had a chance to sit down with Rock Health’s Managing Director Malay Gandhi ahead of his appearance at WinterTech to discuss how Rock Health looks at the consumer side of digital health, and what development Rock Health would most like to see in the near future.
Matthew Holt: It’s Matthew Holt with Malay Gandhi. He is the managing director [of Rock Health], right, and had been officially for what, a year or so now, Malay? Is that right?
Malay Gandhi: Since June, June of this year.
MH: Oh, June. So about six months, right. So most of us know that Rock Health was founded by Halle Tecco and Nate Gross a few years back, 2011, and probably was the first and most influential of the accelerator groups, the incubators and accelerators that target healthcare specifically. But you’re working I think at Deloitte at that point, is that right?
MG: Yeah. When Halle and Nate founded Rock Health, I was working at Deloitte Consulting in their health care practice based in Boston.
MH: So perhaps you can explain a little bit [about how Rock Health works]. Most people prodded out that Rock Health is a nonprofit, and actually, well, your experience is better than me, but most of the — obviously, you guys do a lot in terms of a sort of stimulating the ecosystem with small events, big events, and also your reports on financing and so on. That’s not a cost for running the actual incubator, but the amount of money that’s been given to start its company, the Rock Health, is increasing, but does not assure your money. Is that right? Could you explain how that actually works compared to other accelerators or incubators?
MG: Yeah. So essentially, the way Rock Health works is there are three big things that we do, all under our mission to support and fund entrepreneurs. We have our venture arm which does seed investments in the companies now. We’ll write checks up to $250,000 per company, really at the seed-stage. We conduct research which we release publically. Let’s say about four reports or so a year, as you mentioned, tracking funding, but also doing deep diving in various topical areas.
Then our third area, we host a couple of events each year. Our signature events are really the Health Innovation Summit, which is for everybody; the CEO Summit, which is an event for founders and CEOs of digital health companies; and then finally, the XX Retreat, which is really a women’s professional leadership group for women who work in healthcare.
The way we’re structured from a model perspective is there are actually two entities. We have a hybrid model. So there’s Rock Health Inc. or RHI sometimes as I call it which is a nonprofit. That’s who I work for, that’s who all the employees of Rock Health work for. We are generously funded through our corporate partners and earning some kind of profit on events.
So there’s a bunch of logos in our website if you go to rockhealth.com/partners. We have great partners like Abbott, United Healthcare, Blue Shield of California, Kaiser Permanente, GE, Genentech, Boehringer Ingelheim, Deloitte, Qualcomm, and so on. They generously fund our mission to support entrepreneurs. So that’s the nonprofit Rock Health Inc. Then to its side, we have an investment vehicle which really supports the venturing, funding aspect of our model. In that fund, Bessemer Venture Partners and Kaiser Permanente Ventures are the lead investors, and then there’s a tail of other investors in the fund. So that’s an investment vehicle that writes the check for the company as you would expect in a traditional seed fund would.
MH: So that vehicle collects the management fee and shares a chunk of the equity — stuff as well or like a typical VC? I mean is that correct or no?
MG: Yeah. We don’t really get into the economics of the fund. We’re compensated for managing it for sure. Rock Health Inc. is the manager of the fund. The goal of the fund is a little different probably than what most would expect from a venture fund. When we ran out and raised it this summer, this third fund that we raised, the investment piece that’s underneath it wasn’t, “Hey, this is the best return on Earth that you can get. This is the best time for the money to return money.” If you look at the profile of our limited partners in our fund, we are a seed investment vehicle for these firms.
We do something that no one really has the capacity to do, which is to look at thousands of seed-stage deals in the digital health space. It’s such a growing category and it’s very hard to keep track of, then when you marry that with sort of our research arm, we’ve developed pretty deep insights, along with our industry partnership, I think we have a very unique vehicle. If you think about a seed fund of our size relative to our nonprofit’s budget, we would need a fund that’s probably an order of magnitude larger on a traditional management fee piece to provide the types of resources that we are able to provide to our companies because we have this leveraged model through the nonprofit.
So I think the investment piece, this is less about, “Hey! Let’s get great returns for investors.” It’s not that we don’t need to return money, we absolutely do, and we treat the money as such. But I think our investors, what they are looking for is help identifying the next great companies that they can really lead, follow on funding into.
MH: Right. And of course, they’re doing that in sales anyway, so it’s not that they thought all about Qualcomm for example or Kaiser that have active venture funds of their own, which of course are some majors as well.
So let’s quickly change to your view of the market. We’re focusing a little bit but not exclusively in this upcoming conference, WinterTech, on sort of the evolution of the consumer side of the market, particularly around the new platforms that are starting to come out with health care. Just give me a sense about what you think is moving in exciting ways, and then we’ll talk a little bit about some of the companies in those areas.
MG: Yeah, we can deal with that. They’re probably under three domains within kind of the “consumer landscape.” So, pure consumer, like monetize with consumer. So they actually pay for the service that they’re using. One of our portfolio companies with that model is Lantern, which provides mental health on demand, really accessible coaches and mobile-delivered CBT programs, and consumers pay per month for a service like that. So that’s one model.
Then, a second model would be this multi-sided, working with the industry on paid distribution. So the consumer is still the end user of the product, but ultimately the value being created is so significant to the healthcare industry, it makes more sense to partner with them. Omada Health being an example of a company like that, that ultimately monetized us through health insurance companies, self-insured employers, and alike, people who bear risk for diabetics, working to prevent that ultimate outcome. So they are heavily a consumer-centric company when you think about their product. They care deeply about engagement and driving that because that’s what leads to the clinical outcomes. They have to build that product that they monetized sort of through the healthcare industry.
Then the last sort of category of company I would say is ones that forgo revenue for some period of time. They’re trying to grow a real sort of large consumer-base — grow a company and then monetize through a third party potentially through kind of an advertising model or something of that nature. They would look more like a traditional consumer internet or consumer mobile company.
Iodine is a recent investment we made. Right now, they’re very much focused on building the best consumer health information platform and growing that, and then eventually they will figure out the best way to create value for the consumers and also to monetize that engagement that they have with their audience.
So we tend to see those three buckets and I would say they’re all really, really interesting areas of opportunity. Then on a global basis of the biggest area of opportunity that I always tend to point out is it’s very hard for me to find a single person if I asked them to show me their smartphone, where they have a health app on the home screen. We still tend to think of that as a largest opportunity that no one has really built an iconic consumer digital health brand yet. We’re still kind of waiting for a company to emerge.
MH: That’s such an interesting area, right? So let’s talk about that. I wonder what that might be. That’s one of the reasons that I was interested in your book today, looking at some of these issues about where is there growth in that.
Do you think [an] online direct connection with a health provider is likely to be that sort of space on the home screen? What would you think are the kind of companies that might be there?
MG: Well, I think there’s probably a couple of different ones. So one is, what do you need to do every day sort of around your health that’s meaningful. And most people don’t actually visit the doctor every day or have like a serious health concern that they would want to engage a doctor in. Well, I think telemedicine, virtual visits that if you look at the 1.1 billion sort of ambulatory visits that will happen this year, there’s certainly a very significant opportunity to shift many of them to virtual visits. You don’t really need to go into your doctor’s office or into an urgent care clinic or to a regional clinic or even — unfortunately, people show up at emergency rooms for some of these low acuity things. So there’s a significant channel shift that can happen there, but I don’t see that as an every day activity for every person out there.
There are probably a couple big areas. One is the exploration of consumer health information. When we look at searches online, like where people are trying to better understand themselves and their own health, there is something that comes up almost everyday with most people related to their health that they want to bang into Google these days, and I think consumer health information, when we look at the kind of name brand websites that are out there today, they’re not very good. The content is pretty bad and most of it is ad units being sold. Most of the content space is being sold for ads instead of even for robust information. It’s not really personalized, so the content isn’t in the context of your life, it’s not using any personal data. Then the content is also quite stale. So it’s not updated based any patient reporting or any, what we would call “real world experience.”
So I think consumer health information, if we just kind of look at the volume of people out there searching for it and how much is being captured today by what I would call “weak products,” that’s certainly one big opportunity. Then the other two related more to the delivery side, prevention and wellness. I mean, wellness, literally, if you define it, it is the activities of daily life that improves your health, and most people kind of describe that as eating well, being physically active, and getting the right amounts of sleep each day. And so monitoring and tracking of that, no one has really unlocked what I would call an “extraordinarily high daily active rate” yet on the apps, like something at the Facebook level of north of 50% daily active user percentages, but I think that’s a big opportunity.
Then condition management. I would say the company in our portfolio that’s really starting to crack the code on this is Mango Health, which has worked on medication adherence. Because Jason Oberfest, the founder, and his team came from a mobile gaming background, and they sort of saw this idea that, “Well, with a social network, you could build a gaming layer on top of it, and because the habit was already built into the person of logging into Facebook everyday, when you put games on top of that, you are capturing the daily engagement of a primary activity and rolling that engagement into your products which happened to be games.”
The same observation is what Jason has taken into Mango Health. So a lot of times, it’s labeled a medication adherence company. When he observed the patients when they were doing their early, early ethnographic work as they were studying what they wanted to do with the company, the one thing that he universally observed was that medicine was such a big part of people’s lives, taking their prescription drugs, but also their OTC supplements.
So the idea was, if you could build a daily habit, something that every people opened up everyday to kind of say, “I took my medicine,” you could start capturing other information. I don’t want to share specific data, but I will say the engagement is better than anything I have ever seen in the health care vertical, but beyond that, better than what I’ve seen in mobile gaming. And I think he really captured something amazing around condition management. There’s only one thing people really do everyday or that they are meant to do everyday and that is to take their medicine. Then if you can take that engagement and lever it into other areas, to get them in to see the doctor or get a certain test taken or maybe take a few extra steps, there is something really, really powerful about that where you’re building around something that needs to happen daily anyway.
So I would say those are probably the three kind of buckets I would think about as home screen app potential for a lot of Americans or consumers would be around information and either wellness or condition management.
MH: Yeah. They’re all areas which have either, as you said, inside of the content area had a lot of content, a lot of activity, a lot of people probably had to go about, and it has been very appetizing, focused, and not quickly personalized. Then the last one you said, it’s been very, very hard to crack. So Jason and the group at Mango Health have an interesting approach to that.
So last question, and not directly connected to what you’re working on per se, but — and again, I don’t know if you guys have looked at this from an investment perspective — there’s a big move changing the natural core of health care delivery, again, starting from the edges, but with companies who are delivering care either in the worksite setting or most notably in the retail setting. Do you have a sense of how far that’s going and/or how much it’s involving the kind of companies that you’re working with?
MG: Yeah. So the way that we tend to think about it, we sort of look out, where is all of the money spent in the health care system, where do we absorb a lot of cost. And then we want to invest in companies that have the old technologies that attack those costs. So one of the biggest buckets as you know is spending inside of the hospital, and then everything from the hospital down to like the phone in your pocket, we describe that as the “location stack.” So where is care delivered, the hospital being the most expensive, and me walking around with my phone being able to do some kind of self-care wherever I am being the cheapest. And so retail clinics, worksite clinics are definitely closer to my pocket, my home than to a hospital.
So the way that we see that, like kind of fundamentally is yes, absolutely, those are growing because more and more care will and needs to be delivered there. On the worksite side, there is a very strong value proposition that goes beyond just medical cost and health spending to productivity and employee satisfaction, and everything else. I think we see tremendous growth in employer worksite clinics. Then retail clinics have been interesting. It was actually an area spent quite a bit of time on while I was at Deloitte and I offered some studies, now, approaching six or seven years ago. You can go back and look at my terrible forecasting that I did as a consultant about how many clinics there would be by now. Those forecasts have not been met.
So we’ve heard from companies who are very ambitious, “we’re going to have 2,000 to 3,000 clinics around the country”, and we haven’t yet seen them. And I look at that as a kind of scope of service question is how much can we really do in a retail clinic. What we saw three, four, or five years ago was none of them really had enough kind of service breadth. So if you look at the traffic, they weren’t really able to generate enough volume of visits to justify a break even for these retail clinics.
When Ben [Wanamaker] and his team from Walmart, and I know Ben is speaking at the conference, come and talk about their new strategy for retail clinics, I think we’ll see why it’s different this time, because they are moving from doing low acuity to think, “This is a primary care center and we are going to build the largest primary care practice in the United States.” Which is a pretty remarkable shift from than we first saw this model sort of starting to emerge. It goes back into the early 2000. It’s like games popularity, 2006, 2007, 2008 when CVS and Walgreens really started to scale up, Minute Clinic and Take Care. It’s very different today than what it was almost like we’re getting close to 10 years ago when that model first started emerging.
So I think the role of their ambition, how wide the scope of services they want to offer and then when you look at what enabling technologies you can put in today, everything ranging from simply just workflow, clinical decision support, digital diagnosis, all the way to like even point-of-care diagnostic tools that you can get, you can just gain much more rapid testing and kind of triage and learn about the patients inside these smaller clinics. And if you need to, you tell medicine technologists connect to specialists or if you remember, I think that breadth of service offering starts to expand dramatically both to the ambition of the players, but also because enabling technologies are there.
So we certainly see it as a big area in terms of where, again, the 1.1 billion ambulatory visits, they should be absorbing quite a bit of them. That’s what all the research can tell, the quality of care is just as high, if not better, and clearly it would save the health care system quite a bit of money. So from a kind of quality cost argument, it’s there. I think now, the technologies are really going to be there as well to support a real business model for this retail and worksite clinics.
MH: Yeah. I think if they’ve noticed there are the 1.1 billion, I’m not sure of this but the follow-on care they get, not sort of good care that tends to happen across the system, which we’ve been looking at for — oh, I’ve been doing this for 25 years now and it still hasn’t really changed, right? You still see these hospitals with the expensive in-patient, but it’s rather not necessarily — either necessary or productive. But it’s interesting to see if this approach is going to change it. But it’s some combination that you’re thinking about as you said, place in what you call the location stack versus technology is actually very interesting. But probably it’ll be much more interesting the next 10 years than we have been in the previous 20.
MG: Yeah. The Kaiser and Target together, right? I mean, that’s a change in the way Kaiser thinks because they’re partnering with Target. It’s just different today.
MH: Well, Malay, I will look forward to more conversation in the WinterTech. We’re talking with Malay Gandhi. He is the managing director of Rock Health. Malay, thanks for your time.
Kim Krueger is a Research Analyst at Health 2.0 where Matthew Holt is Co-Founder and Co-Chairman. WinterTech is on January 15th, in San Francisco at the Julia Morgan Ballroom.