Part 7: Exploring interesting opportunities in ESRD
Overlooked customer segments and new product categories to consider
In The Post-Op Season 1 finale (!), I’m highlighting some customer segments and products that might be interesting for those seeking to innovate or invest in ESRD. Building upon Parts 1-6, I will explain why I think an interesting business opportunity exists and then explore ideas that could take advantage of said opportunity.
Customer segments
#1: Smaller dialysis clinics
Thesis: Market-size aside, there are benefits of selling to smaller businesses. In dialysis’ case, smaller clinics not only comprise a meaningful segment of a massive market, and but also need support diversifying their revenue and/or acquiring new patients in an extremely competitive space.
Rationale:
Big enough: After taking out DaVita/Fresenius, other large chains (American Renal Associates, Dialysis Clinic Inc., US Renal Care, Inc.), and inpatient clinics, 1,200+ small clinics remain (~15% of total). This is based on the same 2019 dialysis facilities data from CMS used in Part 6. Products for smaller clinics help them maintain independence (good for the system!), offer shorter sales cycles, and can be iterated more actively before selling to larger chains.
Chart 1: Breakdown of clinics by type and/or size[1]
Need for diversification: As discussed in Part 3 and throughout the series, larger dialysis clinics like DaVita and Fresenius have been under-diversified for years, but that is slowly changing for various reasons. For the same reasons, smaller dialysis clinics also need to consider new revenue streams (e.g., participating in value-based care), but lack the capital, capabilities, and expertise to do so.
Patient acquisition challenges: Clinics cannot diversify without patients, but in most markets, larger chains have vaster networks of both clinics and affiliated nephrologists, making it very difficult for smaller clinics to compete for patients. It may seem obvious, but if a product/service helped solve these ongoing patient acquisition challenges, I believe smaller clinics would pay for it.
Ideas:
Tech-Enabled Managed Services Organization (MSO): How might local market dynamics change if smaller clinics could focus more resources on acquiring patients by building their affiliated nephrologist network, doing more grass-roots marketing, etc.? An MSO managing tasks such as scheduling, hiring/staffing, payer contracting, supply ordering, equipment maintenance, etc. could facilitate this re-focusing on patient acquisition. Longer-term, the MSO could also help smaller clinics increase revenue by creating a network around the clinics it manages and selling the network to commercial insurers. Like an ESRD-ified version of what Alma does for therapists.
Referral Network Building: I have highlighted how much of dialysis clinic success depends upon the patient referral pathway from nephrologist (inpatient or outpatient) to clinic. Could we make it easier for smaller clinics to build this pathway? For example, you could combine a product helping identify nephrologists that see lots of patients and/or have a willingness to affiliate with non-chain clinics with a service that provides coaching on how to build these relationships.
Admissions Optimization: Sometimes, patients are “up for grabs”. When patients are prescribed dialysis after an inpatient visit and the hospital’s nephrologist lacks affiliations with clinics near the patient’s home, the hospital will send requests to multiple clinics to “accept” the patient. The first to accept wins, and some clinics target responding in 4 hours or less. Since every patient is extra-critical for a small clinic, I believe a use case exists for a solution that helps accept patients more quickly.
Products
#1: Value-based kidney care (VBKC) “enablement”
Thesis: Both payers and providers have reason to participate in VBKC and, today, can do so by launching KCEs. There is an opportunity to increase KCE participation by offering providers capabilities to launch and succeed in KCEs.
Rationale:
Incentives aligning: My stance is VBKC will only become a greater priority for public and private insurers. Given how much Medicare spends on ESRD (see Part 1), ESRD will remain a leading candidate for CMMI when testing new payment models. Further, as Medicare Advantage (MA) enrollment increases and more ESRD patients opt for MA over traditional Medicare, private insurers will bear more ESRD costs. At the same time, for dialysis providers, VBKC is a natural way to diversify revenue, improve margins, and strengthen nephrologist relationships.
A clearer future: Given ACOs and ESCOs success, my prediction is KCEs, which are very similar to both ACOs and ESCOs, will perform well (some data on this in Chart 2), and as a result, specialty-focused, coordinated care organizations will remain core to VBKC. Thus, while still “emerging”, VBKC has leading indicators of what its value-based future may hold (when contracting with Medicare in particular).
Chart 2: ACOs, ESCOs, and KCEs[2],[3]
Help needed: The chart below highlights how the CEC Model created additional savings for participants, but, at most, only ~15% of total clinics participated. Participation in the KCC Model is similarly low as only ~50 KCEs have been launched to date[4]. Nevertheless, despite the decline in average PBPY saving, I believe the data still suggests VBKC has the financial upside (savings each year!), but participation remains limited as dialysis providers and nephrologists lack the resources or expertise needed to confidently execute.
Chart 3: ESCO participation and performance from 2017-2019
Ideas:
Contracting & Administration: Under the assumption providers are interested in VBKC but do not feel comfortable starting on their own, I believe a market exists for a central entity to bring together nephrologists, dialysis clinics, and transplant centers interested in creating a KCE and provide legal resources (and potentially other capabilities) needed to successfully launch said KCE. Much like what Aledade does for traditional ACOs.
VBKC Coordination Platform: Once a KCE is created, it needs to manage care! As discussed, ESRD patients require a large, multi-disciplinary care team, and the care team members may be employed across different entities such as nephrology practices, dialysis clinics, new VBKC companies like Somatus or Strive, payers, transplant centers or other specialty practices (since comorbidities are likely). The nephrologist remains the “quarterback”, and, especially in VBKC, needs ongoing, timely information from the entire care team that now sits across multiple entities and sites of care. KCEs would deeply benefit from a care coordination platform that facilitates data sharing across these entities specifically and offers capabilities to “project manage” complex ESRD patients.
#2: Products and services sold B2B2C through dialysis clinics
Thesis: Today, patients primarily choose clinics based on (if they have one) their nephrologist’s affiliation and/or the clinic’s proximity to their home. Clinics have an opportunity to acquire more patients and affiliated nephrologists by offering differentiated products and services to patients.
Rationale:
Differentiation for large dialysis chains: At some point, I believe larger chains will face competition acquiring and/or retaining dialysis patients (Part 6 lays out potential ways that could happen). As outlined in Part 3, dialysis providers’ businesses are quite sensitive to lost commercial lives, so if competition emerges, the financial incentive to make investments to differentiate from other clinics becomes clearer. DaVita Care Connect is a first-generation example, offering messaging, telehealth, education, and community to its dialysis patients, but room for innovation exists.
Differentiation for smaller clinics: While the nephrologist’s affiliation and clinic’s proximity to the home play a driving role in clinic selection, many patients and caregivers still make the final decision. As a result, one way to differentiate when lacking the same scope of affiliated nephrologists and density of clinics is to offer patients and caregivers valuable products or services supplementary to dialysis that are not offered elsewhere.
Existence of competitive markets: The counterargument is that competition is required to drive clinics to “differentiate” via B2B2C products/services, and that level of competition does not yet exist. My rebuttal is that, as laid out in Part 6, since healthcare is local, plenty of competitive markets already exist – 128 counties with 2,228 facilities (almost 30% of all clinics in the US!). In these markets, accessibility may be less of a differentiating factor as patients have more options and, in theory, could shop around before selecting a clinic.
Ideas:
Caregiver Benefits: Caregiving for ESRD patients can be particularly time-consuming and complex. Dialysis caregivers provide medication, transportation, eating assistance, and emotional/mental support[5],and if home dialysis is chosen, they even help set up the station and facilitate delivery. Caregiver benefits are an emerging area, and dialysis clinics could be interested in offering an ESRD-caregiver specific product providing financial support, coaching, emotional support, equipment troubleshooting, and community (like Remo’s dementia caregiver product but for ESRD).
Culturally Competent Dialysis Care: Success in VBKC will require better managing patients’ physical and mental health (to limit costs), and clinics employ renal dieticians (RD) and nephrology social workers (NSW) to address these areas, but face attrition issues. I believe both clinics and patients stand to benefit if RD and NSW services were tailored based on patient ethnicity. Given nuances exist across populations, my hypothesis is that an ethnicity-specific care model delivered by culturally aligned RDs and NSWs would lead to more effective treatment and at the very least, stronger patient engagement. I envision a digital-first program sold to dialysis clinics who steer select patients to virtually connect with a culturally competent RD and/or NSW.
Parting shot
Maybe not quite the end of Succession Season 1, but Part 7 wraps up The Post-Op Season 1 on ESRD! Season 2, tackling a new condition, is already in the works and will be released in Q1 2023.
To close, I just want to say happy Thanksgiving to everyone! Among many other things, I am thankful for all those that have read and spread the word about The Post-Op. I hope you all enjoyed it and learned something practical along the way. Cheers.
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