At Tau Ventures we hear from many entrepreneurs around the world that they want to build or expand a healthcare business into the US because it’s a large single market. While the US does hold many advantages for a startup to grow, it’s hardly a monolith and if anything, it’s a fairly decentralized country. Federalism – dividing powers between a central and regional governments – doesn’t appear in the US Constitution, but its concept is baked into the document and it was officially enshrined shortly after the US independence. What that means in practice today is the individual 50 states hold a large level of autonomy, including in healthcare policy. If you are an entrepreneur in the space, it’s vital to understand how different states approach healthcare, and this article offers three key questions.
1) Is your business touching Medicaid?
Medicaid today covers just about 90M Americans, in other words more than a quarter of the US population. A brief recap – the government program to provide health insurance to adults and children with limited means was established in 1965, all states joined to participate by 1982, the Affordable Care Act expanded it significantly starting 2010. As the graph below shows, Medicaid spend per capita is growing which means those relying on the program are relying ever more on it.
Among the 50 states there are significant differences in budget, eligibility and reimbursement, not to mention political influence. Case in point, the diagram below illustrates stark differences in Medicaid coverage, reflecting both need and policy differences among the states. The Children’s Health Insurance Program (CHIP) incidentally is a program passed in 1997 that provides matching funds to families with children who do not meet Medicaid eligibility.
2) How much do the vast differences in healthcare quality affect your company’s market?
Unsurprisingly, different states also have vastly different levels of quality in healthcare. The Agency for Healthcare Research and Quality, which is part of the Dept of Health and Human Services, is arguably the closest to the official standard and its latest study is summarized below. New England and a cluster of northern states in the Midwest score the highest, parts of the South and Southwest score the lowest. This quality metric is a summary of 200 statistical measures and likely will not translate exactly to individual companies. But the point is there is a way to quantify healthcare in the different states, which would help decide where to focus and how to expand.
3) Are there specific requirements you should be aware of?
Are you establishing a lab? As you might have guessed, different states have different requirements. Hint: New York is particularly hard.
Are you hiring providers? Again, different states have different medical licensure laws. In many states you have to have the provider sitting physically in the state, which may seem archaic in a post-covid telehealth world.
Are you looking to expand in a state? There is a patchwork of certificate of need (CON) health laws throughout the country, as the diagram below shows.
The list goes on and on, although the good news is in this day and age the requirements are easy to access. What matters most is for the entrepreneur to have the mindset of tracking beyond the 4Ps (patient, provider, payor, pharma) and giving the 5th P aka policymakers due attention.
Originally published on “Times of India” and “Data Driven Investor,” I am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (we call it gl;dr — good length; did read). See here for other such articles. If this article had useful insights for you, comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are from the author(s).
