Most people think healthcare innovation fails because the tech isn’t good enough.
That’s comforting. It lets us believe the solution is smarter founders, better AI, or one more pivot.
Emily Durfee disagrees.
From her seat as Director of Corporate Venture Capital at Healthworx, the investment arm of CareFirst BlueCross BlueShield, she sees a different failure mode entirely. Healthcare doesn’t break because startups lack ambition. It breaks because incentives don’t line up, data doesn’t move, and the people who control the system don’t move at startup speed, even when they want to.
If you don’t listen to the episode, here’s the mental model you should walk away with.
Healthcare isn’t slow because it’s dumb, it’s slow because it’s entangled
Imagine trying to redesign traffic while the cars are moving, the roads are privately owned, the traffic lights are regulated by three governments, and every driver has a different insurance policy.
That’s US healthcare.
Emily’s career has taken her from early-stage startups to impact investing in Sub-Saharan Africa to payer-backed venture capital in the US. That global context matters. She’s seen healthcare systems with far fewer resources operate with more creativity, and systems with infinite capital struggle to change anything at all.
The reason isn’t a lack of innovation. It’s coordination.
Payers, providers, employers, regulators, and patients all want better outcomes. But each one gets rewarded differently for how they behave. When incentives diverge, progress slows to a crawl.
What payer-backed venture capital actually does, and doesn’t
Founders often assume corporate VC arms are just traditional funds with a big balance sheet and a slower IC.
Wrong.
Payer-backed venture lives in the uncomfortable middle. Healthworx doesn’t just write checks. Its job is to identify startups where there’s a plausible line of sight to real-world deployment inside a massive insurer.
That means two things are always being evaluated at once:
Is this a good standalone business?
Could this actually work inside a payer ecosystem?
Most startups fail the second test.
Not because they’re bad, but because they’re building something payers can’t operationalize. No clear ROI. No integration path. No way to prove cost reduction fast enough to matter.
Emily puts it bluntly, if you don’t have a payer angle now or in the future, they’re probably not the right partner. Not out of arrogance, but honesty. They can’t help you if the system you need to change isn’t the one they control.
Why FDA-heavy innovation is usually the wrong door
One of the most counterintuitive insights from the episode is where Healthworx explicitly does not invest.
They avoid pharmaceuticals, medical devices, and anything deeply FDA-dependent.
Not because those categories aren’t important, but because payers are the last stakeholder in that chain. By the time reimbursement matters, the company is often years, or decades, into development.
Payers add value earlier in workflow, data, contracting, navigation, and cost control. That’s where their leverage lives. Smart founders don’t pitch them breakthrough science. They pitch them operational leverage.
Cost reduction is the only language everyone understands right now
Healthcare feels enormous and abstract until you hit this reality, most payers have been losing money.
When margins compress, experimentation dies. Budgets tighten. Attention narrows.
That’s why Emily keeps returning to the same founder advice, solve a top-five problem and prove the ROI.
Not theoretical savings. Not long-term promise. Actual, defensible cost reduction or efficiency gains.
This is also why “nice to have” products are quietly disappearing. In a contracting market, survival belongs to startups that reduce spend, friction, or waste in measurable ways.
AI won’t save healthcare, but it might force it to grow up
Emily is cautiously optimistic about AI, and deeply skeptical of hype.
Healthcare still runs on faxes. That’s not a joke. Email has existed for decades and hasn’t displaced them.
But the difference now is economic pressure. Costs are unsustainable. Labor is scarce. Complexity is compounding.
AI is arriving at a moment when the system can no longer afford not to change.
The first wins aren’t flashy. They’re administrative. Claims processing. Risk analysis. Customer service. Back-office workflows that quietly drain billions.
Clinical AI is more complex. Bias, regulation, and trust all matter more when decisions affect lives. The technology may move faster than the system can safely absorb.
Still, Emily believes the pressure will force adoption. Not because healthcare wants to modernize, but because it has no other option.
The real bottleneck is transparency, not technology
Ask what Emily would fix if she could wave a wand, and she doesn’t say AI.
She says data.
Healthcare can’t behave like a market because information doesn’t flow. Patients don’t know prices. Outcomes aren’t transparent. Records don’t move cleanly between systems.
You can’t optimize what you can’t see.
Without standardized, shareable data, value-based care struggles to scale. Incentives can’t align. Accountability stays fuzzy.
Technology can help, but only if the industry agrees to let information breathe.
The long view, why this still matters
Emily isn’t naïve about how hard this is. She’s also not cynical enough to walk away.
Her bet is that economic pressure plus generational change will slowly rebalance power. Patients will expect transparency. Employers will demand efficiency. Startups will force incumbents to adapt or shrink.
The healthcare system won’t flip overnight. It will bend, creak, and resist.
But over time, the math wins.
Founders who understand that, who design for incentives instead of ignoring them, are the ones most likely to survive the maze.
Healthcare doesn’t need more heroes. It needs more translators.
And that might be the most honest definition of innovation we’ve got.
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Chapters:
00:01 Welcome & Emily’s Role at Healthworx
02:00 Global Upbringing & Early Influences
05:15 Entering Healthcare Through Clover Health
08:30 Healthworx Investment Mandate & Check Sizes
10:45 What Payer-Backed VC Actually Means
14:30 Advantages of Corporate Venture Capital
17:45 Startup Speed vs Healthcare Bureaucracy
20:10 Payer vs Provider Incentives
23:40 Medical Loss Ratio & Profit Caps Explained
26:30 Value-Based Care & Risk Sharing
29:10 Transparency & Data Fragmentation in Healthcare
31:45 How Healthworx Evaluates Startups
34:30 Portfolio Spotlights: Positive Development, SafeRide, Kalina
38:00 Market Headwinds & Why Healthcare Is Contracting
41:00 AI in Healthcare: Hype vs Reality
44:30 The Future of Healthcare Innovation
Transcript
(00:01:15) Brian Bell: Hey, everyone. Welcome back to the Ignite Podcast. Today, we’re thrilled to have Emily Drafi on the mic. She’s Director of Corporate Venture Capital at HealthWorks, the innovation investment arm of CareFirst, where she leads seed through Series B deals focusing on advancing quality, accessibility, affordability, and equity in healthcare. Emily came to venture from a diverse background, as most of us do, working in impact investing, technology consulting, and startups across the developed and emerging markets. We’ll dig into her origin story, how payer-backed CVCs operate, and That’s corporate venture capital and what this means for startups entering entrenched healthcare markets. Thanks for coming on, Emily.
(00:01:48) Emily Durfee: Absolutely. Thank you so much for having me.
(00:01:50) Brian Bell: Yeah. Great to sit down. I’d love to start with your background. What’s your origin story?
(00:01:54) Emily Durfee: Absolutely. So two thoughts on this. I think the first is it’s very important to me to say that I’m a Midwesterner at heart. I was born and grew up in Ann Arbor, Michigan, go blue. And I think that that really shaped me and just really liking humans, wanting to understand the different perspectives of people from across the in this case, Michigan, and then eventually across the world. I was also really lucky because my family took time to live abroad when I was a kid. So my dad’s a professor. We lived in Israel for a year and then South Africa for a year during my childhood. So that I think shaped the second answer to your question, which is on a more professional basis. I have one of exactly, as you said, one of those like non-traditional backgrounds, which depending on who you ask is either a compliment or an insult. I’ve made those choices. So obviously I think it’s a good thing, but to your point, right? I’ve worked in a bunch of different parts of the startup ecosystem, right? So yeah, I’ve worked directly for early stage startups, done consulting for startups, done investing into startups. And I’ve done that internationally and domestically. So I started my career doing two years in sanitation work in Nairobi, Kenya. I’ve spent some time in India, some time in West Africa, did my master’s in the UK. I did a couple of years in San Francisco, which is exotic in a very different way. And eventually settled down here in the Washington DC area. Worked in a lot of different industries. I’ve worked with a lot of different types of cultures and people. But the way that I tend to explain it to people is that there are two things that have been true throughout the course of that career, right? The first is that I really like to work at the intersection of value for the world and value for business. And that’s driven me into different types of social enterprises, impact investing, and now working in healthcare venture capital. And the second is I like to build stuff. Usually I use a swear word there, but we’ll go clean on this podcast for you, Brian. But I like to build things from scratch. And so if there’s an opportunity to put something new together with some amount of creativity, passion, collaboration, probably a little bit of duct tape. It’s something that I really enjoy. And so I think that’s led me into all of these really early stage startups. And then, you know, how do you build out a corporate venture fund that works well with both the stakeholders on the startup ecosystem as well as on the corporate side. So happy to dig in anywhere you want there.
(00:03:57) Brian Bell: That’s awesome. What a cool background. I’ve also lived around the world, maybe not as much as you, but how old were you when you lived in Israel and South Africa?
(00:04:04) Emily Durfee: So Israel, I turned six. So I can tell you about the play structures and the snails, probably a little less about the ecosystem there. And then in South Africa, I turned 13. So that was actually much more important. My family, my dad was teaching at Fort Harry University, which was the only university under the apartheid that had just expired that admitted black students. And so we were in a pretty impoverished and not particularly diverse area. And so it was really interesting to see, you know, kind of what it looks like to confront a really systemic racism so dramatically and then how those echoes continue to exist both in South Africa and in places like here. So, yeah, it definitely shaped a lot of my perspective.
(00:04:42) Brian Bell: I went to Joe Berg in Cape Town on a on a one of these SIB kind of MBA trips back in 2018. It was a way to get a couple of credits and just go go for a trip. Right. And right at the end of my MBA, the racism there is like palpable. like you could feel it you feel it in the us too but not not as not as much as south africa like the apartheid is like because it was only 30 years ago right and yeah yeah what also struck me about south africa was the um every house like was like a compound right it had really high you know concrete fences with barbed wire and security systems and it was like okay like every every house is like a mini castle and
(00:05:20) Emily Durfee: which honestly I feel like is true across many parts of the world, right? I think living in a lot of places, like it’s actually quite common in many spaces to have these walls around your house, right? And then even having kind of an inner courtyard, et cetera. And so it’s always actually one of my favorite things about returning to the US whenever I’ve been living abroad and just seeing the lawns and being able to like be included in a little bit more of like, The openness and the beauty of people’s lives that they have built, but also absolutely no judgment to folks who live in spaces where that’s not a possibility. Right.
(00:05:50) Brian Bell: Yeah, of course. It’s just interesting culturally. So what drew you towards healthcare innovation and eventually to this corporate venture role in the first place?
(00:05:57) Emily Durfee: Yeah, absolutely. So honest answer, I stumbled into it, right? So I started working in healthcare in the United States when I was in San Francisco working for a company called Clover Health. I didn’t really know much about healthcare in the United States, didn’t understand the role of payers, but I had a colleague, a previous colleague who I respected and liked the way that she worked. And she was like, hey, there’s a group of really smart people with me who are working on this thing. Do you want to join? And I was like, that sounds great. Obviously, went through a competitive interview process and took that job. And I think from there, learned a lot about, you know, all the things that were broken in the United States around health care and some of the ways that you could try to solve that problem through combining in this case. Right. Like the data science worlds of San Francisco with some of the much more health care established spaces in the markets where we were working in New Jersey and New York. And so I think that was kind of my first foray. From there, I did my master’s work, consulted a little bit with the NIH there in the UK to understand what it looks like to have more public health care systems. Then moved to Kenya, back to Kenya, where I spent two years doing impact investing focused on health care and education in sub-Saharan Africa. And 2020 rolled around. The world shut down. It was time to move back to the States. And especially with the COVID pandemic and my experience in healthcare, it didn’t feel like there was anything more important than refocusing my career on healthcare in the United States and thinking about how we can close some of these gaps that I think were just even further illuminated by the inequities that we saw in the way that people were navigating the COVID healthcare crisis and have stuck there since.
(00:07:23) Brian Bell: So you have a background spanning investing, consulting, startups. How do you think those experiences shape your view of innovation in healthcare and also investing in health tech startups?
(00:07:34) Emily Durfee: Yeah. I mean, I think that I’m really grateful that I’m able to see any problem that I come to with different lenses, right? I’ve actually been in the backend code at places like Clover. To be clear, not building it. No one should trust me in it, but reading it and trying to understand what was going on. I have launched new markets. I have invested in companies across the world. And I think that that helps me actually, you know, when I’m sitting in a board meeting or when I’m doing a diligence call, be able to connect when I’m hearing from someone with what my real world experience of that is. And to be able to say, that makes sense. That doesn’t make sense. Sometimes it doesn’t make sense because either I’m dumb or things have changed in the last decade. But sometimes it doesn’t make sense because it is not a nonsensical answer, right? And either way, being able to dig underneath that, I think is something that makes me really powerful. I do think that like that is one perspective on it. I think that having folks who come from just a finance perspective can also be really helpful because they see more in the numbers than I do at a first glance. And so similarly, people who have an MD or a clinical background, right, I think are very, very helpful in our space because they’re able to actually understand what does this look like in practice when a human is seeing another human for healthcare. And so I would say I’m not here saying that my background is the best of the choices that I’ve made. And I think it adds value in collaboration with folks who have other backgrounds and perspectives on this.
(00:20:45) Brian Bell: It’s an interesting industry if you stop and think about the structure of it, right? Because on one side, you have the consumers and the companies paying the premiums, right, for healthcare. And then you have the payers sitting in the middle kind of saying, okay, like how much premiums and services and healthcare plans can we provide here at scale? And then you have the service providers, right? The actual hospital groups and clinics and surgery centers, whatever, implementing the thing, the services, right? The medical providers. procedures, services, care. And the incentives are kind of not aligned, right?
(00:21:15) Emily Durfee: Yes. And I think you know a lot more about this than I do. So I’d love to understand it better.
(00:21:23) Brian Bell: With the regulations, I think our payers, are they capped on their profit margins, kind of like utilities are? where it’s like, okay, you can’t have more than 10% profit margin or whatever it is.
(00:21:34) Emily Durfee: Yeah, it gets complicated in different ways, but at a high level, it’s called medical loss ratio for payers, which is basically of the amount of premiums that you take in, you have to pay usually about 80% of the premiums on medical claims. And then the rest of the opportunity there is how low can you make your administrative fees and therefore what is the actual opportunity you have for profit.
(00:21:59) Brian Bell: I think we have this problem in California with PG&E. PG&E is capped on their profit margin. And if you stop and think about that, well, if my only way to increase profits, and I’m the CEO, the CFO or whatever, the only way to increase profits and earnings per share is to increase the cost, basically. Because I’m capped. I’m capped at 10% or 15% or 20%. And so if I want to double profits, I have to double costs. I have to double the revenue, basically. And so I have to actually increase the costs to increase the profits, if that makes sense.
(00:22:30) Emily Durfee: It does. We don’t have quite the same incentive structures.
(00:22:33) Brian Bell: Well, you’re non-profit, so you don’t have this problem. But...
(00:22:35) Emily Durfee: Well, but not just nonprofits. It’s just too competitive. Right. I think that works much better if you’re a monopoly or potentially even like an oligopoly type structure. Right. Where like you can actually increase costs. But like, especially right now, as frankly, a lot of parts of our economy, I think, are struggling a little bit. Right. We’re seeing even employers become incredibly cost conscious and how much they’re willing to pay for these benefits. Right. Individuals who aren’t getting it through employers are also very cost conscious and they usually have multiple options that they could go with. And so I hear what you’re saying. I think the only thing the thing I mean, the main thing that is stopping that is the competitive nature across the many different health insurances that.
(00:23:11) Brian Bell: Right. Me as a consumer, I’m looking at all these health plans I have. There might be a dozen of them or two dozen, right? And I’m like, okay, well, what’s my deductible? What’s it include? There’s like kind of a market for payers there, right? I’m going to try to go with the lowest cost, the highest value, you know, insurance provider that I can’t pay her in this case. And then on the other side of the market, you have a bunch of service providers and their incentive is to provide services, right? Because that’s how they make profits. And so their incentive is to do more things and build more things. And then there’s like, maybe you could describe that tension between the payer and the hospital systems where you guys are negotiating back and forth for cost of care and how much should this cost and how much we’ll cover. There’s a lot of tension there, I would imagine.
(00:23:55) Emily Durfee: Absolutely. Well, and I can describe it a little bit. So I think you hit the nail on the head, right? But the fundamental piece is, especially when you look at providers or hospital systems, right? Like they, in many ways, want to bill as many things as they can, right? Because that enables them to, A, likely drive the best results for patients to to a certain extent with certain limits, right? And B, also make the most money that they could, right? Simultaneously, you have the payers who want to decrease the cost while maintaining the outcomes because the outcomes are in fact necessary to making sure that you don’t have to pay a lot of money down the line. So there’s at least some alignment there, but wanting to figure out where are their unnecessary outcomes types of treatment that don’t actually improve the outcomes that can be cut from this process. The third dynamic there, right, is some amount of turnover, which is actually you have better aligned incentives when you start to look at Medicare populations because they tend to stay on their plans for longer. In the commercial side, you’re expecting people to churn every at most five years. And so you have this kind of interesting incentive of you want to make sure that you are removing the acute episodes and opportunities that might happen in the next five years. But you don’t necessarily have an incentive to treat a 30-something-year-old for something that is going to only impact them when they’re 80, right? Because the likelihood is that they’re not going to be with you, which is where you see nationalized systems like the NIH actually have more incentives to kind of align with outcomes. The one other thing that I would add to this, right, is like, yes, all of these tensions are there. The incentives across the healthcare system in the United States are screwed up, right? I don’t think anyone would argue with that. This is where the push for value-based care has really come, right? The thought process behind that being, if you can align incentives behind the outcomes that all of us want, right? So we all want folks who have early stage chronic conditions to have better treatment and management of those so that they do not get worse. They don’t have a poor, like worse quality of life. And there are not additional costs that are put into the healthcare system. And so that’s where value-based care comes in to say, okay, for a population that has like these specific diagnosis codes or these indicators, right? How can you actually care for them? What is the number of appointments they should have? What are the types of drugs they could be on? What is the type of monitoring they can have, et cetera? and actually incentivize providers to do those things by, if we’re saving costs on the payer side, sharing that cost savings between the two of us, right? And that’s where I think we’re starting to see a lot of this, it’s not perfect, but it is a much better alignment and incentive structure than historically this push and pull between payers and providers where like one wants to spend too much money and the other one theoretically wants to spend too little money, right? And then we’re just like caught in this kind of middle ground as individual consumers.
(00:26:32) Brian Bell: So imagine you’re king for the day. Trump appoints you as, I don’t know, the medical czar or whatever. And you get to come in and redesign the whole system, right? And create more value-based care and more market incentives. What are three, four or five changes you would make that would create a better system?
(00:26:48) Emily Durfee: I wish I had an easy answer to that question. I wish that our like the screwed up incentive structure of our structure was not so deeply invented and convoluted that there are two, three, four things that you could do that would fix it all. I think at the very least, right, I do think value-based care is a really great opportunity. And there are lots of different ways that you can do different types of risk sharing, cost savings, et cetera. I would love to see that be much more easy and obvious, right? We do not have good data sharing, right? Which makes both prior authorizations, claims, payments, all the general things that happen between payers and providers really, really difficult. It makes it difficult as individual consumers for us to access our records and our information and even understand how much money we’re supposed to be paying for a thing. And it means that it’s very difficult to actually implement some of these value-based care arrangements because it’s hard to actually know who has done what and what outcome it has had, right? And so I think fundamentally, like if I could wave a magic wand and figure out a way of having just significantly better structured, shareable, standardized data systems across the board, I think that would go a long way in implementing all of the different structures that could actually do better at all.
(00:27:52) Brian Bell: Yeah, like let me ask you this, like as a payer, I mean, would a payer look at like, say there’s one doctor that does, you know, there’s 10 doctors that do one particular type of surgery in a regional area. And you know that one or two of them are really bad. Like they statistically just have worse outcomes patient after patient. And you have the data on that, right? Yep. What do you do with that data, if anything?
(00:28:12) Emily Durfee: Yes, we have that data. Sometimes we have it in ways that are very easy to access. Sometimes, right, you could have multiple claim systems that make it difficult to then actually track all those pieces. So some of that is just a standardization problem. And then there is, right, an implementation problem of there are ways that you can come up with recommendations for individuals based on the availability, based on the outcomes, et cetera, of specific types of doctors. You have to ensure that people still have individual choice within that, right? And so while there are these different kind of steerage pathways, making sure that there’s still that individual choice is important. And fundamentally, right, there’s also a dynamic there where we need to make sure that there are still enough doctors to treat all of the patients that need a specific thing. Right. And so even if some are better and some are worse, like we cannot get into a situation where we are kind of excluding or angering providers who do still, to be clear, probably for the majority of their patients provide care and treatment that is very important and critical and improves their lives. Right. Obviously, if the majority of their patients are suffering, that’s a different legal question that we should put on the side. But if you’re talking about incremental differences, how do we make sure that we’re still not changing the dynamics in our network so that there aren’t enough providers to go around?
(00:29:24) Brian Bell: Yeah, because I think the information flow needs to be improved where people can make more informed choices, right? Here are your 10 options. Here’s the data we have about the efficacy of that particular procedure, given your circumstances. And then you’re free to decide. We’re going to cover some percentage and they have different prices and different value. And there’s not enough like market there, right? You know, if you let the market sort of figure it out, it’ll kind of figure it out. But we’ve kind of gone in and kind of mucked up the market. with lots of perverse incentives and regulations and lots of different parties. And it just seems like they’re, you know, there’s just not the information look through, you know, of figuring it out.
(00:30:09) Emily Durfee: And I think exactly what you just said, that information look through, right? It’s the transparency. Like you can’t have a market without transparency. Right. And there is not transparency. I can go look up reviews of body shops. You know, I have car insurance and I can see like which ones have good reviews and do good work and the ones that don’t get less business. And it doesn’t seem like we have that in medicine.
(00:30:27) Brian Bell: I mean, I think we have, there are obviously like Google map reviews and things like that. Like there are reviews in various places, but the reality is that like for many folks, not for everyone, um, right? It’s not the review that matters. If someone came in late or was like a little bit rude, right? That’s much less important than like, did you fix my ACL, right? And like, can I use my knee a year later effectively or whatever the course of treatment might be?
(00:30:50) Emily Durfee: And I think that’s where you don’t necessarily have as much transparency. I mean, the other thing that most consumers don’t have access to is how much am I going to pay, right? Like I work for a healthcare insurance and I still sometimes I’m like, I legitimately don’t know how much I’m about to pay for this vaccine or this appointment or whatever. And like, I probably have a better understanding than most on how I could find that information. To be honest, I still usually don’t because it’s too much of a hassle. But I do think that that’s where that data interconnectedness and integration is really important because if you can create transparency, you’re much more likely to be able to create a better market and a better experience for all across the board, payers, providers, employers, individuals, right?
(00:31:28) Brian Bell: I’d love to dig into the portfolio. Are there two or three startups you’re excited about that you guys have invested in in the last few years that are doing good work in your area?
(00:31:36) Emily Durfee: Yeah, absolutely. I mean, we have a ton of them, but I’ll just talk about kind of a few that I think spring to mind right now. I think the first is we actually just wrapped up a data analysis with a company called Positive Development, which is in our portfolio. They use DRBI or developmental therapies as opposed to ABA or Applied Behavioral Analysis to treat children with autism spectrum disorder. And fundamentally, they are significantly cheaper and just as effective as folks who use ABA. ABA can be 20, 30, 40 hours a week, right? They’re looking at significantly fewer patients. and driving very, very good results for the members that we are looking at. And so we’re really proud of that relationship. You know, it’s great to have a company that is founded in Northern Virginia, so very close to me here in DC, that has local offices, that has a contract with CareFirst, and also has been an investment of ours for, I think, about a year and a half, two years. And so really excited to be able to support them in kind of those multiple prongs of what they’re doing. Another company that I would highlight, maybe just top of mind because our board meeting was two days ago, but a company called SafeRide provides non-emergency medical transportation. So, you know, for example, whether, you know, if you have certain mobility issues, but even if you don’t, let’s say you need to go to get an infusion once a month, right? And you don’t have access to a car or to public transportation, but this is very, very important for your long-term health. They are a company that provides that type of ongoing support and transportation. So we have a partnership with them on a couple of our like government lines of business and then also have invested in them for the last two and a half years. And I think that they’ve grown really quickly because this is something that is really necessary as we think about these challenges when it comes to social determinants of health, right? Like what are the things that like people know what they need to do? They have been given the right direction by their clinician and they still cannot make that happen. Trying to solve those problems I think is really important. which I think leads me to a third company that I would highlight, which is a company called Kalina, which do nutrition services. So again, these different pieces of if you have certain chronic conditions and someone is like, well, you need to change your diet. You’re like, how do I do that? What am I supposed to eat? What will taste good? What will power my body to be able to do the things I need to do and still be healthier for me in the long run? I think having access to those types of services can be really, really helpful in making sure that you’re continuing to evolve your lifestyle in ways that feel normal and natural for you and also give you the longevity that you want in life.
(00:34:04) Brian Bell: So on the startup side, trends and timing, what are you kind of seeing as tailwinds or headwinds right now in this area?
(00:34:11) Emily Durfee: yes a few thoughts i think generally speaking right um healthcare is in the payer space is currently contracting and so i think a pretty significant headwind is for any company just getting the the brain space and the wallet space of another company is is difficult and important i think that that just means that companies need to do two things right they need to make sure that they’re actually solving a top five problem for a payer or a provider and making sure that you know it’s not just something that’s a nice to have but is in fact a need to have for their long-term success and then i think the second thing is they need to get the data right um they need to be able to say the roi on this for you is three to one five to one ten to one whatever right but because that’s the way that i think people are actually going to perk up and listen and take notice of those types of solutions
(00:34:53) Brian Bell: why is it contracting what do you mean by that i didn’t know about this
(00:35:00) Emily Durfee: Two things, right? Some of the new regulations, right, are increasing prices, increasing qualifications, et cetera. And so there are just, there may be fewer people going out to receive insurance over the course of the next year or two, depending on which regulations kind of end up hitting. I think more importantly, it’s just that there’s, I think I mentioned this, right? Most blues at this point and most insurance companies in healthcare are have been losing the money, have been losing money the last couple of years. Right. And so I think that’s something that has just meant that there is even more prioritization and a little bit less experimentation going on around.
(00:35:36) Brian Bell: What’s immediate ROI here? Like, can I implement this, whatever the startup tech is, and it’s going to immediately reduce my cost to serve to pay?
(00:35:45) Emily Durfee: exactly exactly and right is it going to be easy to do right there’s a certain amount of especially once you get into like the larger plans right so you know not a couple thousand or a couple hundred thousand members but like really looking at much larger plans um you know how do you make sure that there uh that this is something that has been implemented at other payers before and so like you know it can actually immediately be implemented and we’re not going to suddenly end up in like a six-month implementation process where some api isn’t quite working and this integration isn’t quite right and Then all of a sudden we’ve put a lot of effort into this when we could take something that’s off the shelf and will work for us immediately, even if it’s honestly slightly less cool.
(00:36:19) Brian Bell: Which is why you probably wait until a company has a million of ARR, right? Because you’ve kind of proven that people will pay for this and they need it and it’s working. And now it’s like ready to scale basically. Because that’s kind of, when you go zero to one, that’s like the hardest point for a startup, I think.
(00:36:32) Emily Durfee: Yeah. Like we don’t typically like to invest until they have about 250K, but we’re a little earlier. We’re pre-seed mostly and some seed. And I find that the mortality rate by the time we get to a quarter million drops precipitously and then a million, another order of magnitude, you know?
(00:36:46) Brian Bell: Yeah.
(00:36:47) Emily Durfee: Yeah. And some of it is mortality rate and portfolio balancing, but some of it is also just fundamentally, is that a place where we can add value and help? Right. And the reality is if a lot of what we’re doing as the ventures firm is both, you know, creating relationships with care first, right. Whether that’s contracts or advisory relationships, et cetera. And also introductions and other opportunities with other payers, other blues, other folks in our ecosystem. Like you probably just don’t have the traction, the data, the stability, the ability to scale when you’re earlier pre one minute. We do, underneath the HealthWorks umbrella, I have a peer named Sue who leads an accelerator program where we’re looking at those earlier stage companies and saying, okay, you’re not necessarily at a place where you can forge a relationship with Care First, where we can put a lot of money into this, but you do really need to understand how payers and providers work and think. And so how can we come up with this more standardized curriculum so that as you’re even in your design process, you’re able to actually access those resources.
(00:37:40) Brian Bell: Yeah. Well, what are you excited about right now? I mean, are you seeing AI systems, tools, startups being implemented that are actually reducing costs yet? Or is it still kind of early?
(00:37:50) Emily Durfee: Yeah, I am. I would say I think I’m a little bit maybe more cynical than other folks in this space. I feel like my favorite joke in this is just because a new technology exists doesn’t mean healthcare adopts it. We still run on faxes. Email has existed for decades at this point, and we’re still faxing things. And so I know, right? Don’t ask me. Somehow like a fax is more real than an email or something.
(00:38:11) Brian Bell: Yeah.
(00:38:12) Emily Durfee: Yeah. And I mean, part of this is like, you know, there’s a certain amount of just like human to human interaction that does have to happen in healthcare. And so some amount of like written notes kind of makes sense, but either way, right. I like there is, I think there has been historically in healthcare, just slower adoption of some of these new technologies. I think we’re actually in a really exciting place right now because new solutions through the AI boom are hitting in a economic moment that is requiring innovation right like we cannot continue as is healthcare spend is just continuing to skyrocket everyone sees it we must drive that down and so i think that there is just a significant opportunity in this moment to take advantage of some of some of the crisis in the economic space to say well like that gives us the space to innovate more um so we are seeing ai right especially around the backend, on the payer side, especially on the backend, right? So like different ways that we analyze claims data, risk data, you know, do customer service, et cetera, right? I think that there are lots of opportunities there that have just enabled us to be much more efficient. On the provider side, I don’t touch that as closely, but I think there’s even more exciting opportunities there, both on their like backend and administrative side, but also just in general about like, you know, how can you get suck at opinions through AI? How can you actually identify based on certain criteria, what might be possible diagnoses for a patient and how you can make sure that like in that meeting, in that appointment that you have with them, you’re being as effective as possible. And so I think that there are a lot of really interesting AI applications. I think that there’s a lot of risk attached to that, right? Which is like, as we know, I mean, there’s bias in both AI models and in individual humans, right? And so like, this is not necessarily me saying that they’re worse. but they aren’t always necessarily trained and equally effective across different population sets. And so I think that that’s something we don’t have as much of on the payer side because we’re just using it administratively. But I do think when it comes to actual frontline care, that’s going to be something that we will have to wrangle in this industry and figure out how we effectively regulate that, both from like a national and a state level, and also just from a policy level at individual healthcare systems or payers of like what our expectations are.
(00:40:19) Brian Bell: Looking out five, 10 years from now, what are you excited about for the industry?
(00:40:23) Emily Durfee: I really do actually think a fair amount of our like backend work will have changed. I don’t have the crystal ball into figuring out exactly what that will look like. I think there will be some things that we try that fail and some things that work really well, but I am excited to see what that looks like. I really hope actually to our earlier conversation about transparency, that these new models and the efficiency that can be driven by that will actually force us to be much more standardized in the way that we structure data, use data, and that that can actually create more transparency for all stakeholders, payers, providers, employers, individuals, like, I think that would be really, really powerful, because I do think that I hope that individuals start to have more and more power in this system, right, that we want to see more of our data records, we want to be able to make more informed decisions, and we want to have access to more fast care. You know, I think we’re moving into the space also just in generations where like the adults are Right. The main caretakers at this point are mostly like Gen X millennial starting to be Gen Z. People who are very, very comfortable with digital solutions and opportunities. And I think that that’s going to just drive a different level of expectation of personalization and digitization and health care that that will be really exciting.
(00:41:36) Brian Bell: Yeah, so healthcare certainly lags, as you said, right? It lags 10 to 20 years, right? So like I already see it in startups now that they’re getting much more capital efficient, more revenue per employee, just lower costs, everything, using more and more agents. And you can imagine, you know, a unicorn, you know, billion dollar company in the future that only has a handful of employees using AI under the hood. It seems to me that healthcare will take 10 to 20 years to fully realize that dream. But if you had a crystal ball, 10 to 20 years from now, when AI has completely penetrated and proliferated through the healthcare system, do you feel like we’ll manage to reduce the costs and increase the value of the care delivered? Or do you feel like we’ll just keep compounding this inflation in healthcare, even with the deflationary effects of AI?
(00:42:25) Emily Durfee: I mean, first of all, I don’t know that AI will completely saturate in healthcare in the sense of like, we’ll always be behind and they’ll always be the new.
(00:42:31) Brian Bell: Yeah, I’m talking 10, 20 years in the future. Imagine like where you guys are now with like SaaS, right?
(00:42:35) Emily Durfee: Yep.
(00:42:36) Brian Bell: Like you’re just now having like all the SaaS tools and, you know, stuff like startups had 15, 20 years ago, right?
(00:42:41) Emily Durfee: Yeah, I do think that it will drive down costs is my hypothesis. You know, 10 to 20 years from now, you can message me and be like, you were right or you were wrong. But I do think my general perspective is there’s just enough economic pressure to drive these costs down. And the reality is that if the institutions that currently do this work, the payers and providers that are large and working on this are not willing to fully integrate and drive these costs out and therefore drive the premiums down that each individual is paying, we will see even more of a rise of the new, the startups, the et cetera, that are doing this. There have been challenges with those before. I mean, Clover Health, where I worked, is an example. I am not minimizing that, but at a certain point, right, even with those challenges, people would be willing to do it for 50, 60, 70% savings. And so I think at some point, the baseline expectation of our society will come, will force things down. And those who cannot innovate and redo their work and their backend will slowly fade away or by a lot of folks who have done it.
(00:43:46) Brian Bell: And then I think a big problem there, which is interesting is the capped profits, right? Because again, you’re not incentivized to reduce costs. You’re incentivized to increase costs if your profits are capped. Like you implement something to save you 10% across the board, you actually lost 10% of 10%. You lost 1% of your profit.
(00:44:03) Emily Durfee: Right. I think that, you know, fundamentally, the other thing that you could use to improve your profits, right, is it’s either driving down costs, or it’s increasing the scale that you have, right? But 10% of profit for 10 people is very different than for 1000 people or 10,000 people, right? And so I think that that’s where the competitive market piece comes in, which is if you are able to offer a equal or better product is significantly lower cost as a payer or provider, an business really in this case, right? And that means that more of the market share comes to you because they are very, very cost sensitive and or they’re experience sensitive. And so this is something that gives them more transparency, et cetera. I do think that that is actually going to be enough of an incentive, both for newcomers in the space, as well as for the kind of old hands, if you will, to innovate, because there’s always a risk of significantly losing that market share or gaining.
(00:44:51) Brian Bell: Yeah. I’d love to wrap up with some rapid fire questions. What’s a misconception founders have about working with payer back venture arms like you guys and how would you correct it?
(00:45:01) Emily Durfee: Yeah, I think fundamentally folks think that, or we often run into people who think that we kind of have complete control over both the investment decision, as well as the contractor partnership decision with CareFirst. And we do not. We have influence. We have opportunity to pitch. But we are absolutely dependent on the experts around whatever area that is in making the right choices for our membership. And we are excited to hear their perspectives, but not able to make that decision ourselves.
(00:45:29) Brian Bell: What’s the most interesting startup you’ve seen lately, not necessarily in your portfolio that you’re following and why?
(00:45:33) Emily Durfee: Ooh, what a good question.
(00:45:34) Brian Bell: Maybe it’s an anti-portfolio. Maybe it’s one you missed. You’re like, oh, I didn’t see that one.
(00:45:38) Emily Durfee: Mostly because this just came back up. We’ve been talking to certain types of ER diversion companies for a while where you basically plug into the 911 call and then are able to find better ways to support folks who are having a medical crisis. I still think there’s something really exciting there and I’m interested to keep looking, but we have not yet been able to close a loop on anything there.
(00:45:56) Brian Bell: Okay. How do you think your experiences in emerging markets has informed your investing strategy here in the U.S.?
(00:46:01) Emily Durfee: I think that being able to see outside of the box is really helpful. So as an easy example, one of the things that’s very, very common in sub-Saharan Africa is community health workers. The United States has been much, much worse at deploying that type of resource, but I think could benefit a lot from how do you have folks from the local community who understand the local context who are helping do different types of care coordination and access to care. And so I think that just like the creativity that you have to have in much more resource constrained environments has a lot of applicability and opportunity, even the United States.
(00:46:28) Brian Bell: So when you guys look at the next fund or next phase of HealthWorks, how do you guys measure success beyond just financial returns?
(00:46:35) Emily Durfee: I mean, fundamentally, we’re equally focused on financial returns and also the strategic value for CareFirst, right? We wanna make sure that the solutions that we’re supporting ideally have significant value for the membership across the CareFirst side. And even if they don’t, right, are driving better accessibility, better equity, better affordability for others across the United States.
(00:46:56) Brian Bell: Awesome. Well, Emily, I learned so much. Thanks for spending an hour with me. And I’m sure everyone out there learned a ton too. And thanks so much for answering all my 100 level questions about this ecosystem.
(00:47:07) Emily Durfee: Thanks for listening to me ramble for so long. I really enjoyed our conversation, Brian.
