We got a look at the slide deck that buzzy startup Devoted Health used to hit a $1.8 billion valuation, before it signed up any customers

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We got a look at the slide deck that buzzy startup Devoted Health used to hit a $1.8 billion valuation, before it signed up any customers

Todd Park

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  • Devoted Health, a buzzy Medicare Advantage startup that raised $300 million in a massive funding round ahead of its first year offering health plans, has ambitious plans to grow its business over the next five years.
  • Medicare Advantage is the private version of the US government health program for the elderly. Startups and established health insurers are rapidly expanding in the program.
  • Business Insider has learned that Devoted Health, which launched its first plans in Florida this year, plans to make almost $1.2 billion in revenue by 2023 by growing to more than 100,000 members.
  • In the company's slide deck for investors, Devoted laid out plans to get to margins that surprised industry experts.

A buzzy startup that wants to reinvent the way we take care of seniors in America has big ambitions for its first five years, according to an investor presentation obtained by Business Insider.

The startup, Devoted Health, was founded to sell private health insurance plans to US seniors, a market that's growing rapidly. It used the slide deck when it raised $300 million from investors led by Andreessen Horowitz, which it announced in October. The company was then valued at $1.8 billion, before it began covering a single customer.

In the presentation, Devoted Health lays out a vision for rapid growth. The company said in the deck that it plans to sign up 5,000 members for this year, and grow that to 103,722 by 2023. It expects to make about $1.2 billion in revenue that year, while generating a small net loss.

Devoted Health declined to comment on the presentation.

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"We don't comment on private documents," Kenneth Baer, a spokesman for Devoted Health at Crosscut Strategies, said in an emailed statement. "We are focused on Devoted Health's unique mission to deliver to our members the kind of care that we would want for our own family."

Andreessen Horowitz, which led the funding round, also declined to comment.

Startups and established insurers are competing for Medicare Advantage customers

Both startups and big insurers are quickly growing in the lucrative market for private health plans for seniors, called Medicare Advantage. Devoted will have to compete for customers immediately with big, entrenched rivals like Humana, UnitedHealth Group and CVS Health.

The startup Clover Health, which was founded in 2014, now offers Medicare Advantage plans in seven states. The company was valued at $1.2 billion in 2017. It now has 40,000 members, and is nearly done raising a fresh $500 million round of funding, according to TechCrunch.

Oscar Health, known for selling health plans on the Affordable Care Act's exchanges, said in August that it plans to move into the Medicare Advantage market. The company was then valued at $3.2 billion, and had about 227,000 members as of September 30, 2018.

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About a third of people on Medicare are now enrolled in private Medicare Advantage health plans. Seniors can typically choose to enroll in either Traditional Medicare or Medicare Advantage plans when they turn 65; either way, their health needs are largely funded by the US government.

Medicare Advantage works much like private insurance does for those under 65. It's designed to allow people to shop around and choose among different plans, which may restrict which doctors and hospitals individuals can use. The US government in turn pays the insurers a certain amount for each person who is covered, creating an incentive for the insurer to try to keep that person healthy and out of the hospital. If the insurer does a good job of caring for its customer at a low cost, it can keep the extra funds as profits.

What Devoted Health told potential investors

Devoted Health told investors that it expects to do a particularly good job of managing its customers' medical needs at a lower cost. The company said it expects to have margins about three times wider than others in the industry, by one measure.

Devoted figures that Medicare Advantage plans typically generate margins of about 5%. By its fifth year of operations, Devoted says it'll generate margins of 14.6% on members who enrolled in its first year.

To get there, Devoted in part plans to make money by owning its own medical group, in addition to the insurance operation.

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"By delivering clinical services, Devoted both lowers the total cost of care for Devoted's Medicare Advantage plan and also earns revenue and margin for Devoted's Medical Group," Devoted noted in one slide.

Here's the slide outlining Devoted's medical spending and margins:

Screen Shot 2019 02 06 at 5.45.28 PM

Through January, Devoted's plans had enrolled 2,114 members in the Florida counties where the company is initially offering plans, according to the Centers for Medicare and Medicaid Services. Here's the slide that includes its projections to get to more than 100,000 members.

Screen Shot 2019 02 06 at 5.45.44 PM

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This is the slide that explains why Devoted thinks it can generate better margins than other Medicare Advantage health insurers.

Screen Shot 2019 02 06 at 5.43.34 PM

One expert noted that Devoted isn't drawing a perfect comparison between itself and other Medicare Advantage plans, because its using just one group of members.

"It's apples to pineapples at best," David Anderson, a researcher at Duke University who previously worked at a health insurance plan told Business Insider after reviewing the slide. "They're choosing what they believe is their best cohort."

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Anderson called the projections "extraordinarily optimistic," but noted that the company could save the health system a lot of money if the company pulls it off.

"If they can do this, good for them, because they will have found a way to provide good healthcare at a significantly lower cost," Anderson said.

Katherine Hempstead, a senior policy adviser at the Robert Wood Johnson Foundation, told Business Insider that it was difficult to parse through the financial projections without knowing whether Devoted will expand its footprint or how the company plans to use its Devoted Medical Group.

"I don't think they're just pulling numbers out of a hat. They know a lot," she said. "There's just an unbridled enthusiasm in the insurance segment."

Devoted's plan to take on the healthcare giants in Medicare Advantage

Devoted was founded in 2017 by brothers Ed and Todd Park. Prior to Devoted, Todd co-founded health IT company Athenahealth and served as chief technology officer of the US during the Obama administration. Ed, who serves as Devoted's CEO, was formerly chief technology officer and later chief operating officer at Athenahealth.

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The company's health insurance plans might look a bit different from traditional insurance in that Devoted plans to do more than pay for visits to doctors and hospitals. It's also hiring nurses and other employees aimed at keeping seniors healthier and out of the hospital.

Because health insurers are in charge of paying for healthcare, the companies tend to know what's going on with a particular patient: have they been in for a check-up, or have they had a recent trip to the emergency room? Knowing that, the insurer - in this case Devoted - can clue in the other parts of the system so that the primary care doctor knows when his or her patient has been in the hospital and can follow up with them, for example. To do that however, the Devoted team had to build out its own technology to process claims as well as build out its networks of doctors that it can work with.

Investors are betting the approach will pay off and lead to a more efficient healthcare system.

"Medicare Advantage is today the simplest way to align financial incentives across the various parties in the system," Venrock partner Bryan Roberts, who's an investor and board member at Devoted, told Business Insider in October after the company closed its funding round. "Therefore, you can drive better efficiency in the healthcare system."

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