Dr. Andrey Ostrovsky Believes in Care Without Compromise
The physician, entrepreneur, and former Medicaid Chief Medical Officer says profit and public wellbeing go hand-in-hand.
Dr. Andrey Ostrovsky’s turbocharged career trajectory has put him front and center of a handful of initiatives working for the good of the public. The pediatric physician and former Chief Medical Officer of Medicaid is also a Health Transformer: he founded and sold Care at Hand, a company in the StartUp Health network committed to reducing hospital stays. Today, Dr. Ostrovsky is a managing partner at Social Innovation Ventures, helping to scale nonprofits, create affordable housing, and invest in diversity and the arts. In a recent Fireside Chat with StartUp Health’s community of entrepreneurs, Dr. Ostrovsky shared what he’s learned over a busy decade working to achieve the Quadruple Aim.
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What do you wish you knew as a startup founder that you know now?
2011 is when we founded the company, and we were going after a pure software play. And it became quite apparent then, in 2014 — and I would say it’s even more so now — that creating value outside of the healthcare space is totally possible with the pure software play. Especially places like FinTech or prop tech or any other space in tech healthcare. However, I found that if a solution or an experience does not own the substantive chunk of the healthcare stack, it will never break through or overcome the activation energy needed to create enough value in the healthcare system, which is a mostly fee-for-service system.
On the front end of healthcare — care coordination, care management, risk prediction, population health management — I think it’s incredibly hard to build a viable venture-level growth business that’s pure software. In 2014, what I should have done is close down the business and then rebooted it as a full-stack offering of tech-enabled services. That’s the majority of my portfolio of investments now: tackling boring brick-and-mortar businesses and out-competing them because the technology happens to eliminate certain inefficiencies and/or create a more convenient patient or consumer experience. That’s probably the biggest thing I should have done to create investor value and, more importantly, patient value.
What were some of the lessons you learned going through the acquisition process?
I’ve found that having a few dozen angel investors was a very painful experience to get signatures. I found that having clear communications with investors was probably one of the best pieces of advice I took. We went through three acquisition offers between January of 2016 and when we sold the company in May of 2016, and two out of the three acquisition offers had very significant interactions with investors that weighed on the outcome of the acquisition or the negotiations.
I’ve advocated for many of my portfolio companies now to be really careful about whose money they’re taking and trying to set a limit on what size check they’re willing to take. If it’s a small check, it better be a very strategic investor and also one that’s really mission-aligned. Nothing against private equity folks. I’m on a couple of boards owned by private equity companies that I deeply respect, but I have to say the biggest challenge I had in navigating the M&A activity was from a couple of angels who were private equity folks that had clearly never operated a startup, and so expectations were fundamentally different.
You were asked to be the chief medical officer at the office of Medicaid. What was it like to get that phone call? Take us back to that transition period.
I was very lucky to have an opportunity to take on a role for which I was grossly unprepared and simultaneously way overqualified. And what I mean by that is, I had sold into Medicaid pretty extensively. As a pediatrician, most of the kids I saw were Medicaid-reimbursed. I understood many of the peripheral aspects of the Medicaid program, but the guts of it, the policy, the statutory, the regulatory underpinnings — I really had no idea. And so in that regard, I had a lot of angst around taking on the role when I wasn’t a lawyer and I didn’t understand some of those aspects. But what I was being asked to do was introduce change management to a highly bureaucratic organization. And as a startup founder and someone who took some level of rigor to building my own skillset around building product, customer development, strategy, general organizational management principles, design agile, lean, those types of skillsets — that’s basically the toolbox of change management.
The way I got that role was through one of my mentors, Patrick Conway. We had our regular check-in in I think mid-May of 2016, and I said to Pat, ‘I think we’re actually selling the company, and if there’s any big problem that you think I could be helpful with, let me know.’ And he ended up reaching back out to me in a couple of weeks saying, ‘I’ve got a job for you, and I need you to go help run this program.’ To which I responded, ‘How the hell could I do that?’ And he reminded me it was an opportunity of a lifetime and that if you could figure out starting a company and growing a company and selling company, you can pretty much figure out anything. Our jobs are literally to learn super fast, be kind and gracious, and discover value super efficiently.
As a leader, how do you help people pragmatically walk that line between their passion to fight disparities in health and also to be profit-driven and to build a business that is going to thrive in the market?
I think if people don’t see the return-on-equity investment opportunity in serving poor populations, then trying to convince them that there’s some kind of social mission is a lost cause. I very much prefer to show people the green as opposed to show them the equity impact. And I very strongly believe — and I have some process measures to suggest — that investors can make comparable if not outsized returns investing in populations where remedying challenges can drive really meaningful profit growth and multiples on company valuations.
Explaining the difference between short-term and long-term consequences of certain decisions and forks on the road in financial terms has been really helpful. I have one business I’m happy to publicly share, a business called Blue Cloud Pediatric Ambulatory Surgical Centers. They’re owned by Norwest Venture Partners. During early COVID, we needed to decide: do we cut our costs and let go of a ton of workforce, which itself is often on the cusp of poverty, or do we take the short- and medium-term hit, invest more in the company, keep people on board as long as possible, with the bet being that if we keep them on board, we’re going to have profoundly more employee loyalty, profoundly better customer experience and clinical quality, and we’ll be the fastest ones to ramp back up once all the stay-at-home orders get pulled back. That was one bet.
The other bet was: do we keep treating the kids for whom we do not yet have Medicaid coverage? We had, again, a choice to make. We could treat these kids and take a pretty significant hit, or we could turn them away. These are kids that are highly prone to complications from something as simple as dental care. And I didn’t have to do too much arm twisting. I just laid out my hypothesis that if we make these short-term investments and perhaps not make cost reductions and look better from a EBITDA perspective, in the short term, it may hurt, but in the long-term, it will be beneficial. And what ended up happening is that it was more profitable than expected despite COVID. We were first to turn back on. We didn’t have all the massive churn that everyone else had, or have to rehire. Our employees love the company because they were able to keep putting food on the table. So that was amazing, and that bet panned out.
You know, if any of you go the government route post-entrepreneurship, this is where you can have an outsize impact as an investor or board member. I would go to my state Medicaid colleagues and explain to them, ‘Look, there’s a business that I’m an investor in and I’m on the board of, they’re treating your kids, even though your MCOs are not paying for these kids’ care. We’re saving lives and keeping you out of the headlines. What can you do to help us make sure that we get paid?’ Profit is driven based on improved clinical outcomes. And those short-term investments end up having a pretty remarkable long-term financial and societal impact. I didn’t have to do a whole lot of arm twisting and say, ‘Hey, let’s do the right thing socially.’ These are people that want to make money, and I believe — and I think that that data point and others show — that there will be more money made in the long term by doing the right thing for patients.
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