Episode 68 – How to Disrupt a Large Market with an Innovative Service – Member Case with Scott Conard

The service offering is how firms deliver value to their client. Designing it correctly is mission-critical. On this episode, we discuss how to re-think service design by interviewing Scott Conard, Founder of Converging Health. 

TRANSCRIPT

Greg Alexander [00:00:14] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that don’t know us, Collective 54 is the first mastermind community to help you grow, scale and exit from bigger and faster. My name is Greg Alexander. I’m the founder, and today I’ll be your host. And on this episode, I have the pleasure to talk to Dr. Scott Conard. And today we’re going to talk about how to apply innovation to your service offering. And Dr. Scott’s got a great story around that. So welcome. Thanks for being on the show. And would you please provide an introduction about yourself in your firm to the audience? 

Scott Conard [00:00:55] Yeah, thank you, Greg. My name’s Scott Conard, a firm is converging health, we’ve been in business for the last seven years and we do it consulting for broker consultants and directly to corporations to help them decrease the cost and increase the value. 

Greg Alexander [00:01:17] So, Scott, one of the things that the reason why I want to talk to you about this particular subject is that you’re going after a big problem, which I’m not going to do it justice, but the cost of health care for lack of a more precise term. And you’ve been able to combine three interesting things, in my opinion, and I’d like you to explain this because there’s a point in all this and that is obviously human capital expertize technology and data to bring an innovative solution to market. So would you would you explain to everybody about what your solution is and what it does? 

Scott Conard [00:01:53] Absolutely. So, Greg, probably the best way that they can those listening can relate to it is every year when you get your health benefit bill and they say, Oh, it’s going to be five, 10, 15 this year could be 15 to 25 percent more than it was last year, which honestly for manufacturing and service companies could destroy their bottom line. And in fact, it has destroyed some companies. Bottom line. There’s this primordial scream. We’ve got to do this different. We’ve got to do it better. And I remember experiencing that back in the 90s when they would bring you my bill of the year. So what’s happened is that the health care industry has become 20 percent of the GDP. It’s gotten incredibly complicated. Only 30 percent of the money that’s paid into health care is actually paid for care. The other 70 percent is middlemen in some way, shape or form or fraud, waste and abuse. And so to get access to this and to understand what’s actually happening to your money, you’ve got to have technology, you’ve got to have the ability to analyze and look at how your money is being spent, which requires data analysis. So being a doctor, having grown up in this environment, seeing all these perversions of what should be, you know, an employer paying money to get the employees in their family members excellent care. I developed an IP platform that takes the claims, pharmacy and eligibility and zeroes in on what companies are paying. And in elucidates, where they’re being taken advantage of and what they can do to decrease their costs. So it’s it’s a minimal human capital, but you have to have human capital to go do the evaluation, but then technology and data to reveal what’s going on. 

Greg Alexander [00:03:35] It’s fascinating. And I mean, when I hear those statistics on, you know, 15 to 20 percent price increases in a small percentage of it actually go into care. I mean, I literally want to get sick when I hear those things. But you’re right. I mean, I’m experiencing that myself, and it’s incredibly frustrating. So to me, this is an opportunity to disrupt a legacy industry and do something better, faster and cheaper than what is being done today. And I believe that you’re a disruptor, and that’s why I wanted to have you on the show. And very often people don’t put the word innovation or disruption into the service bucket. You know, they want to talk about, you know, Elon Musk and Jeff Bezos or somebody like that. But here you are innovating in a very real way, in a very disruptive way. What how did you get to this point? Because some of our members, they want to do this, but they don’t even know where to start. They think it’s so daunting that they they kind of give up on it. So what led you to this point? 

Scott Conard [00:04:34] Well, Greg, the thing is, to be honest, I mean, I’m a family doctor, I’m practicing medicine, I’m watching the industrial medical industrial complex put barrier after barrier and barrier in front of me is a doctor trying to care for people, and I’m seeing the price go up higher and higher and higher for the people paying for it. It doesn’t make any sense. So for me, I started to dove into being a businessman and entrepreneur. I’m like, Well, wait a minute, this is crazy. There’s got to be a way to dissect this and understand it. And so my career was practicing medicine, becoming frustrated, building a group, trying to get leverage. That group got as big as 500 doctors at one time and still getting an appointment with, you know, Blue Cross, Aetna, Sydney UnitedHealthcare was difficult. We were doing $500 million of the business and they wouldn’t talk to me. But when that sold and I became the chief medical officer of a mid-size broker firm all of a sudden I could get their attention and they’d come talk to me. And and so I realize now I was buying a couple of billion dollars worth of health care for the corporation. So I, you know, started off as a doctor who figured out what to do. Then I was a leader of the physician group and figured out how traumatic the the system was on doctors, both personally and trying to manage them, and then realized that the broker consultant world has tremendous leverage if they will use it properly. And corporations through the broker consultant can do it. But unfortunately, the sophistication of health care has left behind the, I don’t say, intellectual building. There’s a lot of very smart people and brokerage consulting firms, but their model is very relational. You know, let’s go play golf, let’s go to the club. Gosh, I love you, man. You’re my best friend. They’re going to have social IQs that are off the wall, emotional IQs that are really strong, but the analytics, scientific exploration they’ve had in their past, let’s just say there’s not that high. So the broker consultant world has gotten left behind, and so they’ve turned to these really strange perversions to increase their bottom line. And that’s where we’re at today. So you’ve got these big brokerage houses. I give you an example, Greg, we just heard about last week is another example of the hundreds I’ve already known about. So these big consulting firms will say, Hey, if you want a transparency company or if you want a second opinion company, here are the three we recommend. And little do both companies realize, but they make those three companies pay them a quarter of a million dollars to be on that list. Wow. And then when the bid comes through for those services, guess what? They’re raised to cover the broker consultants, you know, firms, you know, writer kicker, if you will, and the broker consultant firm that is supposed to be representing the company and protecting the company is actually getting these other flows of income that have nothing to do with defending the company. 

Greg Alexander [00:07:45] I mean, it sounds like an incredible conflict of interest. Is that is it even legal? 

Scott Conard [00:07:51] That’s the rule. Now, it’s not the exception, whether it’s insurance companies, you know, again, we could go through 50 examples for how insurance companies are doing very similar things to to find revenue inside the flow. And the amazing thing is they won’t give people their data to look at it frequently, so they won’t even let you see what’s going on. The broker consultants, some of them are pure consultants where they actually take a fee and they will not take these, you know, the the broker part of. It’s where you get a lot of these perverse incentives, not the consultant side. So you can be very sure that you need to be careful about that. And then you know, you’ve got all the other middlemen, all these vendors point solutions. Literally billions of dollars of quote unquote innovation health care, which actually at the end of the day ends up being additional fees to corporations. And that’s why the non medical part of this has gotten so large. Hmm. 

Greg Alexander [00:08:52] OK, so your innovative solution, particularly in the data side, does what exactly? 

Scott Conard [00:09:01] Very simply, we look at the contracts for a corporation with these different than, you know, the PBM. The insurance company and other contracts that are there and understand the flow of money, follow the money, you’ll figure it out. So we understand the flow of money. That’s my that’s the people I work with. They’re the the people who are more the. It will be divided into eight principles on each side. So they have the each side that is the contractual and the fixed cost side of it. I do the clinical evaluation to see are the people receiving good care? Do they have access to excellent providers? Are they using those providers? And are the incentives in the system set up so that they encourage people to engage in their health and to get taken care of? Or what we see more often than not now is if you actually lean into trying to take care of yourself, you end up getting hit with the big bills repetitively. And so people withdraw from care and then they have things go a long time before they get intervened on. And then it’s very severe and very expensive. So I’m the clinician that’s looking at everything. We have the contractual fixed cost side that looks at everything, and we put that together and come back to the company and say, Here’s what’s working. Here’s what’s not working. Here’s what you can do about it. And. I would say that 90 percent of the time, maybe 95 percent of the time, there’s 10 percent of what a company’s paying that can be fixed within the next enrollment period or the next cycle. You can get rid of 10 percent of costs with the clinical side of it. That takes a little longer within two years, two and a half years. You’re talking about another 10 percent of costs that can be removed, so you can think about the fact the average company is spending 10000 to 12000 dollars right now for their health benefits. And we are able to save 2000 of the 10000 over the next two years. It’s a tremendous value per employee. Yeah, that’s per employee. 

Greg Alexander [00:11:08] Yeah. I mean, that adds up in a hurry. That’s a big number. OK, so 

Scott Conard [00:11:12] straight to the bottom line. So. 

Greg Alexander [00:11:14] Yeah, exactly. OK, so obviously incredibly innovative thing combination again of expertize data tech to go after this big, big, big problem in trying to disrupt it when taking something that innovative to market and calling on the end customer in this case, the big corporation. Are they? Is there a big kind of evangelism or education that needs to be done or do they get it right away? 

Scott Conard [00:11:42] No, well, the thing is, if you were to this is this is the catch 22. If you were to meet with the CEO and CFO and you were to share what’s happening, how to figure it out, it’d be a relatively quick meeting. What happens, though, is they delegate everything to H.R. and H.R.. Folks appreciate them. But they are not part of the C-suite. They do not get rewarded for innovation. They do not get rewarded for taking any chances. And so you get a lot of literally the first question I usually get is what is everybody else doing? How many clients do you have and who are they? Because they’re more concerned about job preservation than they are actually doing what’s right for the corporation? So you have to literally the CFO wants to save money just as hard as they can. The H.R. wants to be no disruption, and the CEO wants to be very popular and make as much money as possible. But what happens to me frequently I will be with the CEO or CFO. They’re like, We got to do this. They delegated me to the H.R. and you can never get it over the finish line, like no matter how hard the CEO or CFO told them to do it. It’s not the business they’re in. But most companies don’t realize they’re running a health care business inside their business. 

Greg Alexander [00:13:00] Yeah, it certainly sounds manageable. 

Scott Conard [00:13:03] Yeah. 

Greg Alexander [00:13:04] OK, now you’ve had some success. I know it’s whenever you’re bringing an innovation like this to market, there’s lots of obstacles to overcome in walls to run through. But share with the audience a little bit about, you know, the early adopters or the innovators that you’ve been able to sell to. And and where does a firm stand right now? 

Scott Conard [00:13:22] Okay. So we have about 40 companies that we’re working with. We’re working with a number of broker consulting firms. So the converging health is providing the clinical and IT support for a number of consulting firms, one in particular. And so we, you know, our growth, we’ve been 30 to 40 percent growth over the last two years covered really, as you can imagine, took some wind out of our sails. We thought we’d be 40, 50 percent growth two years ago and go up from there. What we find is once we start working with somebody, we have incredibly high retention and they gel and there were other people. So it’s very much growing dramatically as we get in and get things going. So right now, we’ve got about 40 companies. We are the thing that’s fascinating to me, Greg, is we started off thinking, I’m going to serve self-insured companies in the mid-market where I get a YPO type leader who’s able to make decisions and we’re not delegated and we can make things happen. And that’s the segment that I’ve been focused on. Believe it or not, I just got hired by a huge health care system in New York City, and because they said, what you’re doing is going to help us with our Medicare and Medicaid risk contracts. And so now I have a contract for one hundred and seventy seven thousand lives that the same I.T. analytics is serving. They have a captive of smaller companies that has hired us, that we’re doing that we’re doing their I.T. analytics. And so what’s happening is that, believe it or not, the amount of pain, even at ten to twelve thousand dollars per employee that corporations are serving, they’re not willing to spend the energy to get it done frequently, even 40 of them. But that that’s a we would like to be 400 or 4000 and in other segments are coming to us and saying what you’re doing matters and it makes a big difference. So the federal government right now is forcing hospital systems to take financial risks for Medicare and Medicaid, and they’re like, Holy cow, we’ve got to figure out how to have people be healthy and spend less money and your system does that. And so it’s an interesting life for me right now because those with whom I thought I would be serving, I think what’s going to happen is this year when they get told, Hey, it’s going to be 15 percent, 25 percent more next year for health insurance, they’ll they’ll, you know, there’ll be a premier, you’ll scream and maybe another 40 or 50 will come on board and at some point in the next three years, this is just so unsustainable that the marketplace is going to there’s going to be ready to act and not just hear about it, get excited about it delegated and then come back a year later and say, Yeah, we should have done that. Yep. 

Greg Alexander [00:16:00] So, audience member, there’s there’s a lesson here that I want to underline through. Scott’s a fantastic example when you truly are innovative and he has and you’re going after really large problem, which he is, you got to hang in there because sometimes the original assumptions proved to be incorrect and there’s new things that happen that represent wonderful opportunities, as we just heard with the federal government. So the lesson here is to remind ourselves on the adoption curve and the great Jeffrey Moore once wrote about the adoption curve. And I’ll briefly summarize it here think of a bell curve, and whenever an innovation hits the market in the first place, it goes is the innovators meaning. And customers who like to be first. And they are willing to take a risk and experiment. Then it moves past innovators to the early adopter community, and these are people who also like to be early but not necessarily on the bleeding edge, but they see such a tremendous win that they’re willing to take a chance. Then once you get solidified in that group, you make it to the mainstream market and then that’s when all the great things happen. And that early majority and that mainstream market is when things really kick into gear. So if you want to be an innovator, as Scott is, you’ve got to make it through those cycles. And the way you do that is you just listen, you push as hard as you can into the market and you let a thousand flowers bloom because you never know where it’s going to take you. And that’s what it means to be an innovator. And so there are audience members who are trying to innovate their firms and disrupt other firms, larger firms and go after big giant problems, which as a percentage of our group, you got to hang in there as you go through those stages. And hopefully you’re hearing from Dr. Scott today an inspiring story. I mean, he got to 40 companies, right? That’s a lot. You know, sometimes early firms get to one or two or three or four, and they don’t get past that very substantial. And now he’s got this new Wonderful Market segment to go after. Given the recent success story of New York. So, Scott, thanks for sharing your story. Today was inspirational. Every time I talk to you, I find myself rooting for you, and I hope that you keep pushing and you and you make it happen. And I hope those that are listening to this are inspired with by what what you’re trying to do. 

Scott Conard [00:18:16] Well, Greg, thanks so much. Know anybody listening to this. We do a free 30 day assessment where we take your contracts. We take your reports from Blue Cross United Cigna from last year. We do a bunch of work and then we come back and educate you. And it may not be the first year that you get that that you engage with. There’ll be a moment where you go, Thank God, I talk to them and I know and understand what’s going on, because that made us an additional $2 million on the bottom line, particularly when you sell and you get a multiple of five to 12. There’s no reason to be decreasing your EBITDA because you’re paying too much for health care. 

Greg Alexander [00:18:52] So somebody that wants to take you up on that offer, how do they how do they get it? 

Scott Conard [00:18:58] [email protected], just say, Hey, I want an assessment done and we’ll reach out to you. We’ll get it done. I have a team around me that that does the basic work and that I lean in and have the final meeting with you that we’ll show you and educate you at what’s going on. 

Greg Alexander [00:19:13] OK, awesome. OK, so for those that are interested in this subject and others like it growing and scaling a firm, check out the book The Boutique How to Start, Scale and Sell a professional services firm. You can find it on Amazon. And for those that want to meet really interesting people like Scott, consider joining our mastermind community. You can find it at Collective 54.com. Scott, thanks again and enjoy the rest of the conference, and hopefully I’ll see you soon. 

Scott Conard [00:19:42] Yeah, Greg, it’s been great being a part of Collective 54, it’s added so much to our corporation. I’d really encourage everybody hearing this to think about it and join. 
Greg Alexander [00:19:50] Hey, thanks for saying that. I appreciate it. Be good.