Dr. Jamo Rubin, the founder and president of Medical Present Value and chairman of PTRX, spoke in my Wharton eHealth class last night, and led an interesting talk about medical claims and entrepreneurship.  In talking about the “black box” that doctors face when submitting claims to insurance companies, he told a story about how twenty years ago when he was practicing, he tried to find out why a major insurance company only paid back $980 of a $3000 surgery bill.  After asking around the hospital, someone told him that the $980 was 120% of Medicare’s reimbursement for the surgery, but not being satisfied with that answer he tried to look up the Medicare payment formulation.  However, after realizing the 65-variable formulation model for allowable Medicare reimbursements was also a mystery to the public, he began to doubt that the private insurers could have figured out all the Medicare variables.  He came to realize that almost all doctors have no idea what their claims reimbursement will eventually be, leaving the doctors to send patients bills saying “Do Not Pay” until insurance companies pay a portion of their claim months later and to collect money from patients later if the claim is rejected.  All of this opaqueness and delay in private insurance reimbursement created a huge opportunity for MPV to create rule-based software that checked actual payments against the contract that the doctor signed with the insurer, helping doctors attain 4-7% more revenue on average from private payers as Dr. Rubin stated.

So why has this system persisted, where doctors are underpaid by private insurers by an average of 7%, according to Dr. Rubin’s experience?  First, the incentives for private insurance companies to underpay or delay payment are high, considering they audit, decide and pay claims.  Second, insurer contracts are often too complex, vague, or non-standard by region for them to even process properly (though he mentioned that insurers like UnitedHealthcare are standardizing their contracts now).  And last, private insurers themselves often only process claims, with self-insuring employers often being the reason for underpayment.  Dr. Rubin ultimately stated that the need for determining reimbursements more precisely will take center stage for doctors in the coming years, which should be good for MPV’s business.

At the end of the class, Dr. Rubin shared his experiences on the three usual failures and successes of startups:
Three failures
1) Judgment, in terms of failing to be brutally realistic about one’s business
2) Foresight, in terms of failing to see where trends are headed
3) People, in terms of becoming siloed from fellow employees

Three successes
1) Perseverance, in terms of sticking to a good idea even if others denigrate it
2) Focus, in terms of solving one key problem first instead of getting distracted on numerous other opportunities
3) Good investors, in terms of getting investors that know one’s business

I agree that start-ups that don’t address the three failures don’t ultimately last long, though I do believe that companies with strong products and market leads can afford short-term mistakes as long as they correct them in the long-term.  Regardless, I found Dr. Rubin’s presentation insightful, and appreciate him flying from Texas to visit Wharton.