Healthcare Investors Dive Deeper into Risk Adjustment Due Diligence Than Typical Buyers

In the world of healthcare technology, due diligence can vary significantly between investors and buyers. This is particularly evident in the realm of risk adjustment technology, where sophisticated investors often ask questions that go beyond the surface-level metrics and features typically scrutinized by health plans. Chetan Parikh, Founder and CEO of RAAPID, shares insights from a recent investment process led by UPMC Enterprises, highlighting key differences in how these stakeholders approach due diligence.

Why it Matters

Risk adjustment technology is crucial for healthcare payers as it helps them accurately predict and manage costs based on patient health status. However, the depth of due diligence can vary widely, with significant implications for both investors and buyers. While health plans often focus on immediate performance metrics like accuracy and integration, sophisticated investors delve into the underlying decision-making architecture to ensure long-term viability and regulatory compliance.

The Questions That Surprised Me

During UPMC Enterprises' evaluation of RAAPID's platform, several questions stood out:

1. Deletion Logic: Early in the process, the team asked to see how the system decides when to remove a code. This technical aspect is rarely questioned by typical buyers, who often focus on addition rates and accuracy metrics.

2. Handling Ambiguity: The investors wanted to understand how the system manages ambiguous clinical documentation. Specifically, they inquired about the threshold for surfacing potential diagnoses that are not definitively confirmed and who sets these thresholds. These questions delve into the judgment embedded in the technology's design.

3. Audit Scenarios: UPMC Enterprises walked through various audit scenarios, asking detailed questions about what the system leaves behind in documentation when a code is submitted. They required evidence trails to be demonstrated within the product itself, not just described in presentations.

4. Training Data: The team also asked about the training data used to develop the technology, seeking transparency on how it was curated and validated.

Why Investor Diligence Differs From Buyer Diligence

The differences in due diligence between investors and buyers stem from their distinct perspectives:

• Health Plans:

  • Focus on current requirements: Can this system meet our immediate needs?
  • Evaluate integration with existing workflows.
  • Assess return on investment (ROI) based on accuracy, throughput, and ease of use.

• Investors:

  • Look ahead to future risks: Will this technology create liability as regulations evolve?
  • Ensure the architecture is defensible under increased regulatory scrutiny.
  • Consider market shifts and long-term sustainability.

The Opportunity

For healthcare technology companies, understanding these differences can provide a competitive edge. By anticipating and addressing the deeper questions investors are likely to ask, companies can build more robust, future-proof solutions. This not only enhances investor confidence but also positions the company for sustained growth in an increasingly regulated market.

Sophisticated due diligence processes like those employed by UPMC Enterprises serve as a benchmark for what technology must achieve to gain long-term trust and investment. As the healthcare landscape continues to evolve, companies that can meet these rigorous standards will be better positioned to succeed.