Medicaid Startups: Beware of the Healthcare Dabblers When Looking for Investors, Expert Says

Medicaid needs innovation, but there are several barriers in place for startups, including challenges in raising capital. Medicaid-focused startups get substantially less funding than their Medicare Advantage counterparts. More than 90 million low-income people are enrolled in Medicaid, whereas 30.8 million people are enrolled in Medicare Advantage, according to KFF.

For startups that are working in the Medicaid space, there is one thing in particular they should avoid when looking for investors: healthcare dabblers, according to one expert. These are investors who do not specialize in healthcare.

“When I interact with investors that dabble in healthcare, those are the ones that scare me the most. Dabbling in healthcare is a red flag. I think it should be for any founder or entrepreneur,” said Adaeze Enekwechi, operating partner of Welsh, Carson, Anderson and Stowe, a healthcare and technology investment firm. Enekwechi made these comments during a panel discussion held last week at HLTH 2023 in Las Vegas.

She added that healthcare dabblers “oversimplify the problem.”

“The dabblers, as I call them, often feel like those of us who have spent 20 to 30 years in healthcare have no idea what we’re doing and that in fact, the complexity is just because no one is smart enough to figure out anything, which of course, we all know is not true,” Enekwechi said. “It’s an inherently complex weave.”

These dabblers and “unsophisticated” investors often aim to “exploit the crevices” in the healthcare payment system for short-term gain — and this is dangerous, Enekwechi declared.

“If you are building a business by exploiting a gap in either the Medicare payment system or whatever state Medicaid you’re working with, it’s a matter of time before policymakers catch up and it is an unsustainable business model,” she said. “If policymakers at some point close that gap and your business is suddenly at risk, to me, that is actually the right outcome. Because founders and entrepreneurs should be thinking about building businesses that are sustainable across any administration, across any changes.”

What do good investors look like? They should have a long-term interest in the healthcare system, according to Enekwechi.

“They should be investors who care about what happens across the ecosystem, not just in care delivery or health IT,” she argued. “You should care what’s happening elsewhere. You should have a history and quite frankly, a reputation in the healthcare investment space. But ‘short-term, let me touch this business, let me do this, let me exploit this’ is a problem.”

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