Rich Patragnoni, MD is one of the three co-founders of Crossover Health, alongside Scott Shreeve, MD and Nate Murray. He trained and practiced as an Internal Medicine physician for about a decade before his impatience and frustration with the primary care system led him to embark on the adventure that is Crossover Health. In this, the first of three posts, Rich talks about how his personal journey led him to the edge of the innovation cliff—which he promptly jumped off—and how he became comfortable learning to fly on the way down.
What’s your background?
I grew up on the east coast, in the Philadelphia area suburbs. I went to school there through undergrad, did my medical degree at Jefferson Medical in Philly, and then the fabled winter of 93 did me in. I said “I’m done!” and moved to Southern California in ‘94. That happened to be my last year of medical school, one where they allowed you to travel to different hospitals to get a range of experience, so I literally went up and down the coast for a year, from San Diego to Santa Barbara. I then started my internal medicine residency at UC Irvine Medical Center in ‘95, and have lived in SoCal ever since.
Tell us about the beginnings of Crossover.
After residency, I took what I now see was a pretty traditional path—I started in urgent care, then worked in a big primary care medical group, a small medical group, started my own practice, helped my wife start her own practice, and then finally we joined our practices together. All of these lateral moves were because I kept trying to find the right practice model, but had to learn firsthand that it’s not so good to practice in urgent care, neither was it great to practice in a big medical group; nor was it on my own, nor with my wife, nor in any configuration that I could see.
I was just looking for something that fulfilled the promise of medicine, but when you get into the business of medicine it’s very different. Naively I thought, maybe it was a big medical group problem, but then I found those same issues present in a smaller group. I began to understand that a common thread was insurance—and the fee-for-service framework seemed to be at the root cause of the problem. I realized that the solution was going to be much harder to figure out because it wasn’t an isolated phenomenon—it was systemic. I finally understood that so much more than “another” lateral move was needed.
While I was in my own practice, I connected with a group of doctors in Orange County that would meet monthly. It was partly a social outlet, but we also gathered to ask, “What are you doing in primary care? Any ideas to fix it?” Sometimes we’d go to a talk that someone was giving, other times we’d have someone come to our meeting to present. It inspired some experimentation. For example, it was the early days of concierge medicine, so I decided to try a related concept with a housecall practice. I ended up trying many random things.
For one of these meetings, my wife Jocelyn along with myself and the group of physicians I mentioned attended a presentation at Hoag Hospital on the “Future of Primary Care.” The speaker was talking about the problems in primary care and what was needed to fix them., At the end, Jocelyn said to me, “In some parallel universe, you guys must be brothers. You guys say the exact same thing.” And of course, that was Scott Shreeve who was speaking.
Afterwards, Scott and I got together for lunch. I had been toiling at primary care for 12-13 years at this point, and I was ready to jump out of the traditional path—but after all of these different lateral moves, I knew I needed to do something more dramatic. I was ready for something different, and although I didn’t know what the thing would be, I just knew I needed to get away from the current world of primary care. So when Scott and I had lunch, he told me that he wanted to do something different as well, although he wasn’t sure of the details. Then he asked “Have you ever heard of something called the Speed of Trust? If you trust somebody, you can go really fast.” I answered, “Scott, I’m in. Let’s do something.”
At that point, Scott had already signed a lease on a building to “do something.” The details, however, were still to be figured out. I think we had better ideas of what it shouldn’t be, more so than what it could be. However, during the course of our conversations, as ideas sprung forward, what it would be became much more clear. When you hear people talking about starting with “why,” that’s exactly how we approached it. However, in retrospect, it was still very fluid and very formative.
What were the original vision and guiding principles at Crossover?
One of the core tenets, which still holds true today, was that we had to create a place where people wanted to come for healthcare. Because if it’s a place they want to go, we could engage them in their health journey, and we’d be able to do all the things we think are going to keep them healthy. It was all centered on the idea of a great experience.
So then we had to determine what all the elements of a great experience are, because it’s way more than just a slick app or nice waiting room. At the heart of the plan was the idea that this couldn’t be fee-for-service, I didn’t want to get paid to do stuff. When you think about patient experience, you need to move beyond the physical space which is important but go much deeper into making workflows, friction points, and interactions just beautiful. And this service design thinking, even though it wasn’t called that back then, guided everything we did.
When we put those two things together, the experience and the payment model, the vision started to come into focus. For example, if we’re not going to get paid to do stuff, we’re going to need to get money in other ways; hence the idea of membership. You join, you pay once, and we’ll just provide “everything” primary care. Trying to determine what “everything” primary care was helped us get into the specifics. Our members would want comprehensive primary care services and access to any medicines they’d need, so a dispensing program was required. Procedures like labs needed to be easy and integrated so they wouldn’t get nickeled and dimed. We wanted it to be all-inclusive, so we had a big lifestyle component — nutrition and fitness had to be part of it, so the second phase of the build-out included a fitness component, as well as nutritionists and trainers for things like weight loss programs.
Finally, there was a third component—online. We wanted members to know that thye didn’t always have to come in to physically see us. I had always railed against this in the past, but in my practice, I had to get you to come in to review labs because I needed another 99213 CPT visit to keep the lights on. That was crazy. So in our new model, we needed ways to communicate, and tools that would help us put a lot of the “talking” online. All this was possible because our business model allowed the members to pay a single flat rate for care. These were the structural components of our initial care delivery model.
There were other, softer concepts, like the facility design. It should be approachable, and should definitely not be located in some blase medical complex, because people who are generally healthy see going to a typical medical complex as a pretty negative experience. So we thought, let’s put it in a retail setting where it would feel like a natural part of your regular life. You go to the supermarket, do some banking, and then just stop by the physician’s office for something, making the visit just another part of your everyday life. The location then became an important part of the experience (and in our case it was on the second floor above a bank in a higher-end retail area). And for the aesthetics, we didn’t want it to be “nice medical” because there were already plenty of medical spaces that are decent looking, but still feel sterile. We wanted it to be different—essentially a positive shock to the system—in that even walking into our space would feel unique. That’s why we chose architects and designers that built surf shop and retail apparel experiences at scale.
Why and how did Crossover pivot to serving self-insured employers?
We had the idea of this new kind of service offering and then we said, “Well, how do we start?” We wanted a practice similar to concierge, but less elitist—something for everyone—so instead of $2,000 per individual, we said “why not $50 a month, $75 for families?” I got maybe 200 people from my existing practice to join, and we did a “light” retail offering to the community. And that was our original “launch” of Crossover Health in October 2010.
One of the things we didn’t like about our model was that although it was inexpensive, it was still a new, extra charge, because you still needed to pay for insurance as you always had. We knew at that point that this was not the right model, at least not the model we’d end with. You still needed insurance, so much so that Nate and Scott went out and got their insurance broker licenses. Yes, this is literally true! We thought if we could bolt on some sort of catastrophic insurance we’d have a complete offering. We’d do the primary care through membership, and then you’d have catastrophic coverage for all the real dollar expenses (that hopefully don’t happen, but at least you’d be covered). But we realized that you’d have to then also be an insurance company and that was kind of nutty.
So, we hunkered down to start seeing our new patients who were absolutely loving the new care model. Nate was the closest thing we had to a finance person, so he was essentially serving as our Chief Financial Officer (CFO). Scott and I were really hard core on the service design of the product. We were the doctors literally providing the care and simultaneously trying to disrupt it as well. About 4-6 weeks into opening, Nate called a meeting to review the numbers. And, that is when we realized that at the rate we were going it would take like 20 years to fill our practices, and worse still, about the same time to make any money.
So what did you guys do to survive this initial realization?
Right at that time, out of the blue, we got a call from DaVita. They were looking into the direct primary care model and after many interesting conversations, we ended up agreeing to do a consulting project for them on how to design a direct to primary care practice model that could scale. It was also a total financial lifeline for us at that time. That agreement forced our thinking a bit into what the actual business model options were and which ones could scale better than others. To be candid, it effectively pushed us to develop a financially viable business model, but even with all that work we were still not thinking about the self-funded employer space at that time. Interestingly enough, we had no idea about this market.
Meanwhile, Scott was out there still blogging and tweeting away trying to share in near real-time about the experience of building this new, innovative practice model. And, talk about luck—Marty Yee, MD had been following Scott for a while and reached out directly to him. Marty was a physician with a practice in the Bay Area who had also been working at Apple one day a week doing preventive health exams. He told Scott, “I think Apple is considering doing a health center on their campus. It might be a good place to try out your model.”
It was a good idea, so we both flew up to meet Marty and his partners. We still have the photo of us sketching out on a napkin what the partnership could look like to go after the Apple project. A few months later, Marty got invited to respond to the Apple Request For Proposal (RFP). The invitees were Stanford, Palo Alto Medical Foundation, CHS (the largest onsite vendor at the time)…and some local, random physician named Marty who had been doing some preventive physicals for Apple for a few years. Marty called us and said, “We have to go in together to figure out how to answer this.” When Scott told Nate and me, I asked, “What’s an RFP?” as at the time, I couldn’t place it among the medical acronyms I knew. I was that much of a novice.
So, we flew Marty down to Aliso Viejo, and we sat and stared at maybe 200 questions. As we went through it, we realized that an employer is a payer, a micro-insurance company. We felt that charging the employer a monthly rate for all their employees would be the way to go. However, this Per Employee Per Month (PEPM) concept was a bit too far out for Apple at the time. They better understood and had been guided by their benefits consultants to implement the “Cost Plus” model. Interestingly enough, while we were ready to assume the risk of PEPM, effectively a form of capitation based on the number of employees, this new Cost Plus model was all about paying for all of our costs and then providing a little management fee on top. Since we didn’t care about the management fee as we were making no money anyway, we just focused on the fact that Apple would pay for our entire build out, our staff, and would enable us to effectively launch our whole business.
So how on earth did you win one the largest, most respected, and most innovative clients in the world when you had nothing?
We went through the questions, and since we had literally no experience and no references, we just answered it based on our vision for fully reimagined primary care. We didn’t have anything at the time—literally no financials, no track record, and nothing on the balance sheet. Given it was such a long shot, we turned the RFP into our personal business manifesto. Once we turned it in, we thought it would be impossible to win and chalked this up to another good learning experience in trying to answer these questions and further flush out our model. However, to our surprise, we got another set of questions back from Apple, then another, and another, and finally after five rounds of answering increasingly detailed questions about our model, we were invited to their Finalist Presentation. What had once seemed Impossible, became Improbable, and then along the way somewhere we felt that it was Inevitable that we were going to win this project. It was most likely a shared delusion, a little Reality Distortion Field, that we created to literally will this project into being.
At that point, we started spinning the creative wheels up to another level. We took the presentation to Apple executives—our two hours of fame—and made it our audition, our magnum opus, and our One Shot to do something incredible. We had already latched onto Clayton Christensen’s book “The Innovator’s Prescription” which sealed our view that we could not compete with the industry incumbents and the titans we were going up against—we wouldn’t just lose any head to head competition, we would get absolutely crushed. We instead chose to go with the mantra of “not competing” on any of the metrics that the incumbents would use; rather, we would find new, alternative, and valuable, forward-thinking concepts that would position us in the Blue Ocean of opportunity. If we hadn’t subscribed to this non-competition mentality, we would not be here today.
As the Apple Wellness team continued to engage more deeply with us, the consultants continued to recommend (and then later demand) that Apple NOT hire us. But to Apple’s credit, they fired them and chose to award the business to us. This proved to be a company, career, and in retrospect, a life-changing experience for all of us. About a year into the relationship, and after all the implementation dust had settled, I had a chance to ask our counterparts at Apple why they disregarded the benefits consultant advice and hired us. The answer was profound and has stayed with me to this day, “Because you guys felt like us.”
Whoa . . . what did they mean by saying that?
At the end of the day, you can’t fake the passion—and that’s why we won at least the first half dozen clients. They could see it, they could feel it, and they knew we would not sleep until it all worked. Passionate people want to work with others that have that same kind of conviction, who put in that kind of effort, that sweat every single detail, and that radiate positivity. And, in the end as we look back, we can see that was the root cause of why we were fortunate to win this first massive account.
In Part 2, Rich addresses the growth of Crossover, what Zero to One taught him about himself, and the transformation to a Digital First organization.