I met Joseph Kitonga, the founder of Vitable Health, when he was part of the Y Combinator summer 2020 cohort. That cohort included dozens of now-classic "new normal" businesses -- software companies enabling remote work, remote education, and virtual events. Joseph’s startup didn't address the most obvious trends of the day. But his timing was perfect. And that was true even though he had spent most of his life preparing to start this business.
I sat down with him to capture his story of immigrating to the U.S. from Kenya and starting this business while still a college student at Penn State. That was before he dropped out to focus full-time on Vitable, having received the Thiel Fellowship and turned down an offer to join Microsoft. For reasons that will become clear soon, I'm pretty excited to support this business...not least because Joseph is based in my hometown of Philadelphia!
What motivated you to start Vitable Health?
I moved to the U.S. from Kenya with my immediate family when I was thirteen. Like many immigrants chasing the American dream, my parents decided to start a business -- in their case, a home health company based in Philadelphia. I grew up working there, which gave me incredible experience helping to operate a healthcare delivery company, as well as insight into what's required to take care of employees at a small business.
Our $10-per-hour employees generally made too much to qualify for the State-sponsored Medicaid plan here, but too little to afford comprehensive health insurance. They were stuck in the middle, over-utilizing the emergency room for common ailments. 70% of ER visits are unnecessary, costing upwards of $2,000 per visit, which was actually more than their monthly salary. So they paid for most of those visits using their credit card, perpetuating the cycle of debt that makes upward mobility really difficult. My parents empathized and tried to find quality, affordable health plans, but with the average health insurance plan at $7.8K/year for individuals and $21K/year for families, they were simply out of reach.
I founded Vitable to give coverage and care for those high-frequency, lower-cost elements -- primary care and urgent care -- to the 42 percent of Americans who make less than $15 per hour.
Some people might say, there have been a number of new primary care businesses created in the last few years. What makes Vitable unique?
I think there are two aspects of our model that are unique.
First, we’re focused on SMBs and the 57% of uninsured Americans that work for them.
Second, in order to lower the cost of care for those Americans, we’re both the payer and provider. You can think of us like One Medical - without any of the physical locations, W2 providers, or the volume-based revenue from billing health insurance, which creates misaligned incentives.
Most telehealth companies or vertically-integrated primary care offerings from the last 5-10 years went upmarket to serve high income workers and large employers. They eventually found ways to partner with health insurance companies to get reimbursements, while also sometimes charging a monthly fee. But that market is now crowded with a variety of old and new players.
The long tail of smaller employers and hourly workers were left under-served since they were more price sensitive and didn't have health insurance for providers to bill. I thought there was an incredible opportunity to both provide value and build a meaningful business here. But the cost structure had to change. Those old models wouldn’t work. We needed to find ways to lower the cost of providing care without compromising on the quality.
How do you reduce the cost of care?
I often compare what we’re building for our nurse practitioners to what Substack is doing for writers and what Uber did for taxi drivers. Disintermediating healthcare reduces costs and results in a better experience for both providers and patients.
Instead of negotiating contracts with hospital systems or hiring salaried providers, we built our network of providers from scratch by tapping into the idle supply of individual nurse practitioners and enabling them to start their own part-time practices as contractors on our platform.
We also have no physical locations. Our providers make virtual and concierge in-home visits -- resulting in a more delightful, full scope of care, without any of the high fixed costs. "House calls" sounds like a type of concierge medicine that is only available to the wealthy, but our model actually has a much cheaper cost structure than other forms of primary care with physical locations, like One Medical.
What made you decide to avoid physical locations?
I have an unusual perspective, having grown up working with my parents on their home healthcare business. We managed 200 employees providing chronic home care to seniors and people with disabilities every day. It was much cheaper for my parents to start a home healthcare business than to start a nursing home and have to pay the upfront real estate and facility costs just to open up one location. With home care, they could cover a larger geographic area, spend more time and resources on expansion, and deliver a better patient experience. I thought we could apply that same model to providing primary and urgent care. No expensive facilities or salaries, just bringing care directly to patients and sharing the cost savings with them.
Why deliver care through nurse practitioners?
I grew up surrounded by nurse practitioners at my parents’ home health business and understood how important they were to our overall health system.
There is also a push across all 50 states to enable nurse practitioners to practice without a collaborating physician, to counteract the shortage of primary care physicians and increase access to care for under-served and rural communities. So far 24 states have done so, with more expected to follow soon. This combined with the proliferation of urgent care centers and retail clinics like CVS Minute Clinics that are staffed only by nurse practitioners have helped educate consumers about the scope of practice for a nurse practitioner -- who can do 80% of what a physician can do, but for half the cost.
We enable these nurse practitioners to start a part-time practice on our platform with their idle time and independently practice to the full scope of their license. It's otherwise very difficult and expensive for a nurse practitioner to start their own practice, and there are very few of them throughout the country. Our nurse practitioners average $3K/month of earnings from 13 hours/week spent working with Vitable, which is quite significant. Since nurse practitioners generally work 3-4 days/week for 12 hour shifts, almost half of their week is idle time, which is time they can now monetize through Vitable.
Telehealth has become pretty widespread over the past year. How are you different from other telehealth businesses?
I think telehealth is incredible. It’s really convenient and has increased access to common care. However, telehealth has a limited scope of service: Most telehealth patients still go to physical facilities, whether it’s for labs, imaging, or even just to have their vitals taken.
Because our members rely on us for their entire primary and urgent care needs, having a full scope of service is critical. We do that by combining telehealth with in-home care. Most visits start off with a quick telehealth chat through our app, and if necessary, whether it’s to draw blood or run a COVID test, they’ll come to your home fully prepared for no additional cost. The same is also true for X-rays and ultrasounds. It sounds absurd, but this is actually quite common in the home health industry. Ultimately, our members don’t have to spend time in waiting rooms. It’s a more delightful experience, and also less expensive for us as the payer compared to sending them to physical facilities.
Why focus on SMBs?
35% of SMBs -- like my parents -- can’t afford to offer health benefits, even though they’d like to. Yet, 86% of employees view healthcare as a must have benefit. The pandemic has re-emphasized the importance of health coverage for employees and created urgency for employers to bolster up their benefit packages to help them attract and retain employees in a very competitive post-pandemic world.
Despite this urgency, there aren’t many quality coverage options accessible to SMBs. Even those small employers that do offer some health benefits, many have stripped down Minimum Essential Coverage plans that don’t cover COVID tests, leading employees to complain as they became more aware of the risks associated with not having a health plan. Employers were forced to realize the importance of healthcare for their employees, especially those essential workers who were putting their lives on the line but had no health coverage. This new urgency for employers to bolster their health benefits gave us a significant tail wind in the early days of COVID in 2020.
In many ways, I built Vitable for my parents’ hourly employees. Our model makes a concierge-type of benefit accessible to everyone.
What traction have you had?
We currently cover thousands of lives, with our ARR growing at an average 37% MoM for the last three months.
Part of what makes our model compelling is that we can expand into new geographies without any upfront costs. We sign contracts with employers ahead of time, layer in a network of providers in that geo, and launch while being profitable in that market from day one.
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