Turbocharging Growth in Intermediate-stage Healthcare Enterprises

On April 29, 2025, the MIT Sloan Health Systems Initiative (HSI) hosted the final "Scale Up Health" seminar, focusing on transforming scaled healthcare enterprises. The discussion specifically targeted companies in an "intermediate stage," which one speaker defined as being "smaller than Optum but bigger than a 10-person startup." This market segment, characterized by rapid growth often fueled by private equity investment or as early-stage public companies, was noted for its significant activity despite receiving less academic focus than startups or large incumbents.

Eric Berger, a Partner at Bain & Company, facilitated a panel discussion featuring three guest speakers representing the perspectives of the operator, strategic investor, and financial investor. He elicited their insights into growth-stage healthcare companies' unique challenges and opportunities.

Key themes explored included assessing intermediate or growth-stage companies, the challenges inherent in scaling, and practical strategies and levers for growth.

Assessing Growth-Stage Companies

From an operator's perspective, joining a company in this "middle space" is appealing because it offers the opportunity to build while simultaneously having access to resources. Establishing an enduring business requires deliberate attention to “people, process, and technology."

A strategic investor specifically representing a payer viewpoint (such as Blue Cross Blue Shield of Massachusetts) evaluates potential partnerships with growth companies based on a four-part framework:

Strategic Fit: The capacity to significantly improve affordability, consumer experience, quality/outcomes, and equity, with a particular focus on reducing medical costs.

Operational Fit: The feasibility of integration is influenced by IT capacity, which serves as a critical barrier for large incumbent organizations, limiting their ability to integrate even initial pilot programs.

Financial Fit: The potential for a meaningful return on investment (ROI). Payers are often skeptical of vendor claims of high return on investment (ROI), and actuaries may apply significant discounts to these claims. Large payers may seek a net return on investment (ROI) of 3:1, and long-term costs must also be considered.

Risk: As risk-averse entities, payers are concerned with data governance, cybersecurity, and how a solution will integrate with and be received by existing care delivery systems.

A financial investor assesses growth companies based on their value proposition and differentiation. They seek a competitive differentiation that is both defensible and sustainable, with barriers to entry—a "secret sauce"—and ultimately, achieve valuation. Success often involves finding a market segment that may be misunderstood or at an inflection point.

Challenges and Pitfalls in Scaling

The panelists noted that scaling requires a fundamental change in "how you work," necessitating changes in leadership and technology and overcoming potential customers' resistance to change.  

Managing people and leadership is a key challenge. Ensuring the "right leader for every chapter of a company" is crucial, as rapid growth can outstrip an individual's capabilities. A low percentage of management teams remain consistent throughout a typical investment period.

Despite its foundational nature, technology can become a significant obstacle. Growth through acquisition often results in the acquisition of multiple platforms, and substantial resources are required to integrate the acquired technology and its associated data.

Achieving widespread adoption of a company’s product or service is a significant hurdle, making scaling in healthcare difficult. Even successful pilots often fail to scale due to the extensive process and IT modifications required within the large, usually incumbent organizations they aim to sell into. Resistance to change is a significant human factor, with employees potentially resisting new technologies because their "own personal identity is tied to the role."

Strategies and Levers for Growth

Growth-stage companies often benefit from an intimate relationship with their board, where members invest and provide expertise and connections. Compared to larger organizations, these companies can move quickly.

To address legacy technology in incumbent customers, a strategy is to create a "layer or buffer around your core systems," an "access layer" that enables "plug-and-play" integration without directly engaging with fragile legacy systems.

Managing the tension between focusing on a few "big whale" accounts (depth) for near-term results and pursuing diversification (breadth) is a significant challenge. Defining a core test case and managing customization requests carefully is crucial for scalability. Experience enables companies to determine the appropriate limits for customization.

Talent management, particularly in building the leadership team, requires intentionality. Key qualities sought include cultural fit, pattern recognition, and making informed decisions quickly and effectively. Assessing the existing leadership and being intentional about early leadership changes helps set the company's direction.

In summary, growth-stage healthcare companies offer opportunities for building and scaling, but they also require navigating complex challenges related to people, processes, and technology. Success often involves a close relationship with the board and investors, strategic shifts, and building the right leadership team. It is crucial to acknowledge that the business may require management changes as it scales. Legacy technology and resistance to change remain significant hurdles to scaling innovation within the broader healthcare system.