MassDevice Q&A: American Well CEO Roy Schoenberg

Roy Schoenberg seems to have the gift of good timing.

The 42-year-old is CEO of American Well, a Boston-based company that’s developed a web-enabled, on-demand healthcare service so patients can speak directly to physicians at any time. The system could prove to be a low-cost solution to getting healthcare to the uninsured or under-insured — pretty fortuitous timing, when you consider Washington’s struggle to figure out a way to control spiraling healthcare costs while increasing access to care.

But Schoenberg’s best timing might have been his decision to tear himself away from sand and surf to start the company. As he tells it, he and his brother and business parter Ido Schoenberg were just three weeks into a planned one-year hiatus in late 2006. Roy was sunning on a beach in Tel Aviv when inspiration struck.

The brothers had just sold their prior venture, electronic health management systems provider CareKey Inc., to TriZetto for $60 million and had left the company to pursue other ventures. The plan was to spend a year on the beach reading and figuring out their next move. Roy made it a whole three weeks before he found himself cajoling Ido back into the ring for another go-round. Two months later, American Well was funded and under way.

Today the company is enjoying a serious growth spurt, having signed several clients and just recently raising an additional $10 million in financing. Schoenberg spoke with MassDevice about why 2009 will turn out to be a watershed year for the company, how fundraising should be treated like warfare and the reason it takes more than 20 interviews to get hired at the company.

MassDevice: You raised an addition $10 million about a year after landing a larger first round. What’s the new funding for?

Roy Schoenberg: The motivation is really like the tactics of war, when you actually have an option to generate significant success in a certain path of the fight, that is where you’re going to put most of your efforts. You don’t raise money to cover up when you’re unsuccessful, you raise funding when you see an opportunity to capture.

What we’ve seen in the last year [between the last round and now] is literally the opening up of a floodgate of opportunities for us, in the sense that on Jan. 1 of this year online health was still just a concept. It was a very popular concept and people were talking about it, but still on Jan. 1, 2009, it was still something that was not live anywhere and had no commercial viability.

We are now ten-something months later and the system is now live in the entire state of Hawaii, it is going live in the entire state of Minnesota, it is going live in a very large state later in the end of November. It’s the first state that OptumHealth is deploying, TriWest has already taken it live for the military and there are still other deals to close this year, in this quarter of significant deployments.

So in less than a year we’ve moved from a concept to something that is pretty sweeping, especially for a missionary technology that literally changes the way people acquire healthcare. When you look at this kind of traffic, you need to put some investment in to really capture that kind of market opportunity. And it’s not specifically just in this quarter; we need to look at Q1 and Q2 of 2010. We need to have the bandwidth to reap the benefits of the credibility the technology is now gaining, so that when large health plans, and other large organizations that are not health plans, are beginning to see the benefits of delivering health care through technology, we have the capacity and the skills in place in order to make that a reality.

The other thing that’s becoming very apparent is that in the beginning of the year it was palatable for the early healthcare plans that we signed to take six to nine months for deployment. But what we now see is that this area is becoming more competitive, the plans that are currently engaged with us are pushing very hard to get this into the market much quicker. In order to make it go really fast, we also need additional bandwidth to do a lot of things and that requires a little bit of change in the way we run the project. Each and every one of these things costs money, so this is what’s behind the additional fortification of our advantage.

What I mean by bandwidth is having the number of people who are capable and skilled enough to carry out projects at this kind of level. These are very large enterprise deployments and not just any Tom, Dick, or Harry that you bring to the company can deploy this in a week’s time. The second thing is that it’s not just the people, it’s the level of skills that you require them to have and the infrastructure to run things effectively and with lower tolerance for mistakes. All of these things, whether it’s quality assurance systems, whether it’s the skills that we’re hiring require taking major step up, are part of the growth of the company.

MassDevice: So, right now, any person that lives in Minnesota or Hawaii and has Blue Cross, Blue Shield can get online and talk to a physician right away?

RS: Actually, its better than that. First, Minnesota is going live in a month.

If you are in Hawaii, you don’t have to be a Blue Cross member, that’s a very important point. BCBS Hawaii decided to turn the system on for everybody in the state, not just their members. If you’re a BCBS member and you go online to see a doctor, you’ll pay the copay. If you’re a resident of Hawaii and you’re not a member of BCBS — if you have other insurance, or none at all and you need to see a physician right now at home, or you have a urinary tract infection, a migraine, or your child is running a fever — you can still go on the system and engage a live, credentialed physician. So it’s open access to literally everybody and I can tell you that all other plans that are doing it have realized that, because of the way the system is structured, they can now deliver care, very valuable access to care, to a much broader group than their membership.

This is why we’re getting so much interest from Washington too, because this technology, when you turn it on, means that anybody in that state has access to physicians, specialists and primary care physicians without a huge government stimulus package. Anybody and everybody in the state of Hawaii can get in front of a physician in 30 seconds, that’s the truth.

MassDevice: How many employees do you have now and how many do you think you’ll be adding?

RS: We have a little north of 80 people that are direct employees and we also have service providers that we hire on a temporary basis, but the core group of American Well is a little north of 80.

We’re hiring people, but that depends on how quickly we find the people we want to hire. I think we hold some kind of record for the number of interviews we do before we hire someone. The last time I checked in the R&D group we are north of 20 to 25 interviews before we actually hire someone. You cannot make mistakes in those kinds of things. When a health plan is going about telling the residents of a state that as of a certain date anybody has access to live healthcare in about 30 seconds and this goes onto CNN, the Wall Street Journal and the New York Times, you cannot afford to have mistakes. Our biggest asset to date are the statements of the CEOs that we work with going in front of the media and saying very clearly, “American Well is the best company we’ve ever worked with.” These statements don’t come out of goodwill. They come out of the laborious efforts of making sure that when you deliver it, it’s actually delivering what was promised — or surpassing it.

MassDevice: Let’s go back to what you said earlier about raising funding being about increasing your market share, not filling holes. Does that philosophy come from your experience in having built three previous companies?

RS: I think you definitely learn, the scars from running companies during the difficult times, especially in the last decade-and-a-half gave all of us in the technology world a lot of ups and downs. You do learn that there are certain investments that you have to make that have a certain size, and if you don’t get to that size of investment there’s no sense in even showing up. In the healthcare industry it’s very different in terms of its tolerance of mistakes, its tolerance of new things, its inclination to change the way it does things.

That means that the burden of proof for every company, whether it’s a device company, or a service company, or any other that wants to enter the market, is very high. The good part about it is when you do find your way in and you get the seal of approval from some of the key operators in this industry, you’re pretty much there to stay. It’s a little like a domino effect; once you’re in and what you’ve brought actually works, then the opportunity scales exponential for you. So if you’re going to go into a company to provide solutions for the large healthcare industry, you should think about a major investment, not about a gimmick.

MassDevice: What do you think are the biggest hurdles you’ve faced to date? It is getting the doctors on board, the patients involved, or insurance carriers to reimburse?

RS: The biggest barrier is you have to generate, with one solution, a very tangible value proposition to all three stakeholder in that equation. If consumers like it but the providers don’t, then there’s no supply in the system. If it’s the other way around, then there’s no demand and the providers aren’t going to buy it. If the health plans don’t feel comfortable to deliver this to both their providers and patients, it’s not going to work. If the medical boards aren’t going to sign up, there will be trepidation on the part of the physicians to get involved in it. If the large malpractice insurers like AIG didn’t decide to cover physicians from malpractice for delivering online care, this would have never happened.

The key barrier is not about every one of these, but the barrier is to bring all of these into alignment at the same time using one product. It’s very rare that you have multiple stars coming up in the same line in the sky, and we had to very carefully tweak the evolution of this product, such that at a very certain point in time all of these things would align together and deliver a clear value to everyone involved.

The other aspect is that from a technology standpoint the infrastructure that had to be put in place in order to allow the system to deliver its value with great simplicity to the two key users was also a very major undertaking, because consumers have no patience for things that are not simple, clear and immediate. Meanwhile, providers are traditionally not very happy to change the way they practice medicine, unless it’s something very compelling where the vision in front of their eyes is something that registers immediately. The technology had to be built in a way that allows people to do this very simply, from home, on their terms, feeling comfortable. That’s why it took almost three years to develop this technology. It’s a very significant infrastructure. This is not a platform that allows you to do web chats with a physician, that’s absolutely not the case.

MassDevice: You seem to have had some pretty fortuitous timing. Did you have idea when you started this that the chips would fall into place like this?

RS: When we sold our previous company CareGive and after we left, the plan was to actually go on the beach and read books for a year and figure out what we wanted to do next. We actually did it, I packed everything and I went on a very sunny beach in Tel Aviv and sat on the beach, and then the concept of American Well came to mind reading a book on the beach three weeks into that plan. I called Ido and said, “We’ve got to do this, vacation is over,” and he said, “No, that can’t be.”

But we talked about it and he decided that it was true that this was something time-sensitive and that we had to go back. Literally, a month later the first round of financing was done, and two months after that phone call the company was operating. So we’re still waiting for that future time when we can have a year off.

MassDevice: Well, maybe it will happen on a much nicer beach.

RS: It’s a very nice beach. There’s no reason to ditch the beach. It was hard to leave, but it was very clear that we were seeing that alignment happening and I can tell you in retrospect it was the right decision. It was absolutely the right time in terms of market opportunity, and [in terms of] establishing the intellectual property protection, it was the right time.