Medicare 101 for Digital Health Part 1: What is Medicare and how Did It get This Way?

Despite its attractive large market size, Medicare has long frustrated early stage healthcare companies. The complex federal health insurance system, mired in statutory constraints, has arguably discouraged entry from would-be external innovators.

Regulations intended to prevent fraud, waste, and abuse, also create barriers to adoption for innovative value-creating products and services. The goal of this two-part series is to demystify Medicare and highlight select value-creation opportunities for digital health startups in this integral sector of the US healthcare industry.

In Part 1 of this article, we introduce Medicare and its covered services along with rationales for digital health startups to engage with the nation’s largest payer. These motivations include Medicare’s large and growing beneficiary base, access to the nation’s largest and influential payer, and movement toward value-based care.

In Part 2, we brainstorm ways early stage companies can penetrate the Medicare market. We highlight several early stage companies, many VC/PE backed, that have applied some of these principles and are experiencing meaningful traction in the Medicare market.

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Why Medicare? Five reasons startups should care

Below are five factors that position Medicare as perhaps the most significant market opportunity for digital health startups, namely access to:

The nation’s single largest payer for healthcare.
A patient population with generally similar, common medical conditions that generate higher spending than the commercial population.
A rapidly growing customer base of not only Medicare beneficiaries, but also Medicare-approved providers, suppliers and private Medicare Advantage plans
The nation’s leader in payment policy and healthcare regulation, driving early shifts in health reform.
Greater opportunities to generate value as Medicare is increasingly transitioning to outcomes-based models.