PicoBlog

Tech-forward primary care startup Forward announced it raised a $225 million round at a $1b+ valuation. I’ll be the first to admit I’m quite skeptical of this valuation. Forward looks a lot like a concierge medicine / direct primary care practice with some fancy bells and whistles with the promise of a tech platform that can change healthcare. Of course, the press release doesn’t include many details on how big the practice is today, so lets try to figure out what this valuation looks like based on their website.

Forward currently lists 10 clinics open across seven major metro areas, with 24 PCPs operating in those clinics. They have four more clinics that are ‘opening soon’ in four new markets, and they list the same two doctors providing care at each of those locations. So for arguments sake, lets say they have 26 PCPs currently across those 10 clinics.

If you google “average size of a direct primary care practice” it turns out the average panel size for such a primary care doc is 345, with a target panel size of 596. So, lets be super generous and assume Forward’s tech platform allows a primary care provider to scale to 1,000 patients per provider. This puts Forward at 26,000 patients currently. At 26,000 patients, Forward is at an annual revenue run rate of approximately $44 million (26k * $1,700 annual membership fee). In other words, this primary care practice is being valued at 22x revenue, or $38k per patient, or $38 million per provider. For a primary care practice, that seems quite high.

In addition to the valuation question, I’m also not sure that attracting 26,000 patients over 4 years in some of the largest metro areas in the country demonstrates they have de-risked the model in any meaningful way. As I argued back in a 2017 debate with a friend, it’s a relatively straight forward task for a model like this to attract a few thousand people in the markets it enters. There are a small number of well-off early adopters who will pay for a cool experience here. But the bigger challenge facing Forward is that there are very few people beyond that initial target market willing to pay $1,700 out of pocket each year for a fancy primary care experience. The result is that you hit a membership plateau in a market after you hit a few thousand people in that market. At only 26k patients across 7 major metro areas, I don’t think Forward hasn’t shown it can get over this plateau yet. This was what One Medical went through - you start off with a concierge model, then flip to an employer model, and then finally go to health systems (and once you get the health systems involved you are finally able go public).

Of course, I am sure that Forward’s backers will argue that Forward is building a brand new technology platform that can change the way healthcare is operated in this country. That the tech will allow it to scale in a way no other primary care practice has been able to scale. Perhaps that will come true and the technology will indeed be a game-changer. Again, I’m quite skeptical, although I would happily eat crow if I’m wrong on this one. Link.

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