This content is for paid members only.

Join for $20/month or $175/year

Kevin O'Leary

Lessons from +Oscar's Challenges

September 27, 2022
Company Research

After touching last week on a large insurer that is deciding to focus more, this week we’re turning to the situation of another insurer that has been struggling with a lack of focus, Oscar. Specifically, we’re going to dig into the +Oscar platform, digging into where it’s been, where it’s going, and what we can collectively learn from the struggles Oscar has had building a platform business. 

It’s a case study that highlights the need of focusing on a core customer and the core competencies you are building to service that core customer. The news that prompted this was that Health First, +Oscar’s core external customer, terminated its contract with +Oscar effective as of January 1st, 2023. Oscar seemed to be misaligned from the start with the +Oscar platform, and it’s causing them major issues now that we can all learn from. 

We'll start first by digging into some background on Oscar’s strategy, before looking at the Health First partnership specifically, +Oscar’s pivot to SaaS, where Oscar might go from here, and lessons we can all take away from this. 

Table of Contents

  • Oscar’s Core Strategy & The Beginnings of a Platform
  • The Health First Relationship and +Oscar Story Arch
  • +Oscar’s Pivot to SaaS
  • Where does Oscar go from here?
  • Key Questions for Healthcare Builders to Ask Themselves

Oscar’s Core Strategy & The Beginnings of a Platform

From its earliest days, Oscar has benefitted from a very straightforward core narrative about how it was going to transform the healthcare industry in three steps:

  1. Build a differentiated brand experience on top of third party technology and use that to attract members
  2. Rebuild the core technology infrastructure of a payor piece-by-piece
  3. Bring other incumbent healthcare institutions onto Oscar’s tech platform

It’s perhaps a bit oversimplified, sure, but seems to follow pretty closely how Oscar has attempted to grow the business. In a blog post years ago Oscar highlighted an early slide deck it used with investors, illustrating these three steps as follows:


It’s a great story, and one that in its earliest days had insurance executives extremely worried about Oscar as an existential threat to their business if it succeeded. But the third step was always the least clear in terms of how Oscar intended to scale this platform that was going to transform the industry. It never quite seemed Oscar had a clear view of how it was going to transition from being the insurer with a differentiated tech platform to being the tech platform that powered any insurance plan.

Over the years, they’ve clearly experimented with a few different approaches to working with healthcare institutions and get them on the Oscar tech platform:

You can see some differences, both in the markets and type of partner that Oscar was experimenting with. Its first partnership with Cleveland Clinic in 2017 speaks to how much potential Oscar’s brand name held at the time, enough to attract an industry stalwart to partner with it. It’s equally as telling how few and far between big brand name partners have been since then for Oscar. 

The notable difference between Health First and the other deals listed above is it was really the first deal Oscar signed where it was implementing a “BPaaS” (Business Process as a Service) offering, meaning that it is selling a service to another organization - that service being its tech platform. Every deal prior to that was a co-branded plan Oscar was launching with a partner. In those deals, Oscar wasn’t needing to convince a legacy player to rip-and-replace an existing technology platform, instead Oscar was creating a net-new product with those legacy players, and leveraging their brand as a marketing tool.

As such, Health First was a major test of a new competency and customer for Oscar. Instead of partnering with a healthcare institution as a distribution partner for Oscar’s core insurance product, it needed to develop the ability to sell a BPaaS offering to another healthcare institution that would pay Oscar specifically to license the technology platform. It shouldn’t be underestimated how big of a shift this is - instead of selling an insurance product to an individual via the ACA exchanges, this is a very intensive B2B sale process. Individual exchange members don’t have teams of employees requesting customized SLAs and who need to be trained on how to use your product. The B2B sale demands vastly different skill sets and organizational structures across the entire company, and it seems that Oscar struggled with this.

The Health First Relationship and +Oscar Story Arch

Let’s look at the less than two year journey during which the Health First relationship was launched and became a key proof point for +Oscar, before ultimately becoming a cautionary tale after Health First pulled out of the relationship. 

As you can see on the timeline above, it’s been a rapid turn of events for +Oscar. The chart above demonstrates the promise and subsequent rapid demise of the relationship with Health First. In early 2021, the Health First deal was trumpeted as “key validation” of the +Oscar platform during Oscar’s first earnings call as a public company. Then in March 2022, Oscar had Health First leadership provide a customer testimonial during Oscar’s first Investor Day. In hindsight that testimonial provided some insight that the relationship wasn’t going well, as Health First hinted at a rocky rollout of the relationship. Then in the August 2022 earnings call, we heard that Oscar was pausing any further BPaaS rollouts for the next 18 months, while focusing internal resources on existing deployments. Given Health First terminated the relationship only weeks later, it doesn’t seem like much of a stretch to conclude that the relationship was having major change management issues as Health First flipped to Oscar’s platform. 

During this period, on top of the issues Oscar was having with Health First, it also wasn’t able to sell the +Oscar BPaaS offering to any other external clients, nor was it ever able to articulate a solid sales pipeline. Its sales strategy seemed to shift quarter to quarter, punctuated by Oscar’s CEO suggesting during its Investor Day that +Oscar would be selling platform deals to digital care delivery companies seeking to launch their own health plans in the near future. It’s actually a logical need, and startups like Flume Health are building businesses doing just that. But, they’re early stage startups, and Oscar is a public company.

Oscar’s Investor Day provided some good insight into why the sale is both a logical one, but also a challenging one. Take a look at these two slides from the investor session:

The sale is actually fairly logical - organizations looking to offer their own insurance products but without insurance expertise should want a technology-forward platform to offer a differentiated insurance product. And by all accounts, the +Oscar platform appears to be quite technologically advanced. But that doesn’t appear to be +Oscar’s challenge here. 

Instead, the challenge starts to crop up when you realize how large of an undertaking this exercise is for an incumbent payor or provider. Oscar’s platform touches every part of the business - member engagement, payor administration, and clinical tools / analytics. In many ways, these are actually three different businesses in themselves - there are plenty of startups going after each individually. Additionally, Oscar highlights how over 120 data feeds are integrated into +Oscar’s platform from the customer, which, as anyone who has worked with enterprise IT departments will tell you, is a daunting task. This all requires a tremendous amount of buy-in for an incumbent payor or provider. It also requires that your team now starts to understand a sales funnel for this B2B sale - building out target customer lists, having those initial conversations, qualifying leads, being able to negotiate all the various details each customer is going to want customized for there specific instance of the product, and so on and so forth. Again, the organizational design required to succeed here is very different from the design needed to sell on-exchange insurance plans to individuals.

Oscar appears to have underestimated how unwilling payors and providers would be to rip out all of the existing systems they had in place and replace them with +Oscar’s infrastructure. And then on top of that, when Oscar found a customer that was willing to rip and replace everything, it appears to have underestimated the hand holding required to manage all of the change at hand. There is a reason why there has been a cottage industry in consulting built up off managing Epic implementations - these are massive deals for massive organizations that require significant hand holding.

Instead of leaning into this, Oscar appears to now be moving away from needing a more consultative approach to one that involved a less hands-on approach with clients by modularizing the product into something more consumable / transactional, via a SaaS model.

+Oscar’s Pivot to SaaS

During Oscar’s Investor Day earlier this year, Oscar announced their intent to pivot from the BPaaS approach and begin selling +Oscar as a modular SaaS product moving forward. The chart below from the session depicts well how they see the difference in products:

Everything in the slide above is right on - the modular SaaS approach should indeed be easier to implement and with less organizational impact. As Oscar mentioned during its Q1 2022 earnings call, it has sold a client on its modular member engagement product. That is an insight that will be worth paying attention to moving forward. Certainly, health plans know they need help with member engagement, and there are a number of vendors selling them various engagement offerings. It is not hard to imagine that +Oscar’s product is a good one in this space. But all of those organizations Oscar is now competing against are designed to sell those products. It is concerning that Oscar isn’t able to articulate a sales funnel for these modular products either, or even what the modular products are beyond the member engagement sale. 

Where does Oscar go from here?

Oscar seems to know well how advanced its technology is compared to other insurers. And I’ll bet if you show any legacy insurer a demo of the +Oscar platform their first reaction will be “woah”. But as is clear by now, that doesn’t mean that they’ll actually have any interest in licensing the platform. Virtually no insurer (or provider looking to build a health plan) is going to want to rip out every process and system they have built internally and replace them with Oscar’s brand new service, particularly now that the only proof point has gone so poorly that Health First bailed. 

Oscar’s challenge from here is landing on discrete use cases where insurers might actually want to purchase the +Oscar product. It seems to be honing in on something close to that with its member engagement campaign offering, but even that strategy seems half-baked. And this doesn’t even mention the fact that they still have a whole bunch of insurance members in very complicated and ever-changing markets, and they need to get that to profitability. 

Ultimately, Oscar probably needs to stop reporting +Oscar as a separate business line to the street, acknowledge it misunderstood the market’s receptivity to such a product, and focus on the core insurance business. Sure, the SaaS product presents a path forward, but it seems highly unlikely to become a meaningful portion of Oscar’s overall business. 

The challenge here is that this will be a tough pill to swallow given Oscar’s insurance business has its own set of major financial challenges and is focused on getting to profitability in 2023. Moving +Oscar’s expenses back into the insurance division will both erode Oscar’s overall narrative and also likely make Oscar’s profitability that much harder to achieve in 2023. Either way it seems Oscar is going to need to make some tough decisions and that will require focus and fiscal discipline, something it has not been great at to-date.

Key Questions for Healthcare Builders to Ask Themselves:

In many ways, the +Oscar failure is a lesson in getting back to the basics of building a business. Oscar, with its massive vision for changing healthcare, seems to have gotten over its skis in launching a new business unit that wasn’t ready for primetime. Given the timing of launching this business unit during the IPO process, it suggests Oscar leadership thought they could sell Wall St on the future growth of Oscar as a platform selling its technology to the rest of the industry, a nice story that made it sound more like a software business than a struggling health insurer that needs boatloads of cash to manage the associated risks of being an insurer. Yet, little over a year into that transition, we’ve all unfortunately seen how challenging that transition is to make. 

Here’s how we process the key lessons when reading this. 

  1. What customer am I selling to and what are their needs? 

Oscar appears to have made the mistake of thinking it could take a dogfooding strategy by building a tech platform for itself and selling that platform to other customers. And it appears to have missed the mark entirely on hearing what those external customers would be looking for in a product. Even though Oscar’s tech likely is a lot better than the rest of the industry, it failed in building the necessary capabilities of a B2B organization selling to incumbent insurers and providers who had no interest in the product.

  1. What core competencies does my organization need to succeed?

Selling the +Oscar platform required an enterprise service delivery competency, very different from the competencies it built for selling an exchange product to consumers. That competency likely necessitates a very different organizational design than Oscar had and contributed to the issues +Oscar faces. The SaaS product sale hints at what other organizations find valuable from +Oscar as a competency - Oscar’s ability to engage members. It’s a good start to recognize this, even if it’s not a big enough business to be a public company division.

  1. Is my ability to execute aligned to my investors expectations?

Perhaps Oscar’s biggest strategic misstep here was launching +Oscar within months of going public without a clear line of sight into consistent business performance and growth. The first rule of going public is not to miss on expectations in the couple quarters after going public. Anything else erodes analyst / investor confidence in your ability to execute and it’s nearly impossible to hit the reset button. Unfortunately for Oscar, they have over-promised and under-delivered here.

If all of that seems pretty basic, well, we think that’s the general point here. Oscar appears to have gotten in front of itself, suffering the age-old startup trap of getting really enamored by the technology they were developing rather than listening to the needs of their customers, prioritizing those that were core, and being responsive to their needs.