Ro raises $500M to grow its remote and in-home primary care platform

Healthcare tech startup Ro has raised $500 million to help fuel continued growth of its hybrid telehealth/in-home primary care platform, which also includes a growing pharmacy business as the company pursues a strategy of vertical integration to optimize delivery and reduce costs for clients. The company’s latest raise is a Series D round, and means it has now raised over $876 million since its 2017 founding.

That may seem like a lot of money, but as Ro co-founder and CEO Zachariah Reitano told me in an interview, it’s actually “peanuts” when it comes to the healthcare industry – which is part of why they founded the company in the first place.

“Sometimes people talk about how great it is to be in the healthcare arena, in tech circles,” Reitano said. “They say, ‘Oh, healthcare is a $4 trillion market – it’s so massive.’  But that’s the worst thing in the entire world; it’s awful how large it is. And I think what we have the opportunity to cut it in half with technology.”

That’s what Reitano says will be the primary focus of this round of funding: Fueling its efforts around vertical integration of healthcare services and technology, to further the eventual end goal of reducing costs to patients through the efficiencies realized in that process.

“To me, what I’m really excited about is being able to continue to invest in that infrastructure and add even more,” Reitano told me. “We’ll continue to invest in telemedicine, we’ll continue to invest in our logistics and pharmacy, and continue to invest in in-home care, as well as the connection between the three, and then we’ll also invest in additional diagnostics, remote patient monitoring – so collecting and distributing devices to patients to go from reactive to proactive care.”

Ro’s model focuses on primary care delivered direct to consumer, without involving any payer or employer-funded and guided care programs. The idea is to reduce costs through vertical integration and other efficiency engineering efforts in order to get them to the point where they’re effectively on par with your out-of-pocket expense with co-pays anyway. Reitano explained that the insurance system as it exists in the U.S. now only effectively masks individual costs, making it less clear that much of what a person pays out in healthcare costs comes out of their pocket anyway, whether it’s through taxation, or employers allocating more of the funds they have available for compensation to healthcare, vs. take-home pay.

Image Credits: Ro

That’s what’s behind Ro’s recent push into operating its own pharmacies, and growing that footprint to include more all the time. Reitano told me that the company will have 10 pharmacies by the end o this year, and 15 by the end of next, all placed strategically around the country to ensure that it can provide next-day shipping to patients at ground shipping rates pretty much anywhere in the U.S.

Doing that kind of vertical optimization has enabled Ro to offer 500 common drugs at $5 per month, including treatments for heart disease, anxiety, depression and diabetes — with a plan to ramp it to 1,000 drugs available at that price by year’s end. That’s roughly equal to the co-pay required for many insurers for the same treatments.

Meanwhile, Reitano says Ro has seen big changes in the healthcare system generally that favor its model and accelerate its hybrid care plans owing to the COVID-19 pandemic.

“I would say that there are two most profound impacts of the pandemic on the healthcare system,” he said. “One is that it simultaneously shed light on all of the inequities for the entire country to see, right at the same time where we all cared about it. So those things were sort of known for the people impacted day to day — the geographic inequity, the financial inequity, the racial inequity. If someone felt that that inequity, then they would talk about it, but it wasn’t something everyone cared about at the same time. So this massive spotlight was shed on the healthcare system. And the second was that everyone’s healthcare journey now starts online, even if it is going to end in person, it will still start online.”

Ro’s model all along has espoused this time of healthcare delivery, with remote care and telehealth appointments handling most day-to-day needs, and follow-up in person care delivered to the home when required. That obviously generate a lot of efficiencies, while ensuring that older patients and those with mobility issues also don’t need to leave the house and make a regular trip into their physician’s office for what amounts to a 15-minute visit that could’ve been handled over video.

Ro co-founders Rob Schutz, Zachariah Reitano and Saman Rahmanian (left to right)

Ro co-founders Rob Schutz, Zachariah Reitano and Saman Rahmanian (left to right)

According to most industry observers, Reitano is likely right that healthcare probably won’t go back to the old, inefficient model of favoring primarily in-person care after the pandemic ends. One of the positive outcomes of the COVID-19 situation has been proving that telehealth is more than capable of handling a lot of the primary care needs of a lot of people, particularly when supplemented with remote monitoring and ongoing proactive health measures, too.

While Ro doesn’t work with insurance currently, Reitano points out that he’s not against the concept entirely – he just says that health insurance as it exists now doesn’t actual work as intended, since it’s meant to pool risk against an, expensive, uncertain and rare outcome. Eventually, he believes there’s a place for insurance in the overall healthcare mix, but first the industry needs to face a reckoning wherein its incentive structure is realigned to its actual core customer – patients themselves.

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$1.5 billion digital-health startup Ro wants to be your online doctor. Here's how its coronavirus response rooted in rapid at-home testing fits into the new unicorn's long-term strategy.

Summary List PlacementRo, a hot digital health startup best known for selling generic Viagra, is taking another big step in expanding its healthcare ambitions.
Ro is teaming up with computer vision startup Gauss to offer at-home rapid COVID-19 antigen tests that provide results in 15 minutes, the companies announced Wednesday. The test is still awaiting emergency clearance from the US Food and Drug Administration. Ro doesn’t take insurance and declined to say how much it’ll charge for the test. 
The launch comes just a month after Ro announced it acquired Workpath, a startup that allows hospitals and clinics to send phlebotomists into patients’ homes to perform routine blood tests, furthering its goals to expand beyond its initial suite of mail-order pharmaceuticals for conditions such as hair loss or erectile dysfunction.
Ro’s aggressive moves into all parts of healthcare come at a pivotal moment for the industry, which has been upended by the coronavirus pandemic. Unlike hospitals or clinics, Ro’s virtual care model combined with its network of real-world pharmacies and logistics makes it poised to tackle distribution for rapid tests and eventually vaccines, cofounder and CEO Zachariah Reitano told Business Insider.
“Right now there are two things universally needed in healthcare: access to the vaccine and easy access to rapid testing,” Reitano said. “We have the technology and the infrastructure to distribute tests to patients across the country, and we have the unique capability to facilitate a connection to a doctor if it requires a prescription to get the test. We can mail it to them and guide them through the next steps. Not many other companies can do that.”
Read more: The 26 billion-dollar startups to watch that are revolutionizing healthcare in 2021
Ro’s ambitions extend well beyond telemedicine
Ro started with a modest proposal: patients could virtually meet with a care provider and get generic prescription medications for conditions like hair loss or erectile dysfunction sent to their homes for a nominal fee.
Nearly four years later and the startup has skyrocketed to a $1.5 billion valuation while aggressively adding new products and services for its growing group of patients. 
When the coronavirus pandemic took root, companies like Ro and its competitor Hims added new patients as doctors’ offices shuttered and people remained hesitant to venture out to a nearby pharmacy, Reitano said. The virtual care model and easy shipping appeared tailor-made for a pandemic that left most Americans house-bound.
“Growth isn’t a problem right now,” Reitano said. “We’re going to expand and add services to try and keep up with the demand of the country.”
At present, that means building specifically for the coronavirus pandemic, Reitano said. The Gauss partnership is the first step in what Reitano said was his company’s responsibility in lowering transmission rates and saving peoples’ lives.
Reitano also said Ro is interested in helping with vaccine distribution, but declined to discuss the plans.
Ro’s future lies in testing
A more ambitious future for Ro could rely heavily on building a network of traditional healthcare services instead of relying on the partnership model it’s worked on in the past, repeat healthcare founder and investor Nikhil Krishnan said.
The ability to control pricing and cut out middlemen is key to the company’s long-term success because it relies on patients paying cash for services instead of working with insurance plans. The lower Ro’s costs, the lower it can keep prices.
“Lab testing, depending on how it’s structured, can be really expensive to outsource so it makes sense to bring it in-house at some point,” Krishnan said. “Ro has been pretty ahead of the curve in bringing those pieces of the value chain in-house.”
Part of the appeal of launching an at-home COVID-19 test is that Ro can substantially cut costs of currently available at-home tests that retail for between $100 and $150 per testing kit. 
“We’d like to put pressure on the market and bring the prices down across the board,” Reitano said.
To stay competitive, Ro wants to play a bigger role in its customers’ lives but needs more patient data to be effective. For instance, by offering lab tests and screenings from Workpath, it can help treat a larger variety of conditions through telemedicine and eventually in-person, Reitano said.
Krishnan said Ro is building an experience for patients in the real world after establishing a relationship with them online. Testing, and to some extent screening, can help companies like Ro gather more information on patients and better compete with physical healthcare practices.
“I don’t know if there’s necessarily a right way to strike a partnership, but I definitely think a lot of the telemedicine companies will have to figure out how to get this information eventually,” Krishnan said.
Reitano said he is eager to expand into other forms of testing with the goal of becoming what he calls a “fully integrated” primary care provider that can host virtual visits and ship a host of medications directly to patients while freeing up in-person care for those patients that truly need it.
“It’s just the beginning of us for testing,” Reitano said.SEE ALSO: 2 former Sequoia VCs just raised $500 million for their firm’s second fund. Here’s how they plan to spend the funds.
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