Reinventing Patient Care in the Dermatology Industry (Virtual Q&A)

Axial member David Wong co-founded DirectDerm in 2010 after identifying extreme capacity constraints within the dermatology industry. As a practicing dermatologist, David was not only able to recognize patient struggles, but also the bottlenecks that occur for medical providers who are limited to in-person office visits. This prompted David and his partners to create a platform that has increased the capacity of dermatologists five-fold, providing access and affordable care to patients in a growing number of geographies across the country. 

Over the past decade, David has not only continued to practice medicine while growing the business, but he has led DirectDerm through a growing number of financings, having worked with a variety of capital providers that include nonprofits, venture funds, and — most recently — an alternative debt provider sourced through the Axial platform.

Here is his story. 

Video

Audio 

Show Notes 

Introduction & background – 00:00 – 11:55

• David grew up in Hawaii, is the son of a doctor
• He moved to mainland U.S. for undergrad and then completed both his MD and a PhD (in cancer genetics) on the West Coast
• Took an entrepreneurship class in undergrad that left a lasting impact 
• When he was in medical school, he was in a dermatology rotation and loved the visual nature of the specialty
• Has always been more on the medical side of dermatology (versus surgical and cosmetic) though he is trained in everything
  

Why was DirectDerm founded? 11:55

• David co-founded the business with a medical colleague after they observed how difficult it was for people to get dermatological care
• In med school / going through training, it’s very much a bubble where you’re getting a lot of referrals and don’t necessarily think about the other people that may be waiting months to get access to a doctor
• With the level of healthcare in the U.S. you should be able to get access to a good doctor right away
• The number of dermatologists that can be trained is limited here (restrictions come both from the government level as well as limited funding for residencies)
• As the demand for cosmetic services becomes so high — in combination with the fact that a lot of these services are paid in cash, so they’re very lucrative — a lot of dermatologists have shifted focus in this direction and, in turn, are less available for medical needs
• A lot of dermatologists are located in major urban areas, so it’s especially tough to find appointments in more rural regions
• Overall it’s a capacity issue

What is DirectDerm? 17:00

• DirectDerm was founded to provide dermatology care in an accessible and affordable way by leveraging telemedicine
• With imaging technology at everyone’s fingertips, patients are able to take hi-resolution photos of things like rashes, growths, etc. via phone or tablet
• It allows dermatologists to reach patients and render care no matter where they are
• Patients access the technology platform/app, take a few pictures, answer a couple of questions on medical history, and then a doctor will get back to them with a diagnosis and treatment recommendation
• DirectDerm also works to provide access to existing health systems such as primary care offices, nursing homes, skilled nursing facilities, etc.
• There was a need to rethink the efficiency of how patients access care because there is not a sufficient number of new dermatologists being introduced into the ecosystem to address the capacity constraint 
• The technology makes dermatologists more efficient, makes care more accessible to everyone regardless of demographics, and allows much more scale 
• Upon introducing the first version of DirectDerm in 2010, there was immediate positive feedback that showed the founders that if this was expanded, it could provide a major positive impact to communities
• For the first four years of business, the focus centered around doing outreach to community health centers to see how they could help serve underserved populations
• The California Healthcare Foundation is a nonprofit committed to supporting new technologies to provide innovative solutions/access/more affordable care to underserved Americans 
• The California Healthcare Foundation had a very clear alignment with DirectDerm and they were just starting their healthcare innovation fund 
• They provided an initial grant to DirectDerm and then later debt financing that had very flexible terms and conditions
• They not only provided funding, but also provided valuable introductions to community health centers as well as insights from DirectDerm’s ideal customer profile
• After DirectDerm had proven their product-market fit with health centers, CHF helped them expand their reach and begin talking to healthcare plans 
• DirectDerm is now contracted with more than 30 healthcare plans in California and across many of the western states  

Where does the main value of DirectDerm lie? 24:10

• There is an undersupply of dermatologists everywhere (even in urban areas); there are no regions where there is a surplus of dermatologists
• Because of this, DirectDerm’s key to success is not necessarily crossing geographies, but creating efficiency
• Typically an office visit is a minimum of 15 minutes, so there is a limited number of patients each doctor is able to see during office hours
• With the DirectDerm platform, dermatologists can assess and make a diagnosis within seconds without the explanations, counseling, etc. that comes with an in-person visit
• This remote telemedicine allows them to provide care to a much higher number of patients
• More than 80% of what a dermatologist sees can be managed digitally
• The doctors can then triage the other 20% of cases that need to have in-person visits (in the case that a biopsy or procedure is required)
• In addition to the efficiency that is outlined above, dermatologists are also able to fill gaps that they may have throughout the day (cancelled appointments, breaks, out-of-office time, etc.) and treat patients digitally in addition to their normal schedule
• DirectDerm has also focused a lot on having a good experience for the dermatologists by taking out the administrative headache and allowing them to solely do what they were trained to do

Is there still a place for bedside manner? 28:28

• As mentioned, part of the efficiency of the platform is shaving off all of the time that doctors spend explaining things to the patient, so how does the patient ultimately learn about a diagnosis or treatment?
• DirectDerm has built up a library of educational material for the patient and provides easy access to that material in the platform
• A lot of the time, a dermatologist will provide physical handouts and reading materials at an in-person visit anyway, so this the digital library streamlines that process and provides very specific and targeted information
• Oftentimes, the DirectDerm platform does a better job explaining things and outlining treatment with this material than a doctor may do in person
• If needed, there are easy ways to communicate with your dermatologist by messaging through the platform
• Additionally, patients can be triaged to a video visit or get scheduled for an in-person visit through the platform
• By using this asynchronous way of treating patients, dermatologists are able to increase their productivity five-fold

Further digitizing with AI – 32:30

• Going forward, there is an opportunity to expand the triage system by using AI at the top of the funnel before something even needs to hit a doctor’s inbox
• As DirectDerm’s business has grown, they’ve been able to build a very unique set of data that will be able to do just that
• The business has been partnering with other groups to make this a reality, but it is not the standard of care today

Regulatory considerations – 34:15

• There is red tape between states, but treating patients between states is doable in many cases
• As of right now, a patient can only be seen by a doctor that is licensed in the state that the patient is physically in
• Many dermatologists are licensed across multiple states, so they’re able to treat patients in different areas of the country
• All of the dermatologists on the platform have robust reference checks, background checks, etc.
• Certain doctors have specializations in different areas, so it becomes easier to access specialists using the platform

COVID implications – 37:32

• Healthcare has had to pivot and adapt to the new world very quickly over the past six months; COVID created increased awareness and adoption of telehealth
• A lot of the barriers that telehealth was previously facing have disintegrated 
• CMS relaxed a lot of rules and regulations that surrounded digital medicine (and other groups & organization often follow the lead that CMS sets)
• Reimbursements that previously were not available have come into play
• There were relaxations around HIPAA; for now, you do not need a HIPAA compliant platform
• What happens in the future will be interesting, because while a lot of the changes may be permanent, there will certainly be some things that are pulled back

DirectDerm’s financing/M&A journey – 46:10

• Up to this point, DirectDerm has used different sources of funding depending on where the company was in its journey
• Initially the business received financing from two nonprofit organizations 
• DirectDerm raised its first venture financing in 2015 
• Right now the company is raising another round that is inclusive both of equity financing and revenue-based financing
• Luckily David and his team had already been in conversations with their lead investor as well as some of the other investors for this round prior to COVID, so the relationships and diligence had already started
• They’ve raised the majority of capital for this current round, but still have a bit more that they’d like to raise
• DirectDerm is looking forward to partnering with more home healthcare services, because these providers are oftentimes the ones who will notice something and refer their patients into the DirectDerm platform
• There have been a lot of calls recently about both exit and acquisition opportunities

Finding balance as a CEO – 52:10

• David is not only running DirectDerm as he has been raising capital for the business, but he is also still practicing as a dermatologist
• One of the most important hats he wears in the business is as a key product leader 
• David tries to prioritize where he can make the biggest impact, so his hats are always changing
• One of the pieces of advice David would give to other entrepreneurs is to be creative about how they are doing things; for example, it’s very easy for a CA tech company to assume that they should go to Silicon Valley to raise venture capital, but it’s been very beneficial for DirectDerm to raise capital through a variety of sources
• Networking and luck play a large part in success
• David’s relationship with Axial happened very organically after he met Axialites at the JP Morgan Healthcare conference, learned about the platform, and then was able to use it soon after to raise capital
• Prioritizing education in everything you do is very important; never stop learning

To learn more about DirectDerm as a potential customer, to become a referral partner, or to contact David about a potential capital partnership, you can visit www.directderm.com or email David at [email protected].