Carrum Health: Scaling Bundled Payments

Founded in 2014, Carrum Health helped self-insured employers located in three markets (San Diego, California; Seattle, Washington; and San Francisco, California) save money on their employees’ planned surgeries. It did so by contracting directly with top-quality hospitals located within the area, and negotiating a set fee (known as a bundled payment) for each of five common surgical procedures: knee replacement, hip replacement, cervical spinal fusion, lumbar spinal fusion, and coronary bypass. By 2016, the company was growing steadily and saving its clients over 40% on average on these five procedures.
In September 2016, Sachin Jain, Carrum’s CEO, received an email from North Beach Apparel, a large retailer based in San Francisco with a growing presence near Chicago, Illinois and Columbus, Ohio. North Beach was ready to partner with Carrum, but the terms of the deal required Carrum to enter the Chicago and Columbus markets in order to serve all North Beach employees. The deal would significantly increase Carrum’s revenue and begin to move the entrepreneurial venture closer to profitability. However, by expanding to Chicago and Columbus, the young company ran the risk of spreading itself too thin, especially given the opportunity for growth in Carrum’s current three markets. But Jain knew that if he waited too long to expand geographically, Carrum might lose its first-mover advantage in several markets. With limited resources, Jain needed to decide how to scale his young company: should Carrum enter the Chicago and Columbus markets with a guaranteed initial client base and then focus on selling the existing five bundles to new customers there; or, should the company add new bundles to its product line through the existing provider networks in the three markets it currently served?