This article is eighth in a Deal Screening Mastery series for emerging investors who want to build LP confidence and for early‑stage companies trying to find the right investor fit. In the seventh article, “Proof, Not Motion,” I showed you how sophisticated life science investors separate real evidence from simple activity, stage by stage.
In the last installment of this series, I made a case that most commercialization diligence asks the wrong first question. Many investors read a go-to-market (GTM) plan and think, “Does this founder know how to sell?” But there’s better question to consider: “Is what they’re pointing to as traction evidence, or is it activity dressed up to look like it?” A stack of letters of intent, a handful of physician champions, a pilot with no renewal data may get treated as substantiation when they’re often just motion. Asking whether plan is articulate is not a useful screening question. Instead, ask whether the signals behind the plan hold up if you lean on them. Even a founder with genuinely valid traction evidence (real paying customers, a renewal, a second site) can be operating inside a market structure that caps the outcome no matter how well they execute. And the inverse is also true: a founder with thinner, messier traction data can be sitting in a market structure so favorable that the deal is still worth underwriting. Commercialization diligence tells you whether the team can execute a plan. Market structure diligence tells you if execution can produce a venture-scale outcome. Many screens quietly conflate these two very different questions. In this article, I’m outlining the typical healthcare market structures, how to map a company into a target structure, and share some examples of how this analysis applies in real-world situations.
Healthcare markets fail or succeed based on which of a few recurring structural patterns they fall into. I group the ones that matter most for therapeutics and medtech deal screening into four buckets.
These are markets where a small number of commercial insurers control most of the covered lives in a given geography. That means getting a product reimbursed means negotiating with one or two dominant payers. This is not a fringe case; it’s close to the norm. The American Medical Association’s most recent competition study found that 97% of metropolitan-level commercial health insurance markets in the U.S. were highly concentrated in 2024, up from 95% a decade earlier, and that a single insurer held at least half the market in 47% of metro areas. [1] Separate analysis of inpatient care and insurance concentration using the Herfindahl-Hirschman Index (HHI, a standard measure of market concentration used by antitrust regulators) found 96.9% of metro areas are highly concentrated for commercial insurance in 2024. [2] If your reimbursement thesis depends on convincing a payer, find out early which one, and how many others like it exist in adjacent markets. There often aren’t many.
This is the opposite structural problem to the payer oligopoly. Instead of one gatekeeper to negotiate with, you have thousands of independent decision points, none of which alone matters, and none of which is reachable at scale without a distribution partner. Independent physician practices, ambulatory surgery centers, and community hospitals with no shared purchasing infrastructure fall here. This structure doesn’t kill a deal (many durable specialty businesses are built on fragmented bases) but it changes what “traction” has to mean. Ten pilot sites in a fragmented market tell you almost nothing about the 40,000th site; the sales motion doesn’t compound the way it would against a concentrated buyer.
This is the structure most underestimated by first-time medtech and diagnostics founders, and it deserves the most space here because it’s genuinely counterintuitive to people outside hospital operations. Roughly 72% of U.S. hospital supply spend flows through group purchasing organizations, or GPOs. These are entities like Vizient, Premier, and HealthTrust that aggregate the buying power of member hospitals to negotiate supplier contracts on their behalf. [3] Over 95% of U.S. hospitals participate in at least one GPO.[4] Getting on a GPO contract doesn’t guarantee adoption; however, not being on one can functionally exclude you from a hospital’s normal purchasing flow entirely, regardless of clinical merit. Layered on top of that is the value analysis committee (VAC), the clinical and financial body inside a hospital that decides whether a new product gets approved for use at all, separate from and prior to the procurement step that executes a purchase.[5] A device may be FDA-cleared and GPO-contracted yet still face prolonged internal review where VAC processes are infrequent or multi-stage. In a chokepoint structure, the constraint isn’t demand, it’s the number and cadence of gates between demand and revenue.
The fourth pattern is newer and may be the most interesting, consisting of businesses that route around payer and provider gatekeeping entirely. Eli Lilly’s Employer Connect platform, launched in March 2026, is a clear example It gives employers a direct channel to offer Zepbound through independent program administrators and a network of dispensing pharmacies. Lilly announced a $449 price to network pharmacies, while final employer and employee costs vary by program design. [6] Direct-to-employer and direct-to-consumer structures trade a smaller addressable buyer pool (employers willing to self-fund a benefit, patients willing to self-pay) for a dramatically shorter, more controllable sales cycle. They’re not automatically better; instead, they’re a different bet, with different failure modes.
The point for investors is these four structures carry different risk profiles that a standard commercialization review won’t surface. Founders, if you understand and can explain which structure applies, your investors will understand the risk they’re underwriting. Sophisticated investors will notice and appreciate your preparedness.
Any purchase decision involves three personas: who decides, who buys, and who uses. In consumer markets these personae are often one person. In healthcare, and especially in hospital-based medtech, the purchasing cascade is not that simple. Decision-making authority is based on size, with the number of stakeholders increasing along with that size. [7] Therefore, one of your ongoing customer discovery goals should be to consider who these people are, what they need, and how they assess ROI.
A great way to start is by mapping out the roles for each purchasing entity. That means asking these questions and write down the answers as real names & titles, not categories:
Who is the end user — the clinician or patient who interacts with the product day to day?
Who is the clinical champion — the person inside the organization who must want this enough to sponsor it internally?
Who is the influencer or key opinion leader (KOL) whose credibility the champion needs behind them?
Who is the budget holder who authorizes the spend?
Who runs procurement, and are you on their GPO contract or not?
Is this reimbursed, under what code, and does the buyer’s plan already include that code in its fee schedule?
The closer you can get to identifying the actual titles and names of people in these roles, the more useful your market map will be in directing the content and sequencing of an outreach campaign. However, even a more generic, title-only, map can tell you how long and expensive the sales cycle is for your prospective partner. If a founder’s financial model assumes a three-month sales cycle in a market where the entity-aligned map produces eight stakeholders and a Value Analysis Committee (VAC) that meets quarterly, meeting the company’s projected revenue goals will be challenging.
Every template pitch deck tells the founder to include a slide with your TAM/SAM/SOM numbers. These reflect the total possible market for your product (TAM), the percent of the total you can reasonably capture (SAM), and the portion you intend to acquire through operation of your business model (SOM). [8] These values are almost always based on industry-scale data and untested assumptions, and the tendency is to overestimate revenue potential. One way to address this weakness is to discount for the complexity of the market. A useful mental model, and one that should get more consideration in health-tech investment circles, is Sebastian Gensior’s complexity-adjusted TAM. It’s calculated by taking the headline number and multiplying it by an eligibility factor and a pricing/access adjustment that accounts for real-world constraints like health technology assessment (HTA) hurdles, payer mix, and the probabilistic nature of biotech commercialization. [9] You can build a similar “fudge factor” for med tech products. It’s still based on a set of assumptions; however, by specifying them, you can work on testing and refining those assumptions in your ongoing customer discovery process. Investors would be wise, before accepting a TAM figure, ask how the founder is adjusting it for market complexity.
Why is this important? Consider two hypothetical markets, with initial TAM of $5B:
The first is a specialty condition treated mostly by independent practices and academic Key Opinion Leaders (KOLs), with modest per-patient reimbursement complexity and low channel gatekeeping. In market structure language, this is a fragmented provider base.
The second is a hospital-based device category sold almost entirely through IDNs (integrated delivery networks. IDNs are large multi-hospital health systems that centralize purchasing decisions across their member facilities. These purchases are gated by GPO contracts and quarterly VAC cycles. In market structure language, this is a channel chokepoint.
While both may be “$5B markets,” they are clearly not the same bet for an investor. The first needs a founder team who can build direct KOL relationships, build a repeatable sales process, and scale that process. The second often requires a founder team with existing IDN or GPO relationships, because a startup without them may spend two of its first three post-launch years just getting through the gate, regardless of clinical differentiation. Sophisticated investors understand their ROI depends on the fraction of the market a specific team, with a specific network and a specific runway, can capture before the fund needs liquidity. Founders who pre-compute this and show they understand the complexity of the market build trust with prospective investors.
You can have a strong founder team, a credible plan, and traction evidence that holds up (see the previous Deal Screening article), yet the company isn’t venture fundable because the market model limits the uptake rate. It doesn’t matter whether the constraint is because a single GPO controls most of the relevant hospital spend for a device category, or an addressable reimbursement lives inside two state Medicaid formularies and a couple of commercial plans with no urgency to adopt a therapeutic. No commercialization plan is likely to produce a venture-scale outcome inside a restricted market structure like this. That doesn’t mean the company isn’t fundable, however; it will likely need a different capital strategy.
On the contrary, the inverse pattern is just as important, and it’s the one that gets passed on more often than it should. Where the market structure is a fragmented provider base or a consumer-direct model like the employer-benefit structures GLP-1 manufacturers are now building, the plan can be weaker looking and succeed because the sales cycle is shorter and gatekeepers are fewer. A deal screen that only weighs commercialization plan quality without considering the market structure will miss some good bets and take others that are a much harder lift. A sound operator will demonstrate they understand what structure they are in, why it’s favorable, and here’s how we are de-risking the parts that aren’t. A team that doesn’t will need extra help with understanding which business models are appropriate and how to operate them. It seems to me that this assessment is a big part of the deal screening contraction, “bet on the jockey or the horse.”
Now that you understand why pattern-matching the innovation to its market is important, the next step is to make sure you look for evidence of business model maturity around market structure. Briefly:
Which of the four market structures does this deal live in (oligopoly payer, fragmented provider base, channel chokepoint, or consumer-direct/hybrid)?
What does the decision maker map look like?
How is the TAM/SAM/SOM data adjusted for complexity?
Whether the founding team has built some of this information into their presentation is a measure of their operator maturity level. How they respond to your questions about these factors is a measure of their coachability. Therefore, market structure deal screening gives you a higher return in a shorter time frame than most of the components we’ve looked at in this series. Set the screen up around the ideal company profile for your fund, and at minimum, you’ll be surfacing better fits more quickly. For founders, asking market structure questions early is a high-value addition to your customer discovery work, and a great way to help you identify which investors could be a good fit by evaluating the market structure of their portfolio companies.
Market structure isn’t a footnote to the commercialization plan; rather, it’s a boundary condition the plan operates inside. Ignore it at your peril!
Thanks for reading Thinking Kat! If you found this issue valuable, please pass it to someone else who would benefit.
Pro tip: Several of these references have fantastic and recent information on payers, hospital systems, and other elements necessary to build a solid GTM plan. Share them with your founders!
[1] American Medical Association. (2025, December 15). Health insurance giants tighten grip on U.S. markets. [AMA] https://www.ama-assn.org/press-center/ama-press-releases/ama-report-health-insurance-giants-tighten-grip-us-markets
[2] Trilliant Health. (2026, May 7). Nearly 80% of CBSAs are highly concentrated for both inpatient care and commercial health insurance. [Substack].
[3] Ran Chen. (2026, April 7). GPO group purchasing, federal supply schedules & market access: A guide to U.S. government medical device procurement. MedDeviceGuide. [Blog]. https://meddeviceguide.com/blog/usa-government-medical-device-procurement-guide
[4] Dean, E. B., Pierre, R., Carter, S., & Bond, A. M. (2024). Role of supply chain intermediaries in steering hospital product choice: Group Purchasing Organizations and biosimilars. Health Aff Sch, 2(6), qxae067. doi:10.1093/haschl/qxae067 https://pmc.ncbi.nlm.nih.gov/articles/PMC11152204/
[5] Provyx. (2026, July 23). Healthcare value analysis committee guide. https://getprovyx.com/resources/healthcare-value-analysis-committee-guide/
[6] Lilly. (2026, March 5). Lilly Employer Connect platform launches with over fifteen independent program administrators offering tailored obesity coverage options to expand access to patients [Press release]. https://investor.lilly.com/news-releases/news-release-details/lilly-employer-connect-platform-launches-over-fifteen
[7] Provyx. (2026, March 29). How medical device reps find the right decision makers [Blog]. https://getprovyx.com/blog/medical-device-find-decision-makers/
[8] Clifford Chi. (2026, Feb 2). TAM, SAM & SOM: What Do They Mean & How Do You Calculate Them? HubSpot [Blog]. https://blog.hubspot.com/marketing/tam-sam-som
[9] Sebastian Gensior (2025, Jan 3). The problem with TAM. P05.org [Blog]. https://www.p05.org/the-problem-with-tam-2/
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