Entrepreneurs are excited about health care, and it’s no surprise. Health care accounts for almost 17% of our economy and is the single largest vertical of consumer expenditures. In the second quarter of 2019 alone, AI healthcare startups raised $864 million.
Innovators’ motivations to dive into health care extend beyond the financial: improving health means improving lives. At a time when 80% of employers identify recruiting tech talent as a top business challenge, the mission-driven nature of health care makes it easy for startups to attract the best of the best.
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Health care is also a field where the reality on the ground is quickly shifting, creating market conditions ripe for innovation. The field is moving so quickly that many startups originally created to solve problems in another market may actually have important applications for health care.
The Five Emerging Health Care Mega-Trends
If you’re an entrepreneur looking for your big break and considering health care, consider how your company can capitalize on these five emerging health care mega-trends.
1. Value-Based Care
For decades, medical costs reflected the amount of work that providers put in - not the results that they deliver. The best indicator of whether a hospital was making any money would be how many beds they were able to fill, creating incentives where providers actually had more to gain from sicker patients.
Empowered by new technologies such as predictive analytics, and incentivized by the Affordable Care Act’s value-based payments systems, health care providers can finally be rewarded for what matters: health outcomes, not inputs. That creates a new world of opportunity for providers to step in and improve those outcomes.
PhysIQ is an example of a startup that capitalizes on the shift to value-based care by identifying sickness in advance. Born out of a company that used machine learning to interpret data on power-generating systems and equipment, PhysIQ’s founders realized that the same AI technology could interpret data on the most important system of all: the human body. Using a person’s vital signs, the technology provides important insight to doctors — and aims to keep patients out of hospital beds, not in them.
2. Increased Patient Financial Responsibility
10 to 15 years ago, providers weren’t thinking about how to simplify payment processing from patients, mainly because patients were only responsible for a miniscule portion of the bill. In the days where insurance would typically foot 95 percent of the bill, they weren’t focusing on the patient’s nominal fees. In fact, they hardly talked to patients about money — pushing too hard could mean losing patients to a competitor.
Today, many patients are responsible for a greater portion of the bill — perhaps up to 25 or 30 percent. That opens up the market to fintech solutions which streamline consumer payments.
SwervePay is just one of the companies which swooped in to fill that need. Using technology that the founders originally created to help auto repair shops process payments, they realized that similar concerns applied to health care: customers didn’t know how much they’d have to pay on arrival, so they had to spend time checking in and then later spend time paying. SwervePay simplifies the process by sending them a text asking them to approve the final transaction with the amount listed. Customers simply reply “yes” to pay with their card on file.
Along similar lines, there’s still a lot of opportunity to bring the best of private sector payment technology into healthcare. Innovative entrepreneurs should start thinking about ways to tweak existing payment solutions to improve on current practices.
3. Increased Consolidation
In the interest of efficiency, health systems in hospitals continue to consolidate. That makes physicians less independent and less available to pharmaceutical sales representatives, who previously relied on getting time in front of physicians to explain the benefits of their newest drugs and devices.
These conditions created a gap in the market for companies that can help pharmaceutical companies connect with physicians in ways that are mutually advantageous.
One company that’s working toward closing that gap is Level Ex. Founded by a product manager for Microsoft’s gaming platform whose relatives are doctors, the company offers realistic, video-game style medical simulations that help train physicians on valuable skills. The simulations are incredibly popular among doctors, and pharmaceutical and medical device companies pay a monthly fee to access that audience of providers.
Consolidation may make it tougher to get in front of the right people, but it also increases the rewards for those who can. That leaves the field open for companies that can successfully make important connections.
4. Personalization Of Cancer Treatment
Cancer treatments are becoming highly specialized to meet patients’ genome profiles. That means that providers and pharmaceutical companies increasingly seek out more data to better understand those profiles. Companies that can successfully capture and analyze that data will be in high demand.
Flatiron, for example, created an electronic medical record for oncology patients that captures the data necessary for genomic profiling. That allows doctors to have all of the relevant information about a patient on hand when they decide on the most appropriate oncology drug. Roche acquired the company in 2018 for $1.9 billion, demonstrating the enormous potential value for other companies that can create products and services which streamline personalization.
5. An Aging Population
An aging population that lives longer leads to higher incidence of chronic disease. While it may sound morbid, this trend means that smart providers should always be thinking of patients as potential long-term, repeat customers. Customer retention will be critical to continued success.
One successful startup that had this trend in mind was online pharmacy PillPack, which introduced the idea of differentiating between customers to provide the best service to their highest-value customers. In this case, that meant catering to older people with multiple chronic conditions and those who take specialty medications with huge profit margins.
Specifically, PillPack packages medications in a way that makes taking pills less complicated. Instead of taking 8 different pills from 8 different bottles with 8 different sets of instructions, they package pills together into blister packs according to when customers need to take them. Walmart and Amazon both wanted to buy the company, and Amazon ended up purchasing it for $753 million.
That type of personalization is just one of many ways to increase customer satisfaction in order to increase a provider’s lifetime earnings per customer. The lesson here is for startups to carefully consider how they can offer services that build customer loyalty.
Health Care Mega-Trends: Proven Success
Keeping these sea changes in mind, entrepreneurs can tailor their technology to meet the growing needs of health care companies. The examples of so many companies who have already paved the way indicates the eagerness of the market to adopt new ideas and new systems, but there’s still room to innovate. Perhaps with enough successful entrepreneurs, maybe U.S. health care spending as a portion of GDP will finally get in line with other countries.
About the Author
Managing Director, 4490 Ventures
Dan has a blend of venture capital investing, startup operational and corporate executive experience. Dan was the founding CEO of Analyte Health, a digital health company, an executive in the consumer health services group of Walgreens, and a co-founder of two software technology companies. Dan was a Principal at NYC-based venture capital firm Flatiron Partners and has invested in approximately 20 early-stage startups over his career.
About 4490 Ventures
Partnering with entrepreneurs to build billion-dollar businesses in underserved markets.
As investors, we have the advantage of having learned the craft of early-stage technology venture capital investing at firms on the West Coast and the East Coast. We brought our knowledge, networks and experiences to 4490 Ventures where we apply those learnings to the unique opportunities available in underserved markets. Underserved markets contain the majority of the inputs into America’s innovation economy, yet receives a disproportionately small amount of all venture capital. We’re committed to changing that ratio.