Healthcare providers are finding their “play it safe” culture isn’t conducive to breakthrough innovation.
Facing the inevitable deflationary pressures being put upon the healthcare system, innovation is critically needed. Having spoken with several innovation groups in health systems, most examples of “innovation” are decidedly uninspiring. Primarily, it is due to the fact that virtually all of their decisions have to go through the prism of how new ideas will fit with current businesses — a guarantee that will doom so-called innovation to be little more than incremental improvements. Consequently, increasing numbers of hospitals and health systems are smartly allocating money to venture funds that have free reign to find truly disruptive new businesses.
Health systems have taken various approaches such as becoming a Limited Partner in venture funds like Health Enterprise Partners. Some of the larger systems, such as HCA and Dignity Health, have their own venture arms. A new development is a much smaller organization establishing their own venture fund. Implicit in this approach is a much more hands-on approach than as an investor in a 3rd party venture fund. Rex Health Ventures is an early example of venture-capital investment funds in the country started by a community, nonprofit hospital (Rex Health Care). The fund is being launched with an initial $10 million investment from Rex Healthcare and will help finance the most promising innovations among new medical services, tools and technologies.
Practice Fusion, Castlight or ZocDoc will be the next digital health IPO. That’s according to a survey of over 100 innovative digital health entrepreneurs, conducted by my firm, InterWest Partners.
Nearly one third of respondents said Practice Fusion was most likely to be the next digital health IPO with approximately 20% of entrepreneurs voting for Castlight and ZocDoc, respectively. Among the trio, all three have been impressive generating media coverage and raising money (collectively raising over $320m in the last 2 years alone with valuations ranging from $450m to upwards of three quarters of a billion dollars), in addition to having some of the most visionary leaders in the space.
Contrary to popular belief that digital health is primarily about the next iPhone app for weight loss, sleep or exercise, it was interesting to note that all of the leading “IPO” candidates in our survey have B2B models. This is consistent with an insightful RockHealth report ( which found that nearly 80% of digital health companies have B2B models. Future growth in this category is likely to continue as the leading healthcare accelerators such as RockHealth, BluePrint Health and Healthbox are all seeing more applications from B2B companies.
The responses to the IPO question reflect an interesting industry trend. Though often classified as “B2B”, many of the leading digital health companies are really B2B2C – meaning that without the C there is no B2B. Pricing transparency tools (Castlight), scheduling platforms (ZocDoc), employer based wellness programs, medication adherence solutions – they all must find a way to engage the end user or they won’t be purchased by the employer, physician, healthplan, hospital, or pharma company. And though it’s impossible these days to sit through a day of pitches without hearing the phrase “consumer engagement” twenty times, I’m excited that people are starting to ask more of the right questions. Why will someone want to use this? Does it really solve a true need? Is the product easy to use, intuitive, and fun?Continue reading…
I recently had the great fortune of attending Health 2.0 in San Francisco. The conference was abuzz with new medical technologies that are harnessing the power of innovation to solve healthcare problems including many new mobile medical application companies showcasing their potential. As I walked and talked around the exhibit floor, one thing caught my ear, or I should say one thing didn’t catch my ear. Among the chatter about these products, the concern about FDA regulation of this product segment, or even FDA regulation in general was noticeably absent. While many of the application developers are well aware of potential FDA involvement, most would be hard-pressed to outline the impact this would have on their companies and products.
Being labeled a medical device, which is the direction the FDA is leaning, could have a significant impact on business model organization, top-line revenue, and product deployment. For unprepared start-ups, FDA regulation could signal an end for their company. This is in stark contrast to well informed developers who are preparing themselves for the change and would most likely be able to leverage these regulations to their advantage.
There’s a big discussion going on in the health tech community about a controversial keynote speech given by Vinod Khosla at the Health Innovation Summit (HIS), in which he stated that 80% of what doctors do could be replaced by machines.
If you’re a doc like me who has no idea who the heck Vinod Khosla is (he’s a venture capitalist and co-founder of Sun Microsystems), why he’d be a keynote speaker at a healthcare event and what the heck HIS is, well, that’s the point of this post. You see, there are a whole lot of folks like Khosla out there – investors, entrepreneurs, tech types – who are attempting to redefine healthcare according to their own personal vision. Where we see a healthcare system in crisis, they see opportunity – just another problem with a technological solution. Computer-driven algorithms are the answer to mis-diagnosis and medical error, IPhone apps can replace physician visits, video connectivity can increase access.
Where we see illness and distress, they see a market.
And what business folks like to call disruption in the marketplace. Think about what happened to downtown small town USA after the first shopping mall opened. Or what happened to movie houses when Netflix started offering DVD rentals online. Or where all the independent bookstores went when the first Borders opened up, and what happened to Borders when the Kindle hit the market.
Out with the old, in with the new.
If Khosla is right, the we docs in our offices and hospitals are the old downtown department stores, the bookstores and the bricks and mortar businesses in an online revolution. We’re replaceable. At least most of us.
Gamification, described by Wikipedia is applying gaming principles to non-gaming applications and processes,
“in order to encourage people to adopt them, or to influence how they are used. Gamification works by making technology more engaging, by encouraging users to engage in desired behaviors, by showing a path to mastery and autonomy, by helping to solve problems and not being a distraction, and by taking advantage of humans’ psychological predisposition to engage in gaming.”
Here at THCB we really can’t think of many lectures we’d rather sit in on than Peter Thiel’s Stanford course on entrepreneurship. And we can’t think of a better guest to catch than Netscape co-founder Marc Andreeson. In this talk, Andreeson talks about how healthcare IT is changing in the Facebook and Big Data Era era, the privacy issue and how the cloud may or not be eating software.
Is Software Eating the World?
Marc Andreessen’s most famous thesis is that software is eating the world. Certainly there are a number of sectors that have already been eaten. Telephone directories, journalism, and accounting brokerages are a few examples. Arguably music has been eaten too, now that distribution has largely gone online. Industry players don’t always see it coming or admit it when it arrives. The New York Times declared in 2002 that the Internet was over and, that distraction aside, we could all go back to enjoying newspapers. The record industry cheered when it took down Napster. Those celebrations were premature.
If it’s true that software is eating the world, the obvious question is what else is getting or will soon get eaten? There are a few compelling candidates. Healthcare has a lot going on. There have been dramatic improvements in EMR technology, healthcare analytics, and overall transparency. But there are lots of regulatory issues and bureaucracy to cut through.
Education is another sector that software might consume. People are trying all sorts of ways to computerize and automate learning processes. Then there’s the labor sector, where startups like Uber and Taskrabbit are circumventing the traditional, regulated models. Another promising sector is law. Computers may well end up replacing a lot of legal services currently provided by humans. There’s a sense in which things remain inefficient because people—very oddly—trust lawyers more than computers.
It’s hard to say when these sectors will get eaten. Suffice it to say that people should not bet against computers in these spheres. It may not be the best idea to go be the kind of doctor or lawyer that technology might render obsolete.
There is a corner of the health care industry where rancor is rare, the chance to banish illness beckons just a few mouse clicks away and talk revolves around venture deals, not voluminous budget deficits.
Welcome to the realm of Internet-enabled health apps. Politicians and profit-seeking entrepreneurs alike enthuse about the benefits of “liberating data” – the catch-phrase of U.S. Chief Technology Officer Todd Park – to enable it to move from government databases to consumer-friendly uses. The potential for better information to promote better care is clear. The question that remains unanswered, however, is what role these consumer applications can play in prompting fundamental health system change.
Michael W. Painter, a physician, attorney and senior program officer at the Robert Wood Johnson Foundation, is optimistic. “We think that by harnessing this data and getting it into the hands of developers, entrepreneurs, established businesses, consumers and academia, we will unleash tremendous creativity,” Painter said. “The result will be improved and more cost efficient care, more engaged patients and discoveries that can help drive the next generation of care.”
The foundation is backing up that belief with an open checkbook. RWJF recently awarded $100,000 to Symcat, a multi-functional symptom checker for web and mobile platforms. Developed by two Johns Hopkins University medical students, the app determines a possible diagnosis far more precisely than is possible by just typing in symptoms as a list of words to be searched by “Dr. Google.” Symcat also links to quality information on different providers and can even direct users to nearby emergency care and provide an estimate of the cost.
After a lot of pre-publicity, Medstartr is here. Modeled after Kickstatr and other crowdfunding sites, Medstartr is the brainchild of Alex Fair who is not only the founder of FairCareMD but also the generalissimo of the Health 2.0 NYC chapter. Lots has already been written about crowdfunding and even crowdfunding in health care (see this Health 2.0 Newsarticle on LumoBack last week), so I thought we’d let Alex describe it in his own words.
Matthew: If I have a company looking to raise money how does Medstartr work? What share of the money do you take?
Alex: Crowdfunding is a little like talking to your in-laws about your healthcare startup. Give a great explanation that works for everyone who has a stake in your project’s success: Patients, doctors, institutions, Big Pharma, HHS, and any partner you want to work with. Then list the rewards they get for supporting your project. Everything from a heartfelt thank you note, to a tax-deductible contribution (through our Partner Cancer101), to a production ready version of your product or service when it is ready to licensing rights for distribution. Next, spread the word through the groups of people who will love your products. Not just the Health 2.0 crowd, but everyone whom your innovation helps. MedStartr helps people fund the innovations in care that people care about and gives them a say in what comes next.
“The cheapest form of capital is customer revenue”
David C. Jones, Altus Alliance
Crowdfunding has had success in high-tech, where people are eager to explore new models. MedStartr is bringing this concept to healthcare where it can be particularly challenging to get a startup off the ground. They have a twist on crowdfunding to address requirements of healthcare, an increasingly popular way to raise capital for startup technologies and interesting projects.
MedStartr is like most crowdfunding sites that are non-equity. They have plans later to have an equity model once SEC rules are clarified. In the meantime. MedStartr is attempting to hit the sweet spot that crowdfunding poster child, Pebble Technology hit. That is, customers get a great deal and early access to a product. Meanwhile, the startup gets non-dilutive funding and market validation to help it grow to the next stage.
“Advertising is the tax you pay for being unremarkable.”
The reality of today’s funding environment for digital health entrepreneurs is that it’s traditional tech investors who have the lion’s share of the money, while most long-time healthcare investors are on the ropes, contending with fleeing LPs and at least the perception of disappointing returns.
While it’s great news that some tech funds seem interested in dipping their toes into the healthcare space, it’s concerning that the investors with the most resources are not necessarily the ones who understand healthcare the best.
Tech investors, in general, are not always comfortable with physicians, and seem much more at home with engineers and developers. These investors also tend to gravitate to businesses selling directly to consumers rather than dealing with the sordid complexities of our current healthcare system.
Many tech investors are also — understandably — drawn to the power of data, and the possibility of analytics, a sensible affinity but one that at times can translate into an excessively reductive view of medicine that fails to capture the maddening but very real ambiguity of medical science, and especially of clinical practice.