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October 15, 2014

Tech Startups Attempting to Disrupt U.S. Health-care Industry

A new crop of healthcare startups are leveraging low-cost, ubiquitous technologies such as Internet of Everything (IoE), big data, wearables, cloud computing, and mobile apps in an attempt to disrupt the multitrillion-dollar US healthcare sector – each chipping away at one small part of the gargantuan system. But with so many entrenched players, can startups create real change in the US healthcare industry?

The time may be right. Consumers are fed up with paying exorbitant costs and are looking for more personalized care. In the era of Obamacare, consumers are taking more control over their healthcare, making calculated choices about which insurance plans and healthcare providers offer the best value. At the same time, direct-to-consumer channels such as the web, wearables, and mobile apps are making it easier for consumers to ‘get in the driver’s seat’ to manage their own healthcare. On the provider side, hospitals and insurance companies are getting pressure to explain cost structures (including $30 band-aids and $1 million surgeries). Entrepreneurs who can find ways to use technology to give consumers the healthcare they want – and help providers increase transparency and improve service – stand a fighting chance of creating large, profitable companies.

Venture capitalists are certainly betting healthcare startups will succeed financially. In 2013, venture capital firms invested $6.4 billion into 50 healthcare companies, and investment is expected to be even higher in 2014. One sub-sector of the healthcare investment space is “healthcare IT”, which includes only  those companies that leverage mobile, web, IoE, and other technologies to improve healthcare services. Venture funding in healthcare IT companies for 2014 reached $2.4 billion in the first six months of 2014, surpassing the $1.9 billion invested in that sector in all of 2013.

“It’s big dollars going into healthcare IT, and I think it’s going to be a long bull run,” said Steve Kraus, who leads healthcare investments at Bessemer Venture Partners. “Healthcare IT over the last two years has been the most popular sector for venture dollars.”

Some of the startups that have already achieved strong momentum in their attempt to disrupt the multitrillion-dollar US healthcare market include HealthTap, Fitbit, ZocDoc, One Medical, and Audax Health Solutions – but there are hundreds of smaller companies, too.

Startups with the best chance of success include those using a B2B2C model. These companies, including established players like Castlight Health, Simplee, and Eliza Corp., and upstarts like MotherKnows, Tonic Health, and ThriveOn, enable consumers to manage facets of their own healthcare through social, web, and mobile apps. But these companies have also built crucial links to healthcare providers, insurance companies, physicians, medical records providers, and hospitals on the backend. Castlight, a company that leverages the B2C2B model to help employers and employees navigate health insurance choices, completed an IPO in March. Though its shares have fallen since the IPO, the company is still valued at over $1B.

Another area where startups are gaining traction is in helping doctors provide better, more personalized care. Companies like HealthTap, which enables doctors to answer patients’ questions on the web and provide personalized care via a mobile app and video chats, provide doctors with the latest consumer technologies to connect with patients. ZocDoc helps doctors ‘get found’ by patients and provides immediate online appointment scheduling, while companies like PracticeFusion and drchrono enable physicians to manage medical records securely on the web and mobile. Iconic Data, with its SwiftPayMD mobile app, helps doctors submit billing codes in snap, while Doximity is a professional network for doctors – the “LinkedIn for physicians”.

Of course, entrepreneurs see wearables as another big opportunity in the healthcare space. With the new Apple Watch joining a slew of wearables from companies like FitBit, Basis, Nike, and Jawbone, the focus is on helping consumers track their fitness goals. But, in the not too distant future, there is no reason why these smart watches couldn’t track (and communicate directly to healthcare professionals) vitals like blood pressure, heart rate, insulin levels, and more. Wearables could also interact with location-based sensors, providing wearers with reminders to take medicines, get up from their desks to walk around, attend an exercise class, or avoid entering a fast food restaurant. Startup LUMOback provides a wearable sensor and smartphone app that tracks movements and posture to help people avoid back pain and injury, for example.

Healthcare technology startups are garnering millions in funding, but the jury is still out on whether most of these companies will become huge successes – or simply fade away as flashes-in-the-pan.

One observer not so sure all these startups will become billion-dollar companies is Dr. Palav Sharda, whose Twitter feed proclaims him “health IT’s resident skeptic”. He founded a consulting firm called Multiplyd geared toward fostering he calls “medical-grade” startups – those addressing real problems in the healthcare industry. He says many of the startups garnering funding are more like fun apps for consumers to help them manage fitness, but they aren’t truly fixing what’s broken in the healthcare system.

“Don’t get me wrong, I admire the entrepreneurial spirit,” Sharda said in a recent article in Healthcare IT News. “My issue is, that without actual healthcare experience, all this fantastic talent and passion surge goes to the less important problem spots of a troubled industry.”

Others, including entrepreneur Dr. Daniel Kraft, quoted in the same article, believe change happens first on the consumer side. Once consumers begin expecting easy-to-use mobile apps to manage their healthcare – much in the same way this has happened for e-commerce, enterprise software, and other industries already – the industry will be forced to adopt these technologies. Just because an app is tailored to the consumer doesn’t mean it can’t impact insurers, hospitals, and doctors, he said.

Healthcare is a promising, but challenging, field for startups. To have a shot at seriously disrupting this complex industry, entrepreneurs must offer a product or service that serves both doctors and patients – and has ties to the “big guns” that today make the multitrillion-dollar healthcare industry run, including insurers, billing companies, HMOs, and medical records organizations. Only time will tell if startups can make a lasting impact on the massive US healthcare industry – but the roadblocks won’t stop ambitious entrepreneurs from trying.


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Kristi Essick covered technology, business, and venture capital for more than a decade in San Francisco, London and Paris. She has served as a special correspondent in Paris for the Wall Street Journal Europe, where she wrote a weekly column on the European venture capital scene. Prior to joining the Journal, Kristi was the Paris bureau chief for the Industry Standard, leading coverage of the European startup sector, and covered technology as a senior European correspondent for the IDG News Service. Used with the permission of http://thenetwork.cisco.com/

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