Unscaling The Healthcare Economy

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Editor’s note: Hemant Taneja is a partner at General Catalyst

Healthcare delivery has always been among the top targets for founders seeking to dramatically improve our lives while building great businesses. Yet, with very few exceptions, most founders find it difficult to build scalable software-defined businesses for providing high-quality care.

It is obvious that we are hitting the scale limit of our present system, while virtually bankrupting our nation in the process. The United States spends more per capita on health care than any other nation in the world. And according to the CDC, there are 210,000 active general practitioners in the American health delivery system and they will handle about 555 million patient visits.

This impending healthcare crisis is finally forcing us to think differently, and we are witnessing some of the most out-of-the-box developments in healthcare delivery I have seen in the past decade. Changing our approach to chronic diseases like diabetes and obesity could save hundreds of billions of dollars alone if we move to software-defined health delivery. I will go on record and say that we can reduce our costs for managing diabetes in America by at least $100 billion if we move to software-defined health delivery.

Developing Software

There are really two fundamental shifts that are leading us to software-defined healthcare. First, consumers are starting to play with mobile health apps and wearable devices, partly due to curiosity and partly due to rising healthcare costs. This is a profound cultural shift. Even Apple has noticed and is starting to pay more attention to this area.

For too long, the American health care system has prioritized fixing acute problems over managing long-term well-being, largely due to the fee-for-service model at the heart of our insurance system. We are finally moving beyond expensive treatments when we become ill to a model that places our lifestyle at the core of health delivery, including the foods we eat, our physical activities, and our social lives.

The second fundamental shift broadly spans our economy, not just the healthcare sector. Founders now have a comprehensive set of platforms on which they can build massive companies without the talent and resources required in the past, a concept I have written about previously called economies of unscale. Whether it is accepting payments, handling shipping logistics, or storing data in the cloud, companies can now do in a couple of clicks what used to take a team of office workers several weeks.

That’s great news for founders, since software-based consumer engagement is among our strongest skills in Silicon Valley. We need to provide people just the right information and actions at the right time to guide them to choices that will give them healthier, happier lives. This might sound challenging, but this is precisely what Twitter does when it sends us a push notification that a tweet has been retweeted by many people.

We are starting to bring the same engagement expertise to healthy living that we bring to games and social, and hopefully more will be available soon. Apple, Samsung and other companies are leveraging mobile phones and consumer devices with sensors for bio-measurements to bring information to users in real-time so they can act on it at the right time.

Finding a Community

Software-defined healthcare will first manifest itself in helping the compliant health consumers who understand their health needs and are looking to adopt solutions to stay healthy.

Think about the 26 million Americans who suffer from diabetes, and the additional 80 million people who are pre-diabetic. Healthcare-related costs for the diabetic population are approaching $250 billion per year. To manage their conditions, consumers with diabetes need to carefully monitor their nutrition intake, exercise regimens and blood glucose levels.

Based upon past data, a startup could custom-tailor this treatment for each patient through an app, adapting to new information over time to ensure that a consumer is always receiving the optimal treatment. If the response isn’t effective, the consumer could be put into immediate contact with a nurse or doctor through the same device they had just been using.

There are interesting companies being built that are devoted to addressing each of those areas, allowing consumers with diabetes to enjoy healthier living, including Lose It!, Blue Apron, NatureBox and HelloFresh (disclosure: General Catalyst invests in Lose It! and NatureBox).

Some critics are concerned that startups are experimenting with the lives of patients by using tools like machine learning that are unproven in the context of health delivery. Is it better for a patient with diabetes to use an imprecise system based on population averages, or a personalized system with proper safeguards? This year alone, 140,000 people will be hospitalized for Diabetic ketoacidosis, a severe complication often caused by missed insulin treatments. If we can cut that rate down significantly using personalization and engagement, we have a moral obligation to consumers to do so.

We have a real opportunity to improve our collective health while also saving large amounts of money for our society. Today, a small group of entrepreneurs can improve the health of more consumers than an entire hospital system can by designing software-defined solutions for staying healthy. This is truly a tipping point for healthcare, one that will change the way health care is perceived, delivered, and financed, for the benefit of all of us.