The healthcare industry, with its maddening inefficiencies and an economic model that incentivizes disease care over health care, desperately needs a Silicon Valley-style overhaul.
But even as waves of technological and economic disruption have washed over almost every industry in the United States over the last decade or two — commerce, finance, media, telecommunications — the everyday experience of healthcare stands unperturbed, stuck somewhere in the mid- to late-1990s.
Why is the nation’s $3 trillion creaky, monstrous and convoluted healthcare sector seemingly impervious to technological change?
As a precision-medicine physician who is working in the trenches to help people lead healthier lives, I’m eager for a digital health future. I imagine a new model, where we prevent disease over a lifetime. We could monitor individuals, more closely tracking key biomarkers via wearables, and — in light of their family history and lifestyle — manage risks over time. We could spot and reverse problematic trends in each individual long before disease ever expresses itself.
Yet most communications between doctors’ offices come by fax! (Yes, fax machines still exist!)
The full integration of technology and healthcare always seems just out of reach.
This is the model today: Doctors treat patients when they are sick. Patients switch doctors as often as they switch jobs, and their insurance changes. The history and data rarely follows the patient along this journey. You go into your doctor’s office and fill out a pile of papers. The doctor will only have so much time to glance over them before treating the illness at hand. You come back again the next time you are sick.
This is no way to run a railroad, never mind keeping people healthy for a lifetime. And we are paying for it. For instance, a recent UCLA study found more than half the population of California is either diabetic or pre-diabetic. This is madness. Diabetes is the kind of disease you can see coming from miles away.
Patients, providers and payers — everything is separate
There is one obvious reason for this lack of creative renewal in healthcare: size. Healthcare spending represented 17.5 percent of the U.S. gross national product in 2014, more than twice the size of the financial services sector. But, really, that’s not the answer. A big market would only be more attractive to entrepreneurs and venture capital.
The real reasons are more complex. Among them: Most of the recent attempts to disrupt healthcare have been aimed at cost containment and reducing healthcare usage. That is certainly less transformative — and much less sexy — than providing a more thoughtful or futuristic healthcare model. Add subsidies, high regulation and other distortions of market forces and you have a recipe for warped valuation assumptions of healthcare startups. Just ask healthcare startups Theranos or 23andMe, who have found themselves tangled in regulatory issues.
One VC that has had tremendous success in bringing healthcare businesses, such as Athenahealth, Ironwood Pharmaceuticals and Illumina to market despite these dynamics is Bryan Roberts, a partner at the Silicon Valley venture capital firm Venrock. He is known for investing for the long term, avoiding fads and investing broadly across healthcare, from biotech to health IT.
Roberts says that one impediment to digitizing the sector is the enormous amounts of capital required. “You’re dealing with an industry that is very labor-intensive and very low-margin,” he said in a recent phone interview. “And when that’s true those businesses are focused on viability with 90 percent of their brain.”
He also pointed to the separation of power in healthcare. “There are patients and providers and payers — everything is separate,” he said. “There is a fragmentation that makes it much harder to align interests and have someone step up and do something new.”
For instance, when asked about the diabetes crisis, Roberts points out that the current model for healthcare reimbursement ultimately disincentivizes keeping an individual healthy through the decades. The payer — your insurer or even your employer if they are subsidizing your insurance — is likely to change every few years. Any benefits created through a deep preventative focus would accrue to someone else.
“No person who pays for healthcare for someone in their 20s is also paying for that same person when they are in their 50s,” he said. “How you deal with that incentive dislocation — that’s a tough nut.”
Perhaps the next wave of VCs may be looking to solve this problem; I asked Phil Wickham, president and CEO of the Kauffman Fellows Program, a venture capital training program in Palo Alto. He has a firsthand view of the problems that young and talented VCs want to tackle. He noted that some of the unpredictability of process in healthcare is a deterrent to both VCs and entrepreneurs who might want to sell into the space.
“The delivery of healthcare, from soup to nuts, is one of the most unpredictable things I’ve ever seen,” he said, adding treatment can vary widely by geography, influenced by arbitrary factors — anything from the way a city was developed to mergers and private equity rollups in the sector.
“To me there isn’t a logical methodology or predictability,” he added. “Take 50 people across the country getting a triple bypass, and it seems to me that all 50 of those people go on a bespoke journey.”
And remember: Many healthcare providers are still living a paper-and-pen existence. Roberts points out that many physician practices have only recently become technologically wired, or — even worse — they were wired a long time ago and need expensive upgrades.
“Their focus on technology is really small — they are busy taking care of people,” he said. “For our investments at Venrock, what we have tried to do is focus on those things that make it hard (to provide healthcare the old way), and seek out products and businesses that we believe have a very tangible short-term payback at a minimum or even better.”
A complex — and emotional — science
And if the economics of healthcare are complicated, the human body itself is even more complicated than that. Disrupting healthcare is not something akin to reinventing how you hail a cab.
“I’m pretty sure we know single-digit percentages of biology today,” said Roberts. “I think in a couple of years it will become very evident how much of the genome we didn’t know about, even though it was 15 years ago that the genome got sequenced, and we were all like, we’re all good to go.”
He pointed to the human genome’s complexity, with the DNA in a single cell containing some 3 billion base pairs, and said that systems biology companies are potentially moving too far out in front of the science. “They say biology is going to be like semiconductor manufacturing. But not anytime soon, because it’s really complicated.”
Wickham also noted that the emotional aspect of healthcare also comes into play, which also makes healthcare harder to disrupt than, say, manufacturing. “There is a heightened threat response behaviorally to decision makers and users of the healthcare system because it is such an emotional experience,” he said.
Despite the daunting obstacles and the stubborn complexities, there is reason for optimism: Venture investors often like the challenge of solving the really tough problems. Further, many more investors have been drawn to healthcare in recent years, and as they work with leading researchers and physicians, swarming the problem, there are going to be breakthroughs that will extend not just our lifespan, but the years of healthy enjoyment of our lives.
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