Digital health in the U.S. got a huge boost from COVID-19 as more people started consulting physicians and urgent care providers remotely in the midst of lockdowns. So much so that McKinsey estimates that up to $250 billion of the current healthcare expenditure in the U.S. has the potential to be spent virtually. The prominence of digital health is undoubtedly here to stay, but how it looks and feels from provider to provider is still a debate among sector startups.
Ultimately, the debate comes down to a startup’s core value proposition, and what it chooses to outsource versus build in-house should help one identify what that is.
But for providers who want to deliver care virtually across the country, it’s not as simple as adding a Zoom invite to an annual check-up. The process requires intention every step of the way — right from the clinicians delivering remote care to the choice of payment processor.
Providers and healthcare startups can choose white-label solutions such as publicly listed Teladoc and Truepill, which have been around for a long time and have powered the operations of unicorns like Hims and Hers, Nurx and GoodRx as they look to scale in a compliant but efficient manner.
Turnkey solutions might be tempting to companies looking to take advantage of this opportunity, but startups still have to decide what to outsource and what to build. Should you rely on others for staffing your practice? Do you build your own payment processing service in-house? Do you integrate with Zoom or build your own video-conferencing software? These questions are crucial to think about early on to prepare for future scale regardless of whether a startup is B2B or B2C.
More than just Zoom
SteadyMD, which in March raised a $25 million Series B led by Lux Capital, wants to be the infrastructure layer that makes it easier for other companies to offer telehealth services. It is hoping to address a pain point it ran into years earlier: The complexity of launching compliant telehealth services in all 50 states.
The company launched in 2016 with the intent to provide high-quality, virtual primary care for brick-and-mortar shops. Through that process, SteadyMD built a suite of tools to make it work with EMR integrations, doctor-patient communication channels, digital recruiting and forecasting software, and prescription referrals and operations. The burdensome process struck a chord with the co-founders and they pivoted the company to where it is today: an “AWS for healthcare.”
SteadyMD offers a suite of services to its customers, the least of which, says co-founder Guy Friedman, is its video-conferencing platform.
“It’s not about the technology capacities,” Friedman says. “The very large companies that have a lot of resources are using us to help them increase their capacity as workforce.”
The company also helps providers offer home lab and diagnostics services — a process that requires a clinician ordering for a patient on the back end — as an added competitive advantage.
Long term, SteadyMD could be a place that helps provide primary care practitioners and diagnostic bandwidth to provider networks, giving them the sort of modularity that can make them a one-stop shop regardless of patient issue.
Deena Shakir, a partner at Lux Capital who led SteadyMD’s latest round, says the company provides more than a virtual experience for providers. “In the past, you’re kind of limited by who’s right around you, like I don’t want to drive an hour to go meet the perfect person and they happen to be in San Francisco, but I’m in Palo Alto. Now, it’s the norm to do it virtually and if I find that person that I connect with but they are in a totally different geography, I can do that,” she says.
The long-term question is how many digital health startups will need to use a company like SteadyMD and what that customer segment looks like. “Many ‘competitors’ are actually working with SteadyMD, because they might have a bunch of their own stuff, but they need to offset [the] increased uptick and demand,” Shakir said. “It doesn’t have to be an either or.”
Where the patchworking could stop
Expressable, a speech therapy platform that recently raised a $4.5 million seed round, is an example of what a hybrid approach to building and buying looks like in healthcare.
CEO Nicholas Barbara, who launched the startup with co-founder and spouse Leanne Sherred, said he thinks it’s “a little silly to spend a lot of development and engineering time trying to reinvent the wheel on videoconferencing.” Instead, the company opted for arguably one of the most established videoconferencing players, for stability and compliance: Zoom for Healthcare.
Beyond Zoom, Expressable’s tech stack includes Twill for logistics, Stripe for payments, AcuityMD for scheduling appointments, and Contentful for content and information delivery. “The most successful digital health startups that are building software aren’t building everything from scratch,” he said.
However, the patchwork stops at Expressable’s core service: speech-language pathologists (SLPs). The startup’s main business is providing virtual speech therapy, which is performed weekly for months and often years. Because of the recurring nature of the service, the founders decided early on that they would hire a base of speech-language pathologists full time instead of turning to one of the many staffing companies out there.
“I’m making the case that Expressable is going to build a care model with the best clinicians in the country, [with] better outcomes at a lower price,” he said. “I can’t outsource my clinicians and make that promise.”
By hiring SLPs, Expressable is able to keep its core differentiation — its diverse, flexible clinician base — on contract and defensible. To date, Expressable has about 50 SLPs on W-2 contracts.
The company faces a challenge, though: It has to hire each pathologist individually in order to scale, which comes with operational friction. Most digital health interactions need a licensed clinician in a specific state to administer a visit.
While it has ambitions to become a national practice, Expressable currently operates in 15 states and has to employ SLPs that are licensed in all the states it operates in. If a competitor were to come along, outsource staffing and become national overnight, Expressable could be edged out of a market simply by footprint size (even if depth is a value proposition on its own).
“At the end of the day, I think it’s all about how much control you feel like you want to have over the quality and workflows of your clinicians,” Barbara says.
He added that a safe way to test new business lines for a startup would be to experiment by outsourcing clinicians in the beginning. For example, if a digital health company wants to offer a quick service that doesn’t have variance between doctor to doctor, like a prescription for anxiety, it might be okay to turn to a startup that helps with staffing. Barbara argues that the less transactional a relationship is, the more it makes sense to own the provider-patient relationship for long-term scale.
One size doesn’t fit all
Melody Koh, partner at NextView Ventures, which led Expressable’s last round, thinks founders should know that one size doesn’t fit all when it comes to building versus buying. “If I can spend more of my time focusing on what is truly going to be the differentiator from a digital product experience or technology perspective, I’d rather let other people do the more commoditized part of the stacks,” she says.
Koh likened the entrepreneurial energy around the healthcare infrastructure to the early days of e-commerce a decade ago. “In the early days of e-commerce, you had relatively less mature stacks. Shopify wasn’t nearly as robust and there were fewer subscription products, coupon engines, or APIs for logistics and payments, so founders in commerce [had] to build a lot of that stuff in-house.”
In today’s world, building an e-commerce company feels entirely reinvented — it’s sometimes as simple as opening a Shopify storefront. And a digital health startup can work with a white-label provider to increase its footprint without friction in the same way that an e-commerce startup might work with a logistics company to offer fast shipping that competes with Amazon.
Ultimately, the success of digital health stack startups will depend on the success and long tail of the general ecosystem. Shopify is a giant company because there are long-tail merchants and an ecosystem big enough to support it as a business. But what about healthcare?
“I don’t think there will be 30 company winners,” in the white-labeling space, Koh said. “But there might be a payment winner, there might be an EMR winner, and there might be a pricing and analytics winner.”
Ultimately, the debate comes down to a startup’s core value proposition, and what it chooses to outsource versus build in-house should help one identify what that is. The advent of a new digital-health tech stack is simply indicative that consumer-focused health, from both the patient and provider sides, has serious tailwinds.