Healthcare’s Wild West

Stop and look around you, and you’ll see just how quickly society is running into the future. Over the past decade alone, we’ve seen monumental advancements in genetics, mobile computing, wearables and medical devices.

Yet, there are a some sectors of the economy that have managed to stay stuck in the past. Specifically, healthcare. It is, for want of a better description, a bureaucratic and slow-moving industry that is riddled with inefficiency.

Healthcare, for example, is one of the few remaining sectors that still — in 2015 — uses fax machines as a means of communication. And yet, it’s a $3.7 trillion industry in just the U.S. alone.

Several digital health startups have made it into the exclusive Unicorn Club (companies valued at a billion dollars or more), including Oscar Health, Adaptive Biotechnologies, 23andMe, Proteus Digital Health and others. The opportunity in healthcare, as illuminated by these startups, is huge. Take a look at the top-10 pharmaceutical companies; their market caps are easily between $40 to $250 billion each. Venture capitalists invested 250 percent more money into health insurance in 2014 than they did the year prior. Moreover, in Q2 of 2015, funding for healthcare IT came in at $1.2 billion alone.

If it’s such a golden opportunity, why hasn’t it been a huge focus for tech entrepreneurs? Firstly, it’s not for the faint of heart. Healthcare is heavily regulated. It’s also not like consumer tech, where you can decide to build a prototype of an app over the course of a month and then start beta-testing it in the wild. There are lots of obstacles to overcome in order for a tech company to penetrate the market. But, successful exits in healthcare do happen often.

Done right, building a successful healthcare startup is extremely rewarding, and can have a tremendous and immediate impact on a community. Below I’ll examine key strategies that have been used by startups to break into healthcare and revolutionize a sector of the industry.


You need to focus on solving one specific problem in healthcare, not 10 of them. Healthcare is so vast, it’s easy to underestimate the energy and focus required to execute on automating even the smallest task. When I founded ZappRx in 2012, we wanted to expedite prescription checkouts at pharmacies. With healthcare in its current state, this idea was like trying to boil the ocean with a match. So we changed the focus and decided to hone in on a specific area that needs a tech solution: the process of ordering specialty medications for those with rare and life-threatening diseases.

You’d be surprised how big even a niche area of healthcare like prescription management can be. For example, another startup that is innovating in the prescription management space is called PillPack. You can think of PillPack as an online pharmacy — one that fills, sorts and delivers all your medications in packets based on when you need to take them. The company hopes to help patients take the right meds, at the right time, each day. (For some patients, including the elderly or people who have to take a “cocktail” of pills, this is a gargantuan task to solve.)

You need partners to get anything off the ground in the healthcare industry.

And yet another startup in prescription management is Healthfinch, maker of an app called Swoop, which is focused on helping medical staff automate prescription requests. Additionally, the founders of the startup Zipdrug estimate that more than 8 million hours are spent waiting at pharmacies every single day, so they created an on-demand prescription drug delivery company that is just like Uber, but for your medication.

As niche of a space as prescription management is, there are a ton of ways to drill down and focus on a subcategory within that space, as shown by ZappRx, PillPack, Healthfinch, Zipdrug and many others. This is true with all realms of healthcare.

Have A Strong Business Model

Can you think of any healthcare startup that doesn’t have a solid business model? Going viral is nearly impossible — hence, there is no Instagram of healthcare. Unlike consumer tech, where the company scales first and then thinks about monetization, in healthcare, you need a business model from the beginning. You can’t easily commercialize sensitive health data from patients. In order to survive and thrive, healthcare startups need to solve an acute pain for which customers are willing to pay.

A great example of this is athenahealth, which provides cloud-based services for physicians, such as electronic health records and practice management. Athena’s big selling point was that it helped doctors manage charts and submit bills to insurance companies electronically, and then only took a processing fee if the bill was approved. Athena only got paid if their customers got paid, and this was a high-value proposition to the doctors using their service. Although athenahealth has a small share of the market, they IPO’d in 2007 with zero debt on their balance sheet, and at end of last year, athenahealth’s shares were trading at an eye-popping 3,547 times its earnings over the course of 2014.

Partner With The Big Players

You need partners to get anything off the ground in the healthcare industry. This isn’t the same for consumer tech (take, for example, Uber, who only went looking for legislative partners after they had already made a dent in the market). Because of the heavy regulations involved in healthcare, it’s essentially impossible to get started without major partners.

We can help the healthcare industry finally catch up to the tech industry.

CoverMyMeds, for example, is an electronic prior authorization (ePA) platform that enables doctors and pharmacists to get pre-approved coverage for their patients’ medications (historically, this process involved paper forms, faxes and phone calls between medical practices, pharmacies and insurance companies). The company strategically partnered with physicians, health insurance companies and pharmacists to get off the ground. All of these players benefited from a more streamlined prior authorization process, which saved them countless hours of administrative time and overhead costs.

By solving an acute pain point and bringing time-saving benefits to its partners, CoverMyMeds has become the nation’s largest ePA platform provider. They currently integrate with 45,000 pharmacies, more than 360 electronic health record systems and payers representing more than 72 percent of U.S. prescription volume. CoverMyMeds was projected to bring in $50 million in revenue last year alone.

Raise Funding And Go In It For The Long Run

Building a startup in the healthcare industry can take a long time, and requires a lot of patience. In most cases, you need to raise enough money for you and your team to get through the valley of death before you actually start turning a profit. Having a solid business model, as stated above, will go a long way in getting investors to help you along until then. In addition, the enterprise sales cycle takes a very long time, because you need to navigate and meet the requirements for multiple stakeholders in an organization. Additionally, you need to be HIPAA-compliant, and, if necessary, your product needs to be approved by the FDA.

Elizabeth Holmes, the founder of Theranos, a revolutionary blood diagnostics company, started her company at 19. Over the past decade, Holmes raised more than $90 million to keep her company running in stealth while Theranos’ technology was being perfected. About a decade later, Holmes is finally seeing the light of day, with Theranos valued at $9 billion, and her own personal worth estimated at more than $4.5 billion.

The magnitude of what Holmes has done with Theranos is shockingly impressive — not only did her team have to develop and build groundbreaking technology from the ground up, but they also had to navigate and bypass all sorts of regulatory issues by the FDA. (Remember that 23andMe, the genetic testing startup, founded by Anne Wojcicki, the wife of Google co-founder Sergey Brin, and backed by Google Ventures, almost got shut down by the FDA).

But keep in mind, Theranos’ success didn’t happen overnight. It took more than a decade, and Holmes needed to have raised enough funding to keep her team going before they could take a viable product to the market.

Moving Into The Future

There are huge and important opportunities for startups in healthcare, many of which are already seeing the payoff. My dream is that over the next decade, we’ll finally be able to reach a utopia where the fax machine is non-existent in healthcare transactions and where healthcare data is transparent enough for patients to actually understand it. In other words, we can help the healthcare industry finally catch up to the tech industry.