The passage and implementation of the Affordable Care Act created a perfect storm of disruption in the healthcare industry. All at once came massive systemic changes, from the expansion of Medicaid and guaranteed issue to minimum essential benefits and the creation of exchanges.
In the wake of ACA, nearly one hundred companies sprang up to fulfill the promise of Obamacare and make healthcare a consumer-driven, retail industry, where old work rules would be broken, novel business models established and new companies could command billion-dollar valuations in a short span of time.
There was a surge of excitement, and, as of June 2016, the U.S. healthcare space had eight “unicorns” (companies valued at over $1 billion), including 23andMe valued at $1.03 billion, Theranos at $9 billion and Zenefits at $4.5 billion.
But healthcare is a stubborn space. Think of it like a Rubik’s Cube, where every move has a ripple effect, and solving multi-faceted problems is par for the course. In these conditions, innovative models battle strong headwinds — a fact many VCs and founders overlooked as they rushed to build businesses following the patterns of technology-driven disruption that have transformed industries such as shopping, transportation and entertainment. Those companies that approach this three-dimensional problem with only two dimensions — by cutting corners or finding “shortcuts” — have found themselves lost.
Theranos struggled to back up its claims and has been given bans from U.S. regulators. Zenefits has been accused of selling insurance products without proper licenses. And not long ago, 23andMe failed to secure regulatory approval before making claims about the medical legitimacy of their devices. All of these companies have since faced financial problems — Theranos is nearly worthless.
This string of high-profile debacles reveals a simple, but crucial fact: Disrupting healthcare is not a sprint; it’s not even a marathon — it’s a grueling decathlon with hurdles every step of the way.
In addition to nailing all the prerequisites of a modern startup (an emphasis on exemplary design, scalable technology and sterling customer support), new entrants wanting to move fast must navigate healthcare’s laundry list of regulations, abiding by specific federal and state regulatory requirements and the labyrinthine rules of the FDA.
Can we really expect true disruption, the game-changing disruption that companies like Uber and Airbnb have brought to transform their respective industries? In a space that demands that new companies file 50 different sets of forms for each state, the regulation in healthcare is unrivaled by any other industry.
Beyond the regulations, which are nearly damning to disruption in and of themselves, we have to realize that the healthcare environment is one in which trust is essential — which isn’t unreasonable, given purchasers are making decisions that literally involve life and death.
For the innovators who have the patience to follow through on their vision … there are fortunes to be made.
Building the necessary level of trust, however, takes a lot of time, and startups too often project growth based upon metrics driven by early adopters. But this category of customers is especially elusive in healthcare. As an example, telemedicine is a brilliant solution that delivers fast, reliable care at a fraction of the price of a normal doctor visit, and yet it’s taken years for telemedicine to really register on the U.S. healthcare radar.
The education and hand-holding necessary to achieve results might work for a shoe or taxi company, but changing people’s fundamental behaviors is difficult, especially when it comes to their health and well-being. Strategies like creating incentives to eat healthier meals, go to the gym more often or wear activity trackers produce exciting, flashy results, but don’t do much to create long-term improvements in overall health.
Finally, consumer choice within healthcare is fundamentally limited to certain key decisions. They can choose their insurance plan, but only from the options provided by an employer or through an intermediary such as an exchange. They still must buy an insurance plan or face a penalty. When you take choice out of the equation, when consumers aren’t empowered to select the most efficient and affordable option for themselves, the challenges facing B2C healthcare startups are apparent.
To be sure, there have been signs of success in the industry. Despite the challenges of changing people’s behavior, Omada Health has been tackling chronic disease with a slow and steady approach, which notably included Omada publishing its own clinical two-year study in the Journal of Internet Medical Research demonstrating the efficacy of their model. Such a move is slow and time-consuming, but it goes a long way in developing trust in their product.
Sherpaa, a New York City-based digital healthcare service, has slowly grown itself by offering tangible cost-saving measures that promote patients’ using less-expensive care options such as telemedicine and emailing with doctors to diagnose a problem instead of booking a costly office or ER visit.
As much as people agree that healthcare in America is in major need of repair (a recent poll found the majority of Americans would even prefer a “Medicare for all” healthcare solution), healthcare startup founders can appreciate there will never be an Uber of healthcare. Uber turned consumers from one transportation method onto another, effectively selling champagne to the masses. They’ve been able to change consumer behavior in a short period of time. But in the realm of healthcare, there are too many regulations, constraints and basic laws of human behavior to overcome.
But for the innovators who have the patience to follow through on their vision, and who don’t presume to cut the Gordian Knot of healthcare with a marketing gimmick or shiny app, there are fortunes to be made. Even more importantly, those innovations will facilitate lower costs, increased access and better outcomes to the U.S. healthcare consumer — what every American deserves.