Health care's ivory tower of data
As I stood through VC's at the Health 2.0 Spring Fling talking about the opportunity they're trying to guide startups through in health care, a few things stood out:
They speak largely generically as if they were incubating a company in 2001.
They certainly aren't thinking much of the companies they're investing in.
First of all, it sounds like these guys are taking 6-7% equity in these startups in exchange for $20-50K (virtually nothing). So the guys taking this cash are either a) stupid or b) after something else.
Health care startups are hard. While other industries have been incredibly disrupted through entrepreneurial tidal waves of IT in the last couple of decades - health care has remained pretty stagnant. The industry for movie rentals didn't require government stimulus, not only because there was no social impetus to prop up a fledgling industry, but also because the market would find it's own way and wasn't actually dominated by large players. Playing in health care as a startup requires access to information - not capital. And the big players with the valuable information aren't playing ball.
But they are. They realize they don't have the will or political capital to say "I'm going to build a new suite of products to manage care delivery by performing big data analytics on claims data that I own." But they also realize that there are serious problems with their models that aren't going away. The big players are talking about ACO, they're building PCMH offerrings, they see the writing on the wall: government is going to kill the fee for service model if they are to continue to subsidize customers to use services in the health industry. Insurers have a different risk management game to play now. Whereas controlling consumer behavior and managing risk in that interaction with the system was the modus operendi, that model doesn't work with an individual mandate. Now risk management is about managing care delivery, and that's where steerage of care with delivery vis a vis providers becomes important.
But this means measuring care. It means measuring outcomes. And it means prescribed treatment plans that are shown to generate positive outcomes both medically and financially. None of this can be done without access to data at a speed that other industries that have already mastered, and that is where the political will falls apart. The glass ceilings of these enterprises are limiting their ability to do the things Netflix and Google were able to do. So the only choice they have is to go outside and acquire these companies or have consultants come in and drive innovation from the inside. But what is decidedly not happening is the opening up of this data in a way that would allow industry to grow around the large players.
And so the role of the health care VC is very different. They are, in effect, buying agents for Kaiser Permanente, United, BCBSA, etc. They have skin in the game, placing the right bets that a select few have ideas that once enabled by the 500-pound gorillas, can be disruptive and can enable them to adopt new models. But the low investment and relatively high stake in these companies is a sign that the VC's are not here to get these companies from startup to growing business. This is a small-cap, fast exit play that gets small ideas into the big companies quickly, and builds on the ivory tower. It's not in and of itself disruptive - it's farming disruption for larger companies.
The companies that come out of this age of health IT innovation will be focused on the consumer end. They are the ones that will find ways to work around the ivory tower and still have an impact that individuals and retail medical providers value. But HIT startups looking to make an impact on the equation of cost of care had better be ready to get cozy with the very companies that they are inherently trying to disrupt.
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