½ of all digital health startups fail within their first two years!”
Defining success and failure in digital health
So to define success we kind of look at it as having a genuine impact with your business on the market. If you are, then the ideas that you have in terms of improving patient satisfaction, or curing cancer, for example, may let you improve patient outcomes.
If you aren’t hitting those things then the definition of failure is more or less you running out of money, or your business not getting funding to get your product off the ground. But more importantly, your innovation is not having a genuine impact on the lives of patients.
Why half of digital health startups will fail
It simply comes down to the fact that healthcare is a very unique beast. There are challenges within it that you will not find in any other industry. And so it’s understanding those challenges and those blockers that can help give you a shortcut to success.
To follow, are four challenges that are specific to healthcare.
The payor is the insurance company and often they are the ones that dictate which sort of innovations are the ones that are going to be deployed within health systems. And that’s because there is a complex and convoluted way in which the payers actually pay for services and technology. Historically, healthcare has been what’s called pay-for-service or fee-for-service and that means that essentially when a practitioner does a job that practitioner can file via a code somewhere and get paid for that.
Healthcare is transitioning now to what’s called fee-for-value or value-based care and this is through programs like MIPS, MACRO, etc. Essentially, what value-based care means is that there are multiple parties now that are joined to try to make the patient better, and the success over a finite timeline determines if the whole chain gets paid.
So because of that, even if you have a really great idea, by far the most common blocker to that idea actually being used by the market is not understanding exactly who’s going to be paying for it and how that will fit into this system.
Healthcare is local
This means that there is not as much competition as you would expect or that we see in other industries. Because of this, there’s not as much pressure as you might expect in another industry and this lack of competition, this lack of pressure, means that the priorities set by the administrators at these hospitals are different.
Healthcare deals with people’s lives
The impact of your technology or idea is really a situation of life or death. But even underneath that, there’s a subtext which is that we’re also dealing with the data that relates to patients lives. We have PHI and we have human genome sequencing data as examples. The data is very different and the stakes with the data are high. On the black market, credit card data right now goes for about $35. A patient record goes for about $260. So the overall value of your PHI records on the dark web is much higher. Because the stakes are so high, it means that conservatism is way higher than you would ever expect.
On the black market, credit card data right now goes for about $35. A patient record goes for about $260.”
More data means more complexity
The amount of healthcare data that is stored has exploded in recent years and doctors, hospital, CIOs, and even EHR vendors don’t really know what to do with all that data. Nobody’s really found a way yet how to fit it in and make it useful and the fact that it just keeps growing makes that challenge even more complex.
But there are also more complex things beyond just the data. For example, take a look at the most recent versions of ICD. ICD-9 had roughly 17,000 codes, ICD-10 increased that by a factor of 10, and then, with the semantic structure changes of ICD-11, there are additional combinations or permutations. Now doctors, nurses, CEOs, etc. have to manage more than 1 million permutations of options to codify a patient.
All of that means it’s just getting harder for digital health to succeed every single year.
Things you need to know to win at the digital health game
- There really isn’t a concept of scale. One of the hardest points to communicate to brand-new digital health startups is that there is no real-time API. You cannot plug into an API and get access to all patients or to all installations of Epic. Every single installation or integration of your product at a hospital is reinventing the wheel. Every time it’s a VPN, point-to-point connection it uses 1980s protocols called HL7. Healthcare is one of the least interoperable industries in the country and this is why.
- The buyer is not the user or the one who will benefit. And this goes back to the payment structure we talked about above. As soon as you can understand where you fit in the payment structure, your business has a chance.
- The technology is really old on purpose. If you’re a technologist, it will shock and upset you to know that most hospitals are using an EHR that works in IE8 compatibility mode, and uses ActiveX directory or ActiveX tooling. Understanding how your new innovation can fit into that existing, old technology paradigm is really important. Also, a hospital CIOs priority is to manage their four-to-five-hundred Windows VMs sitting in their data center much more than it is to buy a singular app and try to fit it into their existing workflows.
If you take the time to really understand the market, you’ll have much better success at getting your foot inside your buyer’s door.
4 quick tips for success
- Fit into the existing world that is healthcare. Digital health vendors need to have enough capitalization to last through pilots and through the period of trying to sell into hospitals.
- Stick with a B2B model. A B2C model is really hard to make work in healthcare. And that’s because people generally aren’t willing to pay for apps. The exception to this is the wearable market which is seeing some success. To make an impact, you need to think of your market as payers, providers, pharma or life sciences — not patients.
- Develop clinical evidence and demonstrate outcomes. Demonstrate the efficacy of your digital health product to break through the noise that your buyer — a CIO, CMIO, CISO, CTO, or CNO — faces.
- Gain trust by being knowledgeable. You must have a deep understanding of compliance (things like GDPR, HIPAA, SOC2, ISO, GXP, and HITRUST, interoperability, infrastructure, frameworks, etc. in order for your buyer to trust you enough to do business with you.
Follow this guidance and you’ll be able to walk into your buyer’s office on day one with confidence that you have a strategy to be one of the ones who succeed.