Author: Jocelyn Gao, Graphic: Carol Lu
The BRB Bottomline
Millions of Americans do not have access to healthcare, and the COVID-19 pandemic has only worsened this ongoing crisis. Healthcare startups have emerged as the face of innovation, bridging many of the gaps in the healthcare system. However, the healthcare industry’s rigid structure makes it difficult for these startups to grow and instill the change that they have the potential to create.
A Need for Change in Healthcare Access
The American healthcare industry is often seen as a monolith. It embodies a series of complex interactions between the government, insurers, pharmaceutical companies, and hospital systems – all of which can be incredibly bureaucratic. For a long time, the industry has been dominated by a small group of large players. Merck & Co, Johnson & Johnson, and Bristol-Myers Squibb supply most of the healthcare-related products to the market. Similarly, Blue Cross Blue Shield, UnitedHealth Group, and Anthem are some of the top insurance providers. These companies play a large role in influencing government policies related to healthcare, spending billions of dollars in lobbying expenditures to defeat ballot measures that would lower drug prices or expand single-payer healthcare plans.
Yet the COVID-19 pandemic has brought to the forefront the gaps in our healthcare system, particularly in coverage. Before the pandemic, 45% of U.S. adults ages 19 to 64 were estimated to be inadequately insured, with 31 million uninsured and more than 40 million underinsured. The surge in unemployment resulting from pandemic shutdown exacerbated these numbers, as over 10 million Americans are projected to lose employer-sponsored medical insurance. Moreover, this exposed the racial and ethnic disparities in access to healthcare; 9.7% and 16.7% of Black and Hispanic populations, respectively, were uninsured in 2019, compared to the 5.2% uninsured rate for Whites.
The Affordable Care Act (commonly known as “Obamacare”) somewhat addressed this; from the years of 2013 to 2018, the Black-White disparity in uninsured rates decreased by 4.1%, and Hispanic-White disparity decreased by 9.4%.. However, the potential overturn of the Affordable Care Act in the Supreme Court raises an important national conversation about how to address the systemic issues in healthcare access in the United States, especially with the effects of the coronavirus pandemic.
This consistent lack of coverage and its underlying racial and ethnic disparities show that our current healthcare system is not adequately designed to ensure the entire population’s basic well-being. However, these gaps in access create space for a significant driver of change – technological innovation. Within the healthcare industry, the face of this innovation is digital healthcare startups.
A Closer Look at Healthcare Startups
The startup boom saw the rise of innovation-driven business in many industries, and healthcare was no exception. Healthcare startups are mainly early-stage tech companies that provide products and services for health-related experiences, and there are currently almost 3,000 startups within the health technology industry. This has driven the creation of the “digital health ecosystem” that integrates technology like artificial intelligence, cloud computing, big data analytics, and blockchain networks into delivery systems, diagnoses, and treatment. For example, one startup, K Health, launched an app in 2016 that uses artificial intelligence to analyze patients’ medical backgrounds and provide a list of potential diagnoses. The app also uses this data to connect patients with local specialists and send prescriptions to nearby pharmacies.
Despite the high demand for this technology within the healthcare industry, most of these startups fail to achieve long-term success. This is because the healthcare industry is structured in a vastly different way than the tech sector, as the industry is dominated by a few large players with immense resources that make it virtually impossible to compete with their influence. Still, healthcare startups tend to apply the same business models and strategies as traditional consumer technology startups.
Firstly, healthcare-related products and services take a lot of time to develop due to the risks associated with their use; they have to demonstrate proof of concept and a high level of effectiveness in order to be able to go to market. At the same time, startups must navigate regulations such as the Health Insurance Portability and Accountability Act (HIPAA), which protects the privacy and safety of health information, and the Anti-Kickback Statute and Stark Law, which prevents healthcare providers from referring patients to any entity they have a financial relationship with. This can lead to high initial R&D costs, and companies may struggle to raise these funds because investors are wary of the high risk of operating within the healthcare space. Furthermore, the complex regulations and stakeholder relationships lead to long sales cycles – often one to two years – that these startups do not have enough money to sustain.
This has led healthcare startups to shift towards a business-to-business (B2B) model in order to accelerate the sales process. In a survey by Rock Health Enterprise Sales, 85% of digital health startups had a B2B or B2B2C business model, and 61% of them had initially started with B2C but switched to B2B. Yet the B2B business model in the healthcare industry relies on traditional healthcare providers, which feeds into the issue of lack of coverage for a large portion of the population.
Creating Change in the COVID-19 Healthcare Landscape
With the rise of digital care during the pandemic, the space is growing for innovation that directly addresses consumer needs. The healthcare industry as a whole seems to be moving towards at-home care as a part of the “new normal” of social distancing and remote work. These may be the right circumstances for tech-based solutions to address the key issue within the U.S. healthcare system – inadequate access.
Healthcare tech startups can take this opportunity to create home-centered solutions that bridge healthcare access for vulnerable communities. The shift to a virtual platform – a service known as “telehealth” – already overcomes physical barriers to access, such as location and transportation, that have historically led to disparities in communities of color. Amwell is a startup that connects doctors and patients through video visits that can be accessed anywhere on a phone, tablet, or computer. Another issue that is being addressed is language differences. Translating platforms allow multilingual communities to understand complex medical concepts and communicate their needs more clearly with medical professionals. Canopy has a free mobile app that translates medical phrases in 15 languages and connects non-English speaking patients with live interpreters. Coverage is also a large point of focus in healthcare technology. Companies like Stride Health help individuals navigate coverage and connect them to health plans based on a built-in recommendation engine. The services these startups provide are incredibly empowering to their users, not just in reducing gaps in access but also in improving trust in healthcare systems.
With the increasing consumer demand for this technology, there’s a higher possibility that healthcare startups will be able to succeed with a B2C model. However, the role of the government and traditional healthcare providers still needs to be considered. Government spending in healthcare has increased significantly as a result of the COVID-19 pandemic, marking the possibility of an increased role in the healthcare industry in the future. This brings the potential of public-private partnerships between the government and these tech startups to increase access to healthcare, but may come with issues of data privacy that would need to be addressed. In addition, established healthcare providers will likely continue to hold a significant level of power over the industry even with the consequences of the pandemic. The majority of these healthcare startups still rely on their relationships with these companies because they remain a necessary facet of the healthcare system in accessing treatment.
Consequently, a shift to a B2C business model will not be that easy for healthcare startups. However, the pandemic has increased the industry’s dependency on the technology that these startups provide. The importance of these startups not only reduce a gap in access but also improve trust in healthcare systems. This will continue to create a lot of opportunities for these emerging companies to grow and effect change in our healthcare system.
Looking Forward in the Healthcare Industry
The gaps in access within our healthcare system are more apparent than ever with the COVID-19 pandemic, showing that the healthcare landscape can no longer sustain the centralized model it operated under in the past. The call for “systemic change” is clear, and healthcare technology stands at the forefront of what the future of healthcare could look like.
Nonetheless, there’s still a lot of uncertainty in what will happen to the healthcare industry. The market for virtual health platforms is expanding. Still, it’s hard to tell how this will fit into the rigid structure of the current healthcare system, especially given the challenges that healthcare startups already face in staying afloat. However, the potential to bridge these longstanding gaps in access to healthcare remains embedded in the innovation that these startups provide.
Take-Home Points
While demand for technological innovation in healthcare is growing, the healthcare industry is organized to not provide much room for startups to respond to this demand. The high risks associated with healthcare, the complex regulations, and the power of established players in the industry can stunt the growth of emerging companies. Nonetheless, the COVID-19 pandemic has started an expanding national conversation about what can be done to address the holes to our healthcare system. These startups have the potential to create immense improvements in access and quality of our healthcare, so they should be a part of these conversations as well.