The Healthcare IT Industry has exploded in the last decade. The Affordable Care Act, HITECH Act and requirements such as Meaningful Use has only increased the size of this industry. For those of us who watch the industry, it seems like you can’t log on to the internet without finding news about some new health care start-up which is hot and promises to be revolutionary. Common wisdom would hold that this kind of diversity is a good thing; it increases competition which inevitably produces a better/more efficient product. But this common wisdom might not be as wise as it is believed.
A simple Google search for healthcare IT start-ups demonstrates that there are multiple companies who seem to be tying to do the same thing. This kind of duplication of services can be a good thing, as innovation within one competitor either gains strength for the innovator or causes the others to improve their offerings as well in a bid to compete. But in areas that are experiencing the fastest growth and/or the most innovation, such as TeleHealth or TeleMedicine, there are a TON of smaller companies in the field, all trying to do the same thing. The competition should lead to a better product…but start-ups are notoriously low on cash flow and need investment in order to continue to compete and innovate; that is where too much diversity within a sector can do more harm than good.
Todd Hixton recently published a blog on Forbes that points out that investing in start-ups is a tricky business. The start-ups need the investors to continue to fuel their work; they cannot innovate without the funds to pay their workers and buy the supplies and infrastructure they need to work. But from the perspective of the investor, they want to know that the money they are investing is going to be returned. So they want to be careful about who they are investing in.
Hixton attended the recent Health 2.0 Conference in Silicon Valley and points out some of the duplication he witnessed in just the start-up pitches he attended.
Four companies were helping providers monitor patients with chronic diseases: Medtep, SensorTrend, Conversa, Vida. Several different companies were offering some form of tele-mental health services: e.g., SilverCloud Health, Eco-Fusion, Heimo.
The problem Hixton sees is that, from the investor’s side, it’s hard to pick the winner in this kind of environment. With so many potential places to invest your money, it’s easy to pick a loser and thus lose your investment. So investors will essentially stay on the sidelines, waiting to see who the strongest candidate is, before investing funds. This makes it impossible not only for the start-ups, but it also causes enormous disruption in the market, which can be damaging. As Dave Francis of RBC Securities pointed out at Health 2.0:
There are a lot of zombie digital health start-ups that get $1.5 million and a customer from a regional health system, and go no further.
Think about how much devastation this can cause! If a regional health system decides to go with a start-up for a service, and that start-up collapses, they are often left with a system they cannot maintain and may be difficult, if not impossible, to convert to a new system. The risk and frustration for all parties involved is large.
As I was reading the article, I thought about another current challenge in the Healthcare IT field: Interoperability. Its been named the focus of the next half decade by the ONC. Achieving interoperability is already a challenging obstacle; most companies are not willing to open up the backbone of their program and their code to others in order to facilitate ease of information sharing. The number of companies and programs in play increases this challenge exponentially.
Other industries have faced similar challenges, and it has historically been turbulent until the number of competitors within the field is reduced to a more reasonable size. Only at that time can standardization and interoperability be achieved. So when does diversity within a field become a net negative rather than a net positive? That’s the question the healthcare IT industry is struggling to answer, but I suspect it’s far fewer competitors than currently exist.