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All of Us Are Impacted by These 3 Healthcare Startup Mistakes

Michael Abrams, MA, is the co-founder and managing partner of Numerof & Associates, a firm that helps businesses across the healthcare industry define and implement strategies for winning in dynamic markets. He has more than 25 years of expertise working helping clients navigate an evolving healthcare landscape, across hospital systems, payers, and Fortune 500 pharmaceutical, device, and diagnostics companies. He has co-authored several books and has been featured in leading business journals and news outlets.
The healthcare industry is ripe with opportunity. It’s a $3 trillion market whose customers mostly feel they pay too much for what they get. The growing linkage of provider reimbursement to cost and outcomes creates room for innovators whose product or service can lower cost or improve outcomes. This is why we’ve seen significant moves from the likes of Amazon, Apple, and Google, as well as the creation of an abundance of healthcare startups.

Unfortunately, many of those new startups are having to close up shop. Call9, which hoped to provide nursing homes with telehealth tools to prevent older adults from having to visit the hospital unnecessarily, is among the latest, though there are many others who have met the same fate.

Shuttering startups has serious implications for the healthcare industry, with increasing closure rates discouraging further innovation that the industry, and especially consumers, still need and want. Most are failing due to one or more of the following common mistakes:

1. Falling in love with their technology

Some innovators who find a fresh way to add value in care delivery get caught up in adding additional “bells and whistles” to the core product or service – features that may be technically elegant but are not really important to buyers. This is especially true of engineering or science-driven organizations that fail to realize that in the healthcare space, outcomes and impact matter more than elegant supplemental capabilities.

One way to avoid investing too much time and resources in the development of potentially unnecessary features is to look at the startup’s offerings through multiple critical lenses. Startups must make sure that any new feature serves a purpose aside from simply being “cool,” and to do that, they must think about the value-add for payers, health systems, consumers, and clinicians, from product design onwards.

2. Not accounting for stakeholders’ complex needs, motivations and purchase criteria

Accounting for multiple perspectives is critical, because even if a product or service delivers substantial value to consumers, they won’t be able to experience it if the startup can’t initially prove to investors how they can benefit from supporting them. Similarly, startups will have a hard time selling their product/service to providers if they can’t demonstrate that it improves some aspect of the care experience.

To potential stakeholders, economic value is just as important as clinical value. Hospitals will be intrigued by how the startup’s offerings could improve the consumer experience, but at the end of the day – and especially as we move away from fee-for-service and toward risk-based arrangements where hospitals are held financially accountable for their actions – hospital chief financial officers want to clearly see the connection between purchasing the product and a better bottom line. The strongest cases will be made using data-based evidence of cost and outcome improvements.

3. Underestimating the slow pace of industry change

Lastly, it’s absolutely essential to know whether the healthcare market is ready for the startup’s product or service. We know from our fourth annual State of Population Health Survey that progress toward value-based care hasn’t taken off quite as rapidly as many have hoped it would – in fact, progress seems to have stalled. The majority of hospitals still derive just 10% of their revenues from contracts in which they are accountable for cost of care and outcomes. Interest in startup tools that can ease their transition to risk-based arrangements is there, but as they aren’t under much pressure to make that shift right now, they also aren’t under pressure to invest in the startup products/services to help them do so right now.

That’s unfortunate for all parties – startups, hospitals, clinicians and consumers. If the timing isn’t right, efforts may be wasted and technology that could make a significant difference in care delivery overlooked and possibly forgotten. Other innovators may also be discouraged by this now common phenomenon, and as a result hesitate to bring to market ideas that could dramatically improve care.

Startups have the power to bring fresh perspectives and innovative solutions to some of our most pressing healthcare problems – but they need to avoid these common mistakes. If they’re able to do so, we may finally see reduced costs, increased quality, and perhaps long-awaited progress toward improved population health.

 
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