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April 6, 2012 / Frederic Zussa

Blueprint Health: A Promising Start!

On Thursday, March 29, 2012, the newly created NYC-based digital health start-up incubator, Blueprint Health, held its demo day, where the nine companies in its first class pitched their business ideas to a 500+ crowd of entrepreneurs, investors, and large healthcare players.

By in large, the event, the presentations, and more broadly the program Blueprint Health ran for the past 3 months were a resounding success. The event was tightly run. The presentations were well crafted and reflected the tremendous amount of work the teams poured into it. The audience was large, diverse, and engaged. Overall, the event reflected an incredible appetite from investors and corporate partners for new digital health ventures that could change the face of healthcare.

Quality is Key

The digital health entrepreneurial eco-system is still very new. The high-flying start-ups, eye-catching valuations, and lucrative exists are yet to come. But the quality and believability of the companies coming out of the various digital health incubators today is critical to set this new entrepreneurial area on the best trajectory.

Indeed, strong ideas and teams are required to attract top-tier customers, business partners, and investors. The coalescing of those top resources around high-quality ventures will increase the chances of producing high-flying businesses. Success stories will, in turn, inspire legions of new entrepreneurs. Successful ventures will create satisfied customers and investors who will only want more. Finally, successful entrepreneurs will morph into mentors that will in turn coach the next crop of digital health entrepreneurs.

A Strong Start

From a quality standpoint, Blueprint Health, with its first class, is off from a good start. Many, if not all, of the business ideas presented address a specific, tangible, and real problem in our current healthcare system (see here for an overview of the presenting companies). Most companies have already signed up either pilot customers or business partners. A good number of them has also secured capital towards the Seed round of investing they are raising.

Building Momentum

This is a great base to start from. While a majority of the ideas presented were strong, there is already room for improvements. For example, few of the ideas presented had clear barriers of entries. Strong barriers of entries are often a key consideration by potential investors since without potent barriers of entries, it is quite easy, for a new entrant, to replicate a successful product or service on short order and grab half of the market from the innovator. With a few improvements here and there, a lot of the ideas presented could become the seeds of striving businesses the eco-system needs to “make a dent on the universe”.

So congratulations to Blueprint Health and to the nine teams for such a great start. Keep up with the good work. And let’s all join in this effort as something quite exciting and promising is, without a doubt, happening in New York City.

My very best,

Fred Zussa (@fzussa)

January 21, 2012 / Frederic Zussa

Letter 2 – In Healthcare, Consumer Tech doesn’t mean a consumer business model

Note: This post also ran on January 24th, 2012 in Digital Health Summit News; here is the link.

With the mHealth Summit and the Digital Health Summit behind us, here is a good opportunity to step back and reflect on the enthusiasm and hope the emerging Consumer Digital Health space is generating.

It is very exciting to see that those two events have rapidly become a must-attend gathering for anyone interested in Digital Health. The HIMSS Annual Conference, a.k.a. the granddaddy of Healthcare IT gathering, should better watch out since long-standing conferences can too be disrupted by novel, fresh, dynamic, and creative new entrants.

It is worth noting the many commonalities between the mHealth Summit and the Digital Health Summit. Both events are in their 3rd year. Both have experienced significant growth in term of attendance and content. The Digital Health Summit @ CES was a half-day affair in its first year, grew to a full-day program last year, and boasted a two-day agenda this year. This last edition of the mHealth Summit reached 3,500 attendees and 300+ exhibitors, twice the size of the previous year.

Last but not least, both events are placing significant emphasis on next-generation Consumer Digital Health innovation. Not surprising since the Digital Health Summit is hosted within the world largest consumer electronics show, while the mHealth Summit, as it name implies, focuses on the potential of the mobile phone, a consumer staple, as the next-generation vehicle to deliver health. The significant presence at both events of major telecom companies further accentuate the consumer-focus of both gatherings.

Consumer Digital Health: An Emerging Category

A new category of healthcare product and services is indeed emerging. I am sure you have come across some of them. They boast consumer-friendly names such as Zeo, FitBit, Up Band, Skimble, or The Eatery. Several trends are fueling innovation in the Consumer Digital Health area. To name a few: 1) the increased availability of low-cost sensors, 2) the significant market adoption of smartphones, providing an ubiquitous software development and distribution platform, and 3) a growing interest by tech entrepreneurs for opportunities in healthcare.

I have been personally delighted to see so many talented technology entrepreneurs moving with such passion and energy into healthcare. One thing is sure is that our healthcare system desperately needs it. With them, those technology entrepreneurs bring best-in-class software development skills (Adam Bosworth, who co-founded Keas in 2007, a Health and Wellness engagement platform, previously worked at Google, Borland, and Microsoft), beautiful product design, consumer engagement know-how, and amazing creative skills. Their contribution should be welcomed and celebrated.

The central hypothesis being tested by many is that the reason why individuals have NOT engage with their health is because they have NOT been provided with tools that are beautifully designed, addictive to use, revealing on one’s health habits (a.k.a closing the feedback loop), and empowering. Should they be right, the way in which we manage our own health could significantly be altered as a result of this fresh thinking.

Will Consumers pay? Most likely not!

Beyond the societal potential those new products bring, the big question one should ask is: Will consumers be willing to pay for them? Given that the success of this Consumer Digital Health sector partly sits on early entrepreneurs hitting a few home runs , the business model question is a critical one to examine.

When asked about this topic, a majority of early-stage entrepreneurs reveal that their intention is indeed to sell their products directly to consumers. A recent survey conducted by Rock Health, a Digital Health start-up incubator located in San Francisco, indicated that over 60% of Digital Health entrepreneurs polled reported pursuing a business-to-consumer business model (slide #23, http://www.slideshare.net/RockHealth/rock-report-state-of-digital-health).

This is intriguing for several reasons. First of all, for good or bad, most consumers, particularly those who needs it the most, don’t expect to pay for healthcare. Individuals have come to expect that healthcare should be almost free (if not completely) and be paid by someone else (either their employer or through government-sponsored programs). Now, I am not saying that consumers are unwilling to pay for anything that’s health-related. In fact, the $600B global health & wellness segment is predominantly a self-pay market and is doing really well despite the challenging economic times (see report).

One key challenge, though, with the Health & Wellness market is that it is heavily fragmented on the demand-side. This is partly due to the fact that when it comes to Health and Wellness, the tastes and affinities of consumers are as broad and varied as can be. Consumers like to coalesce in small affinity groups, leading to niche markets and niche products on the supply side. Therefore, one may develop a very successful online platform for gym-going fanatics but that same site may not as strongly appeal to obese individuals who need to increase their physical activity, to the moms who are looking for a social venue to meet other moms while getting back in shape during work lunch breaks, or to Seniors who want to maintain a physical activity while exchanging pictures of their grand kids. While each segment can make for a decent business, the Health and Wellness opportunity is a hard one to crack on a grand scale.

The BIG mid-term opportunity is in B2B

Chronic and acute conditions account for the bulk of healthcare expenditure (to the tune of $2.7 Trillion a year, climbing to $4.5 Trillion by the end of the decade in the US alone). If proven successful with engaging consumers and patients, consumer digital health innovations could play a major role in the delivery of chronic and acute care. And when it comes to deploying those innovative consumer technologies to those big dollar areas, a business-to-business model seems a more sensible route.

Indeed, as discussed earlier, chronic and acute care patients don’t directly bear the cost of the care they receive. Health plans are the party footing the bill (after the co-pays and deductibles). This is why introducing new innovation in healthcare has traditionally meant securing reimbursement from payers. The mechanism by which reimbursement is granted and administrated is through CPT codes, an archaic and outdated model and one of the most visible relic of our fee-for-service, transactional-oriented healthcare payment model. And this is where the difficulty starts for digital health entrepreneurs looking to bring those technologies into Healthcare. There is virtually no CPT code covering the kind of consumer-oriented innovation they are developing. And trying to introduce new codes is a major uphill battle particularly given the current payer focus on containing spiraling healthcare costs.

But there is hope in sight for Digital Health entrepreneurs. The payment model by which healthcare products and services are being paid for is slowly but surely changing. Both commercial and public payers are experimenting with value-based payment models. This is best reflected by the emergence of Accountable Care Organizations, entities that will be paid based on the health improvement they produce rather than on the volume of care they administer, or by the emergence of bundle payments, by which providers are paid a fixed envelop for a given episode of care.

What those novel payment models do is to shift the risk on health outcomes from payers to providers and to introduce more accountability in the system. With providers becoming more accountable, they will seek means to engage patients more effectively, to deliver care more cost effectively, and to continuously monitor patients to collect the evidence of the improved health outcomes they generated. It is this shift in the system that will most likely generate the most sizeable commercial opportunities for consumer digital health products and services.

Implications for Consumer Digital Health Entrepreneurs

There are many implications out of those few observations, Consumer Digital Health entrepreneurs should therefore consider:

First, having a good understanding of the business of healthcare, how the sector is evolving and where commercial opportunities will emerge over the next 3 to 5 years as the result of some of the systemic shits currently happening is critical to success. Introducing innovative and game changing technology coupled with a clear understanding of how those innovations can be bolted on the changing healthcare system is paramount. Now, this is nothing different from the approach Apple followed when it introduced the iPod and the iPhone. Steve Jobs and his team showed insane skills at introducing game changing technologies while bolting them on top of the respective industries they targeted (music publishing for the iPod, and wireless carriers for the iPhone). Note than when Apple had game-changing technology (Apple TV) without a sense of how it would fit in the existing market structure (the cable TV industry), it called it an “experiment” and refrained from going big on it.

An implication of this first point is that every Consumer Digital Health entrepreneurs should make themselves scholar of the healthcare system, in its current state and anticipated evolutions. If you don’t have such an understanding already and are not interested in learning it, then quickly bring someone in your team that does and make him or her, the business person. Luckily here, as large healthcare incumbents are being shaken by the changes in the industry, a growing pool of talented and knowledgable healthcare business professionals is currently looking for career opportunities in next-generation companies. In short, it is a good time to be looking for business talent in Healthcare.

Second, Consumer Digital Health start-ups should learn how to sell to large healthcare accounts (providers, payers, product manufacturers). This will most likely mean knowing how to articulate a value proposition those players can understand in the context of the changing economics of their core business.

Finally, expect your product to be one component of a broader integrated care solution, not a standalone piece. Most likely, your product will just be one part of a more complex system. This certainly poses a big challenge designing a superior business model since entrepreneurs will need to rustle with the inherent tension between the value their component will aim to capture and the value the party they sells to (i.e. the integrator) will try to capture. But if you think how Microsoft and Intel captured most of the value of a PC at the expense of PC manufacturers, there is hope that some bright business minds will figure this one out.

In Conclusion

The Consumer Digital Health space has a lot of potential. There is clearly an opportunity with providing consumers with tools allowing them to take an active role in managing their health. In the near-term and may be with the exception of Health and Wellness niche opportunities, Consumer Digital Health start-ups shouldn’t be looking at consumers to pay for their new products or services. Instead, those start-ups should figure out how to get large healthcare providers and payers to pay for those new tools as a mean to engage the patient, to mitigate risk, to reduce care delivery costs, and to instrument the patient to demonstrate better outcomes.

This requires Consumer Digital Health entrepreneurs to take a fresh look at their approach and business model. For those who do, the economic benefit they will enjoy and the impact they make to society will be well worth the effort.

My very best,

Fred Zussa (@fzussa)

December 16, 2011 / Fred Zussa

Letter 1 – Healthcare IT 2011: A year of emergence and confusion

Lots has happened in the burgeoning Healthcare IT entrepreneurial eco-system over the past 12 months. As the year comes to a close, here is an opportunity to reflect on the kind of year 2011 has been for the field. If we were to take a step back and look at this year in the context of a multi-year perspective, here is how, I believe, 2011 will be remembered.

First things first, let’s agree, for the sake of clarity, on the definition of “Healthcare IT”. Given how much the field has been talked about throughout the year, you would think that there would be, at the very least, a well articulated, commonly understood and well accepted definition of Healthcare IT. Well… Not so quickly.

I cannot point to any other phenomenon in my recent memory where I have seen one term meaning so many different things to so many people.

When talking about Healthcare IT, some people refer to EMRs, EHRs, and HIEs. Others refer to consumer-oriented devices, mobile health apps, online communities and other consumer oriented internet-based product and services. Some refer to digitized health data, and the slew of opportunities and initiatives surrounding it from collecting it, exchanging it, opening it, and analyzing it. Some refer to tele-medicine, tele-health, and remote monitoring. And so that we don’t forget the bioinformatics among us, some refer to the application of information technology to enables scientific researchers advance their understanding of human biology. If your head is spinning, then you get my point.

Even the term “Healthcare IT” is not well accepted. Some call it “Health Tech”, arguing that it is not just about software-based technologies but about a much broader set of technologies including electronic sensors and genome sequencers. Some call it  “Connected Health” referring to the vision of a less fragmented, more coordinated, and patient-centric healthcare delivery system. Finally, some call it “Digital Health” by analogy with Digital Media.

2011: A year of confusion

So the first thing, I believe, 2011 will be remembered as is a year of confusion for the Healthcare IT field. The truth is that the field is so new but already so broad, so deep, and so rapidly evolving that one can only feel confused about what it is. The field almost feels like the universe just after the big bang (not that I was there to have any sense whatsoever regarding how it felt, but hopefully, you get my point). It is nascent, already big, and expending in all directions at an amazing speed.

Now, I am not suggesting that confusion is a bad thing. If anything, it feels to me that the current state of collective confusion is actually an age-appropriate thing (to leverage the terminology that our pre-school teacher would use to describe some of the less-than-controlled behaviors of my 4-year old son). The coming years, if not months, should bring further clarity.

2011: A year of emergence

The second thing, I believe, 2011 will be remembered as is a year of emergence for the Healthcare IT field.

Don’t get me wrong, I am not suggesting that 2011 is the year when the field was born. The field has actually been around for as long as computers have been used to support health-related activities. The field has an already long history filled with false starts – remember the dot.com era imprinted eHealth phenomenon – and successes, from the emergence of clinical and practice management systems to clinical trial data management software. During that whole period, Healthcare IT was an underground story. It was not as hip or sexy entrepreneurial of an investment sector as it is today. If it can be an indication: until recently, the IT VCs didn’t want to touch it because healthcare is a regulated sector, and Healthcare VCs didn’t want to invest in it because the expected returns from biotech, medical devices, and diagnostics investments looked more attractive.

I am neither suggesting that 2011 is the year that catalyzed the emergence of Healthcare IT. Here too, the triggers date from a couple of years back with the passing of the High-Tech act as part of the American Reinvestment and Recovery Act which provided financial incentive to physicians to digitize patient health records at the point of care, and the passing of Healthcare Reform which included provisions to experiment with new ways to reimburse for healthcare.

2011: A tipping point

What I am referring to is that 2011 might be remembered as the year when Healthcare IT reached the tipping point of collective awareness.

To put things in perspective, back in 2009, the Healthcare IT sector was strictly limited to the few software categories mentioned earlier. The range of start-ups formed in the space was quite limited. The number of VC firms investing in Healthcare IT could be counted on the fingers of two hands. Aetna still saw itself as a health insurer and not as an information company. No one had heard of Watson. Most pharmaceutical firms believed that no data on their products would be available beyond what they generated – and controlled – through their clinical trials. Nobody had heard about the Quantified Self movement, and my doctor was still writing my prescriptions on pieces of paper. Wow… what a difference a couple of years make!

This year in particular, we have seen the federal, state, city, and local governments drive the adoption of Healthcare IT. Healthcare IT start-up incubators have emerged on both coasts and in between. Drug manufacturers have been busy developing real world data strategies and efforts to more effectively engage patients and physicians using technology. A slew of entrepreneurs are moving into the Healthcare IT space starting new ventures every day. And even the Healthcare VCs are warming up to it doing their own “pivot” (they are businesses too after all) reducing their investments in life science, medical devices, and diagnostics while trying to figure this Healthcare IT thing out. No one is immune to change.

So as the year comes to a close, there is much to celebrate. In 2011, Healthcare IT as an entrepreneurial field has emerged in the collective conscience. Healthcare IT circa 2011 will also be remembered as confusing and unruly. We can bet its growing up will be at times painful and filled with occasional setbacks. But the potential is there. So let’s look forward to the coming months and years, and to the exciting opportunities that will come with it.

Happy Holidays, everyone!

Fred Zussa (@fzussa)

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