Jacob Brody discuss in his recent article, 2021’s Healthcare Dumpster Fire, the billions that were burnt on tech company playbooks that don’t work in healthcare.
Jacob says, "In 2021, the healthcare sector, invigorated by the exigencies of the pandemic, saw a surge in investments and digital health initiatives. Driven by a Zero Interest Rate Policy (ZIRP) environment, investors chased high-growth prospects, often overlooking the foundational intricacies of healthcare. This fervor was amplified by unprecedented public health spending, igniting hopes of innovation. The reality proved less rosy, revealing our collective myopia in understanding healthcare's nuanced dynamics, especially during a black swan event like a pandemic...
In the end, the big problem was digital health companies burned a lot of money trying to be tech companies. Software is infinitely scalable, so we can feed dollars into customer acquisition without quality declining. Scaling care models is much more difficult. Founders and investors conflated in-house tech development with sustainable innovation. The attempts at building proprietary Electronic Medical Records (EMRs) invariably led to significant capital burn with little to show in terms of differentiation or value addition. A better EMR doesn’t get you better reimbursement rates.
Scale means everything in healthcare. If you’re a provider, that typically means geography density. Even unicorn startups found themselves out-leveraged when negotiating with colossal payers. The promise of novel services, however much they are cherished by patients like myself, mean little without addressing the financial concerns of payers and patients.
I’m very excited about next-generation revenue cycle management firms (medical billing) like Adonis Health... by boosting practice net collection rates from 60-80% to >90%, they are becoming embedded within practices and are laying the groundwork for robust provider networks. With a deep understanding of provider utilization and patient demographics, these firms are on a promising trajectory toward creating an 'Optum-like' entity, albeit with a lighter asset footprint. While they have not yet achieved the scale necessary for such a transformation, their continued growth and strategic network expansion hint at a future where they could negotiate with payors on an even playing field, thereby reshaping the healthcare payment landscape."
