There isn’t a market in the United States more ready for disruption than health care. A visit to a typical doctor’s office reinforces the perception of health care as saddled with legacy procedures: You fill out a paper form, endure a long wait for a brief visit, are handed a prescription scrawled on a piece of paper, and your next appointment is agreed to verbally with a receptionist, who offers no shared digital record of this interaction.
It might be said that the future of health care can be seen in the consumer market, where almost any activity that can be done digitally, is. Health care’s own digital revolution is on the way, investors believe, but getting there will be more painful given the dense regulatory thickets that innovative companies will need to navigate.
Jay Schulman, a national leader in the blockchain and cryptocurrency practice at RSM US LLP, helps clients vet companies that claim disruptive technologies and business models. He says that exciting and innovative companies around the world are working on ways to break health care’s legacy mold and deliver better experiences and outcomes for patients, make better use of care providers’ time, avoid duplicative procedures, and generally take advantage of the incredible advances in digital communications and devices.
That said, there are a series of pitfalls that the best investors can avoid through a deep understanding of the intellectual property of a health care company and the regulatory strictures in which it operates. Note the following:
Intellectual property doesn’t do anything useful
It is not enough for a company to have a concept. It needs to have proprietary technology or business process that will deliver on the concept. “You could buy a company that owns IP, but the IP isn’t solving the business problem,” says Schulman. “It doesn't move the ball forward. We see early-stage health care companies that think they're doing something truly innovative, but the inputs and the outputs are the same and you don't get there any faster.”
The business model works on the consumer side, but not in health care
One can almost see the future of health care in the consumer market, with hundreds of digitally enabled business models ready for transfer over to health care. The bad news is that thanks to U.S. health care regulations, many of these business models may not be feasible in health care. It is the job of the health care investor to learn ahead of time whether regulations might snuff the disruption.
The business model uncomfortably straddles consumer and health care activities
Many consumer-facing companies attempting to win health-and-wellness spending risk being tagged as a health care provider by regulators. Some have trouble navigating the fuzzy border areas between a consumer and a health care company. For example, 23andMe, a genetic testing company popular with consumers, got in trouble with the FDA for providing predictive health information to its customers that the agency felt too closely resembled medical diagnosis. In addition, Fitbit, the personal device that tracks fitness and sleep, saw challenges as it was seen as straddling the line between being a medical device and a general wellness device.
The business model works overseas but not in the United States
Here again, a technology or business innovation that wins in one setting can get hamstrung when trying to operate in the U.S. health care regulatory regime. Especially in emerging markets, where patients have less money for health care, entrepreneurs have developed some truly innovative businesses that deliver better care for less. An investor intent on bringing these disruptive ideas to the United States needs to test ahead of investing whether the regulations will allow for it. Schulman shares the example of a medical records startup in India that is based on blockchain technology, allowing doctors to look up patient information on a blockchain and share it across multiple physicians. While this might be an investment opportunity to pursue, Schulman says that privacy rules such as the Health Insurance Portability and Accountability Act (HIPAA) would make such records challenging in the United States.