Disrupting health care: The unique challenges facing health tech entrepreneurs

by Jenna Rose on January 7, 2013

Inventions need a little extra incubating to make them attractive to health care.

Jenna Rose is director of Healthbox, a platform that brings together entrepreneurs, strategic partners, industry experts and investors to accelerate innovative healthcare solutions. She spoke recently at Boston Children’s Hospital at a forum sponsored by the Innovation Acceleration Program. She welcomes inquiries from entrepreneurs and others at info@healthbox.com

When we think about the future of health, it’s generally medical science that captures our imagination—the source of groundbreaking pharmaceuticals, medical devices and diagnostics. But what about the business of health care? With the passage of the Affordable Care Act and the widespread adoption of mobile technologies, there has never been a better time to be a health tech entrepreneur. One recent report suggests that the healthcare IT sector could receive more than $1B in venture capital in 2012.

But change won’t be easy. As they seek to disrupt this $2.7 trillion industry, health tech entrepreneurs face a unique set of challenges.

Heterogeneous user groups: When designing a new product, a standard mantra is to “know your user.” To create something useful in health care, you need to understand the diversity of your end users—doctors, nurses, administrators, caregivers or patients—and their differing needs and behaviors. Moreover, conquering the IT system in one hospital department doesn’t mean you know the system used down the hall; integration with one practice’s workflow doesn’t guarantee a seamless fit with the next.

To design a solution that’s scalable, entrepreneurs need to find the right user group and build a product that is flexible enough to work with a variety of systems and workflows. Simplicity is key.

Complicated business models: In the most straightforward business model, the person who benefits from a product makes the purchasing decision and also buys it. This is rarely the case in health care. The beneficiary is not necessarily the payer, and often isn’t even the decision maker. Imagine a service that tracks medication refills, integrating with electronic medical records, so physicians can monitor their patients’ adherence. The patient benefits from increased adherence counseling, and the doctor uses the solution to identify at-risk patients—but it’s the hospital that purchases and pays for the solution.

In a system with so many stakeholders, the entrepreneur must understand how each one will interact with and benefit from their solution. If the entrepreneur cannot convince the hospital to purchase their product or motivate the doctor to use the tool, the patient will never experience its value.

Long sales cycles: Once an entrepreneur builds a well-designed solution and determines a feasible business model, there’s another fundamental barrier. Since health care is a data-driven industry, it is difficult to find customers for untested and unproven products. Selling into a large hospital, even with data, can take more than 12 months and may involve approval from multiple senior-level executives, such as the CTO, CMO and CFO.

Entrepreneurs need to be creative when seeking to prove their product in the market. An application may find faster acceptance in a small, highly-motivated user group. Smaller community hospitals may be able to move more quickly, and revenue-sharing models may also entice partners. Starting small could build credibility with larger institutions.

Regulatory hurdles: When working with electronic health data, tech developers must deal with security and privacy concerns, most notably Health Insurance Portability and Accountability Act (HIPAA) regulations. HIPAA requires any company involved with protected health information to ensure that physical, network and process security measures are in place and followed. The increased costs and time to become HIPAA compliant can be a significant burden for entrepreneurs. Recently, the FDA proposed additional regulatory measures for certain mobile health applications—those that act as medical devices or assist with the provider decision-making process.

To avoid downstream costs and delays, entrepreneurs should seek expert regulatory advice early in the design process. Failure to understand and comply with regulations can scare away potential partners and investors.

The company I work for, Healthbox, was created to help innovators overcome these obstacles. We bring together a brain trust of entrepreneurs, strategic partners and investors to tackle real healthcare challenges, investing $50K in select, promising healthcare startups. We then work closely with them during a three-month accelerator program, connecting them with expert mentors (including Boston Children’s Hospital’s chief innovation officer, Naomi Fried, PhD), potential pilot sites, customers and early-stage healthcare investors.

When entrepreneurs leave our program, or other accelerator programs like ours, they have a clear understanding of their market and business model and are well positioned to raise additional capital. That knowledge is essential for them to succeed and to have a meaningful impact on the industry.

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