Why It’s Almost Impossible to Build a Health Care Startup That Works

And why you should try anyway

Nikhil Krishnan
Marker
Published in
11 min readJul 29, 2020

--

A US dollar bill rolled up in a prescription bottle.
Photo: Mike Kemp/Getty Images

We all know the U.S. health care system is bad. But why hasn’t any business come in and fixed it? The market is massive, inefficient, and extremely wasteful. Some estimates suggest wasteful spending accounts for between $760 billion and $935 billion annually, from a combination of unnecessary administrative costs, fraud, over-treatment, poor care coordination, and other factors. It’s an industry ripe for disruption. The challenges created by Covid-19 have added new urgency around fixing the health care system, and will likely inspire a new wave of health tech entrepreneurs. But as someone who has extensively researched health care startups and worked with health care entrepreneurs over the last few years, I have noticed a pattern of challenges that entrepreneurs tend to face as they build health tech companies and try to take on the industry. Here are some of the key issues that make health care particularly tricky to disrupt:

The big obstacles to fixing health care

First, there’s the principal-agent problem, in which the buyer and the user of a good or service are not the same person. For example, most people are on a health insurance plan chosen by their employer. Even though you’re the user, the insurance carrier is selling to your employer, and employers tend to be most concerned about cost. User experience, product simplicity, and other features are a non-priority. Most buyers in health care would rather renew or buy the safest option — they don’t get bonus points for trying a new startup but will get fired if they go with a new startup that fails.

Second, our health care system has evolved to favor customized solutions instead of standardized ones. Each insurer negotiates a different rate for each service at each hospital. Health benefits consultants sell custom benefits packages to each employer. Each hospital uses its own kind of electronic medical record. This lack of standardization makes it extremely hard to scale a health care business because you now need to work around a custom…

--

--

Nikhil Krishnan
Marker

Healthcare/Comedy at Out Of Pocket: http://outofpocket.substack.com Get Real: http://getreal.club Alum: @cbinsights @trialspark