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

And why you should try anyway

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…