By Bill Taranto and David Stevenson of Merck Global Health Innovation Fund
It is an exciting time to be investing in health care. Advances in technologies such as mobile computing, the cloud, genomics, health IT platforms and Big Data are creating tremendous opportunities. Coupling emerging informational tools with existing health data — while simultaneously leveraging health IT platforms — can unlock significant value by improving the quality of health outcomes and lowering health care costs.
Yet more than five years into this health care revolution, we have yet to see a meaningful bend in the cost curve. There have been small victories along the way, but to date precision medicine, population health and patient engagement solutions haven’t yet produced the envisioned impact. Why? One common refrain is that health care is hard since getting to scale in a highly fragmented health care system is extremely difficult.
In our view structural issues within the investing community are partly responsible. The tech investment ecosystem is highly effective in spinning up novel companies through widespread use of accelerators. The venture community then does a wonderful job of picking the winners and scaling them quickly. Unfortunately this model doesn’t seem to work quite as effectively in health care. Below we put forward three humble suggestions that might help to improve the pace of progress.
EMPLOY AN ECOSYSTEM-DRIVEN INVESTMENT APPROACH
Point solutions typically don’t win in health care – integrated solutions are required. In order to gain widespread adoption, health care solutions need to be integrated seamlessly into IT infrastructure, integrated into reimbursement schema, and perhaps most importantly, integrated into the workflow of health care providers.
How to fix the problem: Merck GHIF looks to build ecosystems by investing in multiple companies with complementary capabilities to resolve a customer problem for a particular company. We then “connect the dots,” linking capabilities with companies outside our portfolio to provide a more robust offering. This ecosystem approach enables portfolio companies to accelerate value creation while maintaining focus on building the target company.
REPURPOSE ACCELERATORS INTO TARGETED INNOVATION PROGRAMS
Health care accelerators number in the hundreds. They provide entrepreneurs with mentorship, networking and business connections, and have succeeded in spinning out thousands of companies. Unfortunately, most provide point solutions that lack outcomes data or the ability to scale.
Accelerators have had a hard time accelerating change. Research has shown that approximately 250,000 health care technology ideas are hatched annually in U.S. accelerators, but only about five of those ideas can generate a venture capital investment return. If health care accelerators simply want to build a culture of entrepreneurship, that is a fine objective. But accelerators clearly don’t accomplish the more important goal of building sustainable companies.
How to fix the problem: Consider repurposing accelerators into innovation programs seeking to solve very specific health care problems. Their entrepreneurs should design key value components that can plug into an integrated solution, generating far greater adoption potential.
CREATE TEST BEDS FOR COMBINATION DIGITAL SOLUTIONS
Health care providers and payers have become sophisticated buyers that demand proof of outcomes, whether that’s improved outcomes, lowered costs, or improved patient satisfaction. Hopefully, it’s all three. Unfortunately the industry tends look to at solutions in isolation rather than in combination.
As an example, there are hundreds of digital diabetes solutions available. Yet there’s not a practical way to answer the question of what combination of solutions generates the best outcomes for a particular behavioral phenotype. Does a smart glucometer in combination with an intelligent diabetes coaching platform produce better outcomes than a smart glucometer alone? What if we added in behavioral coaching to the mix? Which patients respond best to which combinations?
How to fix the problem: Insurers and other health care risk-bearing organizations should establish centers to test and validate digital solutions in clinical practice to better understand which combinations work best among different patient groups. Ultimately, this can provide the real world outcomes data so desperately needed to drive adoption.
Substantial value is already being unlocked through health care transformation. As health care investors, we can do more to accelerate the pace of that change. Addressing the structural challenges outlined above would be a great place to start.
Bill Taranto serves as the President and Managing Director of Merck Global Health Innovation (GHI) Fund, LLC and David Stevenson is Managing Director of Merck GHI.