The Fundamental Challenge of Building a Healthcare-Provider Focused Startup

Posted on March 6, 2015 I Written By

Kyle is CoFounder and CEO of Pristine, a VC backed company based in Austin, TX that builds software for Google Glass for healthcare, life sciences, and industrial environments. Pristine has over 30 healthcare customers. Kyle blogs regularly about business, entrepreneurship, technology, and healthcare at

Over the past few years, the government imposed copious regulations on healthcare providers, most of which are supposed to reduce costs, improve access to care, and consumerize the patient experience. Prior to 2009, the federal government was far less involved in driving the national healthcare agenda, and thus provider IT budgets, innovation, and research and development agendas among healthcare IT vendors.

This is, in theory (and according to the government), a good idea. Prior to the introduction of the HITECH act in 2009, IT adoption in healthcare was abysmal. The government has most certainly succeeded in driving IT adoption in the name of the triple aim. But this has two key side effects that directly impact the rate at which innovation can be introduced into the healthcare provider community.

The first side effect of government-driven innovation is that all of the vendors are building the exact same features and functions to adhere to the government requirements. This is the exact antithesis of capitalism, which is designed to allow companies to innovate on their own terms; right now, every healthcare IT vendor is innovating on the government’s terms. This is massively inefficient at a macroeconomic level, and stifles experimentation and innovation, which is ultimately bad for providers and patients.

But the second side effect is actually much more nuanced and profound. Because the federal government is driving an aggressive health IT adoption schedule, healthcare providers aren’t experimenting as much as they otherwise would. Today, the greatest bottleneck to providers embarking on a new project is not money, brain power, or infrastructure. Rather, providers are limited in their ability to adopt new technologies by their bandwidth to absorb change. It is simply not possible to undertake more than a handful of initiatives at one time; management can’t coordinate the projects, IT can’t prepare the infrastructure, and the staff can’t adjust workflows or attend training rapidly enough while caring for patients.

As the government drives change, they are literally eating up providers’ ability to innovate on any terms other than the government’s. Prominent CIOs like John Halamka from BIDMC have articulated the challenge of keeping up with government mandates, and the need to actually set aside resources to innovate outside of government mandates.

Thus is the problem with health IT entrepreneurship today. Solving painful economic or patient-safety problems is simply not top of mind for CIOs, even if these initiatives broadly align with accountable care models. They are focused on what the government has told them to focus on, and not much else. Obviously, existing healthcare IT vendors are tackling the government mandates; it’s unlikely an under-capitalized startup without brand recognition can beat the legacy vendors when the basis of competition is so clear: do what the government tells you. Startups thrive when they can asymmetrically compete with legacy incumbents.

Google beat Microsoft by recognizing search was more important than the operating system; Apple beat Microsoft by recognizing mobile was more important than the desktop; SalesForce beat Oracle and SAP because they recognized the benefits of the cloud over on-premise deployments; Voalte is challenging Vocera because they recognized the power of the smartphone long before Vocera did. There are countless examples in and out of healthcare. Startups win when they compete on new, asymmetric terms. Startups never win by going head to head with the incumbent.

We are in an era of change in healthcare. It’s obvious that risk based models will become the dominant care delivery model, and this is creating enormous opportunity for startups to enter the space. Unfortunately, the government is largely dictating the scope and themes of risk-based care delivery, which is many ways actually stifling innovation.

Thus is the problem for health IT entrepreneurship today. Despite all of the ongoing change in healthcare, it’s actually harder than ever before to change healthcare delivery things as a startup. There is simply not enough attention of bandwidth to go around. When CIOs have strict project schedules that stretch out 18 months, how can startups break in? Startups can’t survive 18 month cycles.

Thus the is paradox of innovation: the more of it you’re told to innovate, the less you can actually innovate.