As the tech industry moves into health with it comes investment funding from Venture Capital (VC, money from firms or funds) and Angel investors (wealthy individuals that provide money to startups). This is a well established approach that uses the investment of money into fledgeling organisations (startups) to give them the fuel to develop and grow before becoming sustainable (e.g. by having income). Investment funding is a mechanism that enables startups to fine tune their offering to meet match user needs, and allows organisations to scale quickly without having to worry about being profitable or consider the cost of scale.
Without investment most startups would be unsustainable, investment means startups can prioritise the organisation and product in a way that is not related to how sustainable (e.g. number of sales) the organisation is at that point in time. The investment means they can compete with the well established organisations to become established and provide more options to the health and care system. However they also have different constraints and freedoms this skews markets in ways that can detrimentally impact health and care systems.
What is a healthtech startup?
We’re still trying to understand for a healthtech startup is. It’s looking like it’s not just software but a combination of at least two of software, hardware and clinicians. Health tech startups are employing significant numbers of clinicians to work for them as employees providing care. And due to the money invested in them they can pay very competitive rates.
As we’re seeing all over the globe, clinician numbers are severely constrained and it takes time for new clinicians to train and become qualified. We've a finite number of clinicians and now have increasing numbers of organisations wanting them as employees not just the health and care system but also startups. The addition of startups that don’t need to worry about expenditure in the same way as healthcare organisations potentially increases the cost to healthcare organisations to pay competitive rates to employ a clinician. To make this worse it also depletes and already insufficient pool of people creating even more short falls in staff numbers.
Sucking the oxygen out of the room
Not only is there workforce implications but startups with investment and an incentive to scale also skewing the principles of the free market. The startups have profitability as a lower priority this means being able to sacrifice profitability for a higher priority (e.g. growth). Startups are able to compete differently to others e.g. undercutting prices to win business. Effectively sucking the oxygen out of the system and so driving other providers out of business skewing the number and type of providers and perhaps even enabling them to control the market more easily. This then puts the health and care system at the behest of the startup which can control pricing and supply.
So we see health tech startups competing for clinical staff with provider organisations and potentially raising staff cost. The investment they recieve can skew markets and means we're uncertain if they've even got a sustainable business. But its not all bad, health tech companies have changed perspectives on how workforce can be flexible (e.g. remote consultations by GPs working at home) and flexible to patients schedules. They've also enabled capacity to be added flexibly to place based care providers also giving these organisations more choice.
Healthcare is about people and society
The traditional venture capital approach described above incentivises startups to scale and dominate markets this is usually underpinned by the aim of maximising revenue and/or profit - in essence having the highest financial impact. This means the investors receive the best return on their money. But is this a good match to the ethos and culture of healthcare? There is an increasing interest in an alternative approach called impact investing. This approach values the societal impact alongside financial impact. There are less incentives and focus on scale, growth and revenue as these are balanced by a drive for achieving societal improvements which is a better match to the values of healthcare.
Healthcare services are composed of a combination of public and private providers that need to work in unison to improve health and care, outcomes and experience. The ethos and culture of the staff needs to match that of service and product providers. Does VC funding incentivise financial motivations in a way that increases cost to the health and care systems?
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