Unbundling Healthcare

USV has been investing in health-related technologies for about five years. Our approach can be characterized by the notion that digital processes, made more accessible by the internet and mobile access, could over time transform the cost and delivery of medical care. In the last couple of months, our conversations around healthcare have surfaced some new investable themes, which I’ll discuss in a few posts over the next month. The first such theme is the idea that healthcare can be “unbundled” into distinct services, a pattern we have seen in other markets (where niche sub-markets develop for specific services). So, in the case of healthcare, what is there to unbundle from? For one, large hospital networks and insurance companies, where most of the control and pricing power currently reside.

The last decade has seen unbundling in the financial services industry that serves as a relevant analogy. Financial supermarkets became popular in the 80s when large banks started offering one-stop shopping for a complete package of financial services, anything from mortgages to credit cards. In this model, the sale becomes around convenience rather than value as customers buy a complete package, even though each service may not be the best in breed or meet the specific needs of an individual consumer. With this, came a lack of price transparency as each service’s individual price is obscured by the combined package. The connected Internet and later mobile services, have made it easier to manage an unbundled package as well as increase the quality and personalization of each service on its own. In finance, we’ve observed that in the broader market, as well as within our own portfolio of fintech investments, with Funding Circle (peer-to-peer lending platform for small business), Stash (personal investing), CircleUp (equity financing for consumer products), Stripe (payments), and KickStarter (crowd-funding). Technology made processes simpler so that individuals could find specific things they need easily and affordably from market-specific providers.

Perhaps healthcare is now seeing the beginning of unbundling, catalyzed by the same use of technology which allows companies to focus solely on user experience in specific verticals. Some of the first pieces of unbundled healthcare to get venture momentum were direct-to-consumer brands such as Hims, Roman, Keeps, and Nurx. These are examples of companies using technology - such as telemedicine, asynchronous chats, and structured data - to lower costs and reduce friction in various niches of healthcare via a simple subscription business model. For example, Nurx gives users control of their health at every step of the process and delivers birth control and Truvada for PrEP in a timely, cost-efficient manner. Along a similar vein, at-home testing companies such as 23andMe, Modern Fertility, and Scanwell are bringing lab-grade testing services to people’s homes at a lower price point by leveraging technology. For primary care, companies like Sherpaa are using virtual primary care, while Doctor on Demand and Teladoc started by unbundling to serve individuals through telemedicine. Now other companies such as Vera Whole Health, CareMore, and PeakMD are coming up to serve employers with their primary care needs through local care centers.

Then there are examples of unbundling in parts of primary and specialized medicine that have not received as much attention yet, perhaps because their interactions are primarily conducted offline. However, these companies are still a part of the trend towards unbundling from large hospital networks and functioning as individual nodes in the broad healthcare market. For example, Pure Cardiology is a user-centric membership plan for all cardiology-related services, the Surgery Center of Oklahoma offers a menu-style list of surgeries they perform with up-front pricing, and the East River Medical Imaging Center in New York is an independently owned and operated center for scans including MRI, CT, PET, and X-rays.

In primary care, there has been a recent increase in the number of direct care clinics around the US, or doctors that are offering traditional primary care through an independent clinic without ties to large hospital networks and insurance companies. To support these practices, companies like Hint Health (onboarding and billing platform), Spruce (patient communication), and Elation (clinical electronic health records) are building the infrastructure to power a direct-care driven healthcare system. Technology enables new user experiences for quick onboarding and communication, but other offline examples of lowering friction are walk-in urgent care centers, such as CityMD and GoHealth. These clinics provide immediate medical care for a range of acute conditions that provide underserved patients with faster response times. Walk-in urgent care clinics started popping up in the 70s but gained more traction in the 90s and now service over 160 million visits annually.

These examples suggest that healthcare is in some respects being unbundled.

Why does this matter? One lever to getting momentum in an unbundled world is that a lower price point - a common denominator across many of these companies - compared to traditional bundled options, will allow more people to access healthcare. Besides just lowering costs, unbundling can open access in other ways, including minimizing the enormous friction that exists in legacy healthcare systems. If healthcare services continue the trend of “unbundling” in some of these ways, cost-efficiency will become much more of a priority where the fastest, cheapest, and most reliable services should win. More fundamentally, unbundling could create the opportunity for each of these distinct services to become independent nodes in a larger network in a bottoms up manner (which would make room for business model innovation - the subject of my next blog post).

For now, these observations seem to indicate some unbundling of the existing large, monolithic systems in healthcare towards a more open, local, independent and transparent model, with control residing with individual users. And ultimately, this could change the way healthcare is delivered to consumers.

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