2.1.1 The Overall Market
We can categorize the health tech landscape into two broad, high-level segments: Enterprise and Consumer.
Enterprise Health Tech
The average healthcare enterprise is a predictable environment for healthcare vendors. One can always expect enterprises to be political hierarchies that resist change and are slow in IT adoption. System vendors are asked to give details and demos through formal, mind-numbingly long RFIs (Requests For Information) and RFPs (Requests for Proposals) processes. Vendor claims are usually beyond actual capabilities because sell-first-then-build is a common mantra. Sales cycles for large IT projects at hospitals usually span at least 6 to 12 months, and typically require board-level approval. Implementation durations vary from 6 (normal for EHR upgrades) to 18 months (e.g. for EHR replacement) and nearly always run over budget.
The two main building blocks in Enterprise Health Tech are Records and Exchanges.
Records, or more formally, Electronic Health Records (EHRs), are internally focused. A care delivery organization uses EHRs to handle the in-house workflows (like documentation, billing, scheduling, and reporting) of their own information island.
Exchanges are better known as Health Information Exchanges (HIEs). HIEs are externally-focused information systems, purpose-built to connect organizations and facilitate information exchange between them. In general media, the term “exchange” may sometimes refer to Health Insurance Exchanges (HIXs) which are a totally separate phenomenon from HIEs. HIXs are marketplaces for buying and selling health insurance, in accordance with Obamacare. For the purpose of this book, “exchanges” always means HIEs.
A good analogy for understanding the roles of EHRs and HIEs comes from the financial industry. The internal workings of a bank (like customer relationship management, sales, staffing, and record-keeping) require a highly customized local enterprise system, like what an EHR does for an health organization. The inter-bank information exchange, however, requires an Automated Clearing House, which is similar to what an HIE does in the healthcare ecosystem.
Lines blur quickly in the constantly-changing real world, though. EHR vendors have not ignored opportunities to expand into HIE-like functionality. Typically, they do so in the context of exchanging information between multiple installations of their own system across customers. For example, Epic’s “Care Anywhere” product is basically an HIE that can connect disparate Epic customers. Similarly, HIEs have tried their hand at providing light-weight EHRs as a part of their portfolio.
But EHRs are mostly in the business of providing an inside-out view of health information. Their solution primarily helps with the internal workflows of a health delivery organization and only secondarily tackles the functionality of external information exchange. By contrast, HIEs are designed from an outside-in perspective, mainly solving for information exchange between participants, not the internal day-to-day operations of a care delivery organization.
Consumer Health Tech
This is the retail side of Health IT, the aspect that most overlaps with the new crop of “Digital Health” companies. Typical examples are the wearable, sensor-based devices that have recently proliferated (like FitBit.com, MisFit.com, and LumoBodyTech.com). It is important to note that this category is not restricted to just hardware offerings. Software startups that help consumers find the right doctor, price-shop for care, understand their health bills, and get health coaching are some non-hardware examples. Overall, this emerging collection of consumer-oriented health information solutions is attracting plenty of venture capital and attention from conference organizers.
An important distinction must be made between consumers in health and other industries (like packaged goods or automobiles). Healthcare consumers have been conditioned to expect third-party reimbursement for the healthcare services they consume. Wellness enthusiasts may be an exception, but the average sick patient will always have a twofold Pavlovian response when it comes to healthcare services:
- Is it formally prescribed (or endorsed) by my provider?
- Is it covered under my insurance?
In those questions lies the Achilles’ heel of the consumer-focused health tech industry. It was born in the fertile, unrestricted fields of consumer technology but must relocate to the regulated barracks of conventional healthcare. Cool gadgets and services in health may become viral among early adopters, but their spread into the real healthcare system seems to be less infectious.
Richer, more unified
Like the tech industry in general, healthcare is flush with investment money. 2015 represented a five-year high in venture funding for U.S. health-care companies, rising to a record $16.10B, a 34% jump from 2014. Apart from venture capital enthusiasm and federal stimulus, healthcare also enjoys investment from other industries. Big names in tech keep pouring money into new health forays, like Google’s Life Sciences, Apple’s HealthKit, and Samsung’s S Health. Big consulting companies like Accenture, McKinsey & Company, IBM, and Northrop Grumman have dedicated practices in Health IT. Even wireless infrastructure players like AT&T, Verizon, and Sprint have established formal healthcare groups.
Buzzwords in healthcare are constantly renewed through conferences, high-profile speeches, media and regulations. For example: Accountable Care, mHealth, Population Health, Meaningful Use, Health 2.0, Quantified Self, Big Data, Precision Medicine. The lineup of conferences and hackathons keeps growing, each one a mashup of some tech trend with healthcare. The current reigning events are the annual Health Information and Management Systems Society (HIMSS) conference in February for Enterprise Health IT, and the Health 2.0 gathering in September for Consumer Health IT. Both meetings have reached a size, cost and complexity that their primary utility is now networking, not knowledge transfer.
With more than $400B spent on deals, 2014 was celebrated as the year with the highest-ever level of annual M&A in healthcare, until 2015 blew past that record with more than $600B.  And these figures don’t even account for the “soft” mergers—the tight alliances—that effectively have the same market result as an outright merger. For example, AllspireHealthPartners.org is an alliance, not a merger, of seven health systems in the northeast with nine million people under care. A similar combination of Anthem Blue Cross and seven top health systems in Los Angeles is VivityHealth.com.
The consolidation trend is bound to slow down in time, but its effects will be long-lasting. Moreover, the lines are blurring between providers and insurers, as both factions try to extend into the other’s role. Within the next two decades we will be squarely in an era of tight clinical integration. A handful of narrow networks (resembling Kaiser Permanente) will dominate each state, forcing smaller players out of business. A future featuring a less fragmented market may prove good or bad, depending on the startup and its focus. Hopefully the remainder of this book will help you make your own predictions about how the healthcare market will adjust to constantly changing regulations, incentives, and technologies.
 Bloomberg. Health Care’s $605 Billion Buying Binge May Slow in 2016. Accessed April 25, 2016.