THOUGHTS / MARCH 25, 2022
Three digital health opportunities for Israeli startups
One of the hallmarks of AGP is our deep relationships with executives at hundreds of the largest companies in America. These trusted relationships — developed over several decades — help us understand where the proverbial puck is going both inside their businesses, and outside their four walls.
Due to the strength of these relationships, we’ve been in a unique position to hear about these executives’ challenges, their emerging-technology needs, their R&D obstacles, their startup-engagement strategies, their appetites for pilots, their investment focus, their approach to business-model innovation, and — most importantly — their worries and concerns.
While all our conversations with these executives are confidential, there are sometimes universal themes that emerge within specific sectors. Often those themes run counter to assumptions and predictions propagated by pundits, consultants, and so-called “experts” in the startup community, including other venture capital firms.
A number of those trends have emerged in the digital health space that we thought we’d share here. Names and companies have been redacted to protect the strategies of our corporate partners.
1. It’s the Staffing, Stupid
No matter who we speak to in the healthcare industry — from executives at the most prestigious hospitals in Boston, to the largest healthcare providers nationally — one challenge consistently floats to the top: Staffing.
This is the burning platform for the U.S. healthcare industry, and it eclipses all other factors that are driving decision making at providers. And the challenge isn’t simply related to nursing turnover, which has been well-covered in the mainstream press. Supply of physicians was already an issue pre-pandemic, and the challenge has only been exacerbated over the last 18 months; the Association of American Medical College is now projecting a shortfall of up to 125,000 doctors.
This is surely not a surprise to anyone.
But what is surprising is the dearth of Israeli startups looking to capitalize on accelerated opportunities for automation, workforce augmentation, retention, upskilling, and more.
Most Israeli startups assume that “nursing shortage equals telehealth opportunity.” But, as we will see, that calculation is fundamentally flawed due to the economics of the U.S. healthcare system, the strength of the nursing unions, and the reality on-the-ground. It is also not true that “doctor shortage equals AI opportunity.” On the contrary — as anyone who’s tried to sell something meaningfully new and tech-enabled into a hospital will tell you — most hospital administrators are doctors who are resistant to change and risk, and who are contending with complex adoption, compliance and implementation challenges. Adoption of AI remains slow and difficult.
Rather, we believe a unique opportunity exists for Israeli technology companies that can automate workflows, minimize workload, reduce friction points, augment workforces, and grow the talent pipeline for nurses.
While the Israeli startup ecosystem is swamped with clinical-focused healthcare AI platforms, we are consistently hearing from our U.S. healthcare partners that clinical utilization of AI is simply taking a backseat to the priorities of automation, recruitment, retention and business-model innovation. This is partially due to the unique economics of the U.S. healthcare system, which has been squeezed during the pandemic: Unanticipated increased nursing pay has shattered hospitals’ financial models, because those models were developed assuming pre-negotiated multi-year reimbursement rates with insurers that can not be re-litigated. This is squeezing margins even further at hospitals already stressed by deferred elective procedures. Or, as one senior executive at a $50 billion hospital company told us, “If we don’t fix the staffing issue, nothing else matters.”
And innovation is underway. Another executive at a U.S. healthcare giant told us he anticipates hybrid staffing models for urgent care during different time slots, with hospitals testing the utilization of lower-qualified staff or remote-consults during overnight hours.
Israeli startups that can provide proven, scalable platforms or solutions addressing these issues of automation, staffing, workforce augmentation, and upskilling will find themselves well-positioned. And AGP may be able to make valuable introductions to these healthcare companies to accelerate your commercialization. Please contact our Israeli partner Israel Ganot to discuss your solution.
2. Post-Acute Care vs. Chronic Care
Directly related to the staffing issue above is the increased demand for remote patient monitoring for post-acute care. Staffing shortages and the drive for efficiencies and margin expansion are — not surprisingly — fueling the early discharge of patients. And since the economic penalties of readmission are quite punitive in the U.S. healthcare system, new platforms and technologies for monitoring patients post-discharge have become a priority.
Unfortunately, most Israeli RPM solutions are addressing chronic care, not post-acute care. And while the remote monitoring of chronic care is absolutely a long-term trend driven by Apple and others, the opportunity for RPM after hospital discharge is profound.
In fact, one executive at a U.S. healthcare giant, which operates more than 2,000 sites of care, told us that his hospitals have been activated to utilize “hyper piloting” — rapid, distributed PoCs at the local level — to test post-acute care RPM platforms.
Unfortunately, there is a disconnect here: Most Israeli startups either (a) are pursuing a B2C model for chronic care; or (b) don’t understand the specific use cases inside the U.S. hospital system to address the post-acute market opportunity.
Understanding of the specific needs and use cases by companies embedded in the $1 trillion U.S. healthcare industry, which comprises nearly 19% of U.S. GDP, is critical to commercial success and scale.
We are happy to discuss your specific technology, and how it might fit into the use cases our corporate partners have communicated to us. Please contact our Israeli partner Israel Ganot to discuss further.
3. Impending Consolidation and Interoperability
When most Israeli startups talk about “healthcare data interoperability,” they typically discuss a holistic, consumer-facing, whole-of-market approach, similar to the one they enjoy in Israel.
But there’s another interoperability opportunity that is overlooked and not fully understood by Israeli digital-health startups: intracompany interoperability.
To understand this opportunity, you need to appreciate the scale and complexity of the U.S. healthcare system, and the market dynamics driving M&A for the next decade.
The U.S. provider and reimbursement model is almost entirely distinct from the healthcare model with which most Israeli entrepreneurs are familiar. In the U.S., there are more than 600 hospital systems operating over 7,000 individual hospitals, each of which utilizes a different combination of EHRs, ERPs and RCMs. Those systems interface with more than 1,000 health insurance providers offering tens of thousands of health insurance plans, creating a web of reimbursement that is infinitely more complex than that of the four non-profit Kupat Cholim of Israel: Clalit, Leumit, Maccabi and Meuhedet.
This complexity is important to understand when considering the economic impact of COVID and healthcare delivery trends. One of those trends, the delay of elective procedures and rising costs of care (see “Nursing,” above), has many systems teetering on insolvency, which is further driving mergers among hospital systems.
These mergers have created a situation in which nearly every hospital system has multiple instances of Epic, Cerner, Meditech, athenahealth, and/or other EHR platforms in-house. This balagan, which will only compound with the pending increase in hospital mergers, prevents hospital CEOs from having the clinical, operating, and financial visibility needed to steer the enterprise.
And it’s not easily fixable: Each of these systems has invested millions, hundreds of millions, or even more than $1 billion on their implementation of Epic or another EHR system. And they’re not going to invest more; as the president of one large healthcare system told us, the industry is not going to do a “rip and replace,” which could cost several billion dollars for some large systems.
Instead, intracompany interoperability via HL7 FHIR and other hybrid protocols will become key priorities.
Interestingly, AGP has not seen many plug-and-play FHIR solutions that can talk to multiple instances of each EHR and deliver “one view to rule them all” for hospital system CEOs and doctors. This is surprising considering the size of the market, the scale of the challenge, the priority-level of the problem, and the revenue potential per implementation.
If you’re an Israeli entrepreneur with such a solution, we’d love to speak with you, and might have some hospitals we can help introduce you to. Again, please contact our Israeli partner Israel Ganot to discuss your solution.
AGP's mission is to invest in Israeli founders and accelerate their commercialization in the U.S. We are always willing to get the phone to discuss your company, your market, and how our U.S. network might be helpful. Please feel free to reach out to any one on our team in Israel or the U.S to discuss.