Hidden Engines of Healthcare Part 3- - A Startup View On The Provider Operations System

Hospital expenditures continue to grow year over year, having reached $1.3 trillion in 2022; Our national healthcare expenditure is projected by the CMS to grow 5.4% over the next decade, outpacing the average projected national GDP growth of 4.6 %. Large healthcare facilities are experiencing deflating healthcare margins from operational forces ranging from changing reimbursement practices, fragmentation of industry, and competitive structuring on top of suffering market pressures from trends such as the aging, complex patient population and shortage of labor force. Finally, historically embedded problems continue— intrinsic challenges such as redundancy in administrative tasks, poor usage of information technology, and lack of internal operational incentives alignment continually plagues healthcare facilities, in varying degrees correlated with their sizes.?

Healthcare facilities are being put under immense pressure: here we explore the types of healthcare facilities in the US healthcare system, general incentives structures that can be influenced, spaces where AI and software can be leveraged to reduce friction, costs, and lead to better ultimate patient outcomes, and a brief note on how tech companies are positioned within the provider ecosystem.?

Types of Healthcare Facilities

1.Hospitals: Hospitals are traditionally sites where patients can access multiple points of care, and receive diagnosis and treatment for a variety of medical conditions. According to the American Hospital Association, hospitals are defined as having at least six beds and organized staff in order to provide diagnostic; they are categorized by therapeutic services, and their bed capacities, types of ownership, and length of patient stays. Classified by ownership, here are a few types that have traditionally been more open to working with startups:

• Public Hospitals: Public hospitals are owned and operated by government entities, such as local, state, or federal governments. They often serve a broader community and may receive government funding to provide healthcare services to underserved populations.
• Private Nonprofit Hospitals: These hospitals are owned by nonprofit organizations, such as charitable foundations, religious institutions, or community groups. Their primary focus is on providing healthcare services to the community, and any profits are reinvested back into the hospital to improve patient care.
• Private For-Profit Hospitals: Owned by individuals or corporations, for-profit hospitals operate with the goal of generating profit for their owners or shareholders. They may offer a range of medical services and treatments, and their decisions are often driven by financial considerations.
• Teaching Hospitals (often nonprofit): Teaching hospitals are affiliated with medical schools and universities, and they play a significant role in medical education and research. Many teaching hospitals have nonprofit status and prioritize education and research alongside patient care.

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Startup view:

Pros: large patient volume, longer-term contract relationships, brand recognition ripe with administrative white spaces,

Challenges: longer sales cycle, complex adoption routes, negotiation leverage asymmetry

2. Outpatient Clinics: Outpatient clinics are healthcare facilities where medical services are provided to patients who do not require overnight stays. These clinics offer a wide range of services such as medical consultations, diagnostic tests, minor procedures, vaccinations, and therapy sessions. Patients visit outpatient clinics for various reasons, including preventive care, routine check-ups, follow-up appointments, and treatment of minor illnesses or injuries. The focus is on providing timely and efficient care, allowing patients to return home after their appointments.

Startup view:?

Pros: Flexible solutions, shorter sales cycle, growing appetite

Challenges: Fragmented markets, consolidation of independent clinics in specific fields such as primary care and independent anesthesiology centers- contracting market, varied decision-makers

3. Long-Term Care Facilities - Long-term care facilities are specialized institutions that cater to individuals who require extended care and assistance due to chronic illnesses, disabilities, or advanced age. These facilities offer a range of services including nursing care, rehabilitation, assistance with activities of daily living (such as bathing, dressing, and eating), and social activities. Long-term care can be provided in different settings, such as nursing homes, assisted living communities, and memory care units. The goal is to improve the quality of life for residents who need ongoing support that cannot be adequately provided at home.

Startup view:?

Pros: steady patient volume flow, niche industry with high admin overload, more likely to be open to adoption

Challenges: budget constraints, shifts in care models may impact demand

4. Hospice - hospice facilities are mostly for end of life care and those that are terminally ill. These facilities can be independent long term facilities, in-hospital, or driven from a patient's home.?

Startup view:?

Pros: heavy need to reduce staff burden via tech,??

Challenges: higher price sensitivity, digital divide affects adoption rates, more here

Opportunities in the Operational side of the Provider System

In the health provider system, here are a few high level areas with potential opportunities:

Tech:?

• Automated Administrative Tasks:

AI-powered solutions can streamline administrative tasks such as appointment scheduling, patient registration, and billing, by assisting with initial patient inquiries, guiding them to appropriate services and reducing wait times. By analyzing patient data and symptoms, AI algorithms can help prioritize cases, ensuring that critical patients receive immediate attention. Examples of startups in this space include Infinitus*, Syllable AI, and Assort Health*.?

• Supply Chain and Inventory Management:

AI algorithms can predict inventory needs based on historical data, current demand, and upcoming trends. This prevents shortages, reduces wastage, and ensures that essential medical supplies are always available by predicting inventory needs, preventing shortages, and reducing wastage. Additionally, AI can assist in automating administrative tasks such as appointment scheduling and billing, freeing up staff to focus on patient care. Examples of startups in this space include Clarium, ConnectSX,and? Kitcheck.?

• Claims Processing and Automation:

The claims processing workflow in payer systems can be time-consuming and resource-intensive. Startups can develop solutions that leverage automation, natural language processing (NLP), and AI to streamline the claims adjudication process, improve accuracy, and reduce administrative costs. Intelligent claims processing systems can help automate data extraction, identify fraudulent claims, and facilitate faster payment cycles. Examples of startups in this space include PriorAuthNow, Alaffia*, Glidian*, Banjo Health*, and Adonis.?

A Note on Big Tech in Provider Systems

The foray of major tech giants like Oracle, Google, and Amazon into the healthcare sector has transformed the conversation around the healthcare provider ecosystems. Each company brings its unique technological expertise and resources to address various challenges in healthcare delivery, data management, and patient engagement.

Oracle: Leveraging Data Management and Interoperability:

Oracle's focus on data management and interoperability has profoundly affected healthcare provider ecosystems. Through Oracle’s acquisition of Cerner, Oracle captured an entry point in data integration within the physician workflow across disparate systems. Oracle's infrastructure in database technology and analytics has allowed it to advertise applications for providers in staff management, inventory, billing and EMRs.?

Google: Transforming Healthcare with AI and Innovation:

Google's AI-driven initiatives and innovative technologies have brought transformative changes to healthcare provider ecosystems. Google's machine learning capabilities have been employed in medical image analysis, disease prediction, and drug discovery. Google Cloud services facilitate data storage and analysis, aiding healthcare organizations in managing complex datasets securely.

Amazon: Disrupting Healthcare Delivery:

Amazon's impact on healthcare provider ecosystems extends across several dimensions. Amazon's acquisition of One Medical, Pillpack, and launch of RxPass has signaled its move into consumer-focused approach towards patient engagement and wellness applications. Its cloud computing services (Amazon Web Services) provide scalable infrastructure for telehealth platforms, electronic health records (EHR) systems, and analytics applications. Additionally, Amazon's experience in logistics and supply chain management has led to efficient medical supply procurement and distribution.

Though big tech’s advantage in excess technological and talent resources, enterprise level data infrastructure and existing patient base, we at Tau believe that startups are most poised to attack different entry points of the provider system as they are nimble, and more capable of adapting business models to the incentives structures among the key players involved.?

Primary author of this article is Sharon Huang. Originally published on “Data Driven Investor.” ? These are purposely short articles focused on practical insights (we call it gl;dr — good length; did read). * companies are portfolio companies of Tau. See here for other such articles. If this article had useful insights for you, comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are from the author(s).