Investors put nearly $1B into health benefits startups in 2018. Plus, NYU is offering free medical school and Best Buy makes a health care play

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Investors have poured at least $986 million into health insurers and benefits platform startups like Bind and Oscar Health so far in 2018, according to a LinkedIn analysis of Crunchbase data.

A good chunk of that funding — about $800 million — is coming from established companies in the tech and health care industries. Alphabet, the holding company for Google, this week gave Oscar Health $375 million, while the health IT giant Cerner in July funneled $266 million to the company that owns Lumeris, a health plan.

Other deals of note:

• Collective Health, which works with self-insured employers, announced a $110 million round on February 28. Former General Electric CEO Jeff Immelt joined Collective’s advisory board in late July. (Hiring is up 28% year-over-year at Collective Health, according to LinkedIn Premium Insights.)
• Bind, a health benefits platform, takes two rounds totaling $70 million between February 20 and June 28 of this year.
• Before the August investment, Oscar on March 27 cleared another $165 million. (Hiring rose 16% year-over-year, according to LinkedIn data. Oscar CTO Alan Warren wrote on LinkedIn this week that the additional $375 million will be used to double the size of the company’s engineering and product teams.)

There are a few trends at play. The first thing to remember is that 2018 is already shaping up to be another record year in digital health investment. But of all the digital health categories available to investors — including population health, revenue cycle management, and behavior change — why is the appetite so big for health insurance and benefit startups?

“The employer market is hungry for insurance product design and innovation, not a service wrap,” said Jodi Hubler, managing director of Lemhi Ventures, one of Bind’s investors.

In years past, Hubler said, employers and insurers were content buying add-on services and tools, things like price transparency dashboards and the like, rather than taking on system change from the ground floor.

Those days are over. That’s why the once unlikely trifecta of Warren Buffett, Jamie Dimon and Jeff Bezos is trying to rethink employee health care under the leadership of Dr. Atul Gawande. It’s why General Motors is directly contracting with the Henry Ford Health System in a bid to lower employee health costs. Humana is partnering more extensively with both Walgreens and Walmart. And Anthem’s deal with Samsung and telemedicine provider American Well is going after a similar idea, that providing the option for virtual care visits can improve health for its members. 

If there is one major theme emerging in U.S. health care in 2018, it is this: what worked well enough in the past is now under scrutiny. Hubler points out that there is a two-year buy cycle for health benefits, meaning that 2019 is already closed as open enrollment kicks off in November. So, right now companies are designing for 2020 and eyeing big changes for 2021.

But tech money doesn’t always translate to success, especially in a system as complex as U.S. health care. Of the many solution-offering startups in healthcare, there are “too many sugar coated vitamins,” said Derek Winn, a director for the Business Benefits Group, a benefits and insurance brokerage. “It’s a common denominator for the up-and-coming investments coming into this space. They are all looking to leverage technology. It’s really sexy and an appealing point for people who want to throw money at a problem.”

Out of all these new deals, which ones will succeed? Why? Share your thoughts in the comments, using #TheCheckup.

What We’re Watching

1. Medical school for free? That’s what New York University is offering going forward. The elite medical school argues that rising tuition rates and six-figure student-loan balances are pushing new doctors to instead pursue more lucrative specialities and that’s worsening the physician shortages in the primary-care and research fields, according to the WSJ. This is the first time that a major medical school in the U.S. has done this. [Join the conversation here.]

2. Best Buy tries its best to make an Amazon-like splash in health care. The retail giant said it is spending $800 million to buy Great Call, a health-technology company that markets medical alert devices for seniors. Not only does the deal mark Best Buy’s push into the rapidly evolving health care industry, it highlights the company’s interest in the health and wellness market. This is the largest acquisition that Best Buy has made to date.

3. (Female) doctors know best. A pair of studies found that patients tend to fare better when under the care of women physicians, reports the NYT. One reason? Past research indicates that female primary-care physicians spend more time listening to their patients. However, when it comes to treating heart disease, it’s women patients who report better survival with female doctors as compared to male patients. Researchers think that women may be more comfortable talking to other women, a concept backed up by recent stories of doctors downplaying women’s health concerns, as reported by The Atlantic.

One Big Conversation

A lack of business education is holding back entrepreneurial nurses. As part of my colleague Beth Kutscher’s must-read #HealthInventions series, she talks with nurses who also want to get in the tech game, finding that many aren’t prepared for the world of startups.

Al Lewandowski, director at Lone Star College, weighs in on the trend:

“We have enough doctors who want to be businessmen or politicians today and treat being a doctor as a hobby. We sure do not need to spread that disease to the nursing profession who are true care givers.”

What’s your take? Join that conversation here. 

Out of all these new deals, which ones will succeed? Why? Share your thoughts in the comments.