Israel Digital Health Startups / Targeting U.S. Markets In The Wake Of A Crisis

As a matter of consideration, the names of certain individuals, companies, organizations and others will remain anonymous to serve the article’s primary intent - helping Israel’s digital health startups navigate uncharted waters.

The turmoil of the global pandemic has injected renewed interest and vigor into the digital health arena. Still, whatever euphoria has arisen amongst Israel’s early-stage startups of late, need be far more nuanced in consideration of evolving micro and macro economic forces now impacting the U.S. healthcare markets. 

This turmoil has exposed long-standing ailments of an already fractured overburdened healthcare system. Well-intentioned calls to cure these, face an uphill battle in an industry long saddled with economic hardship, and a pervasive culture of being reactive to ills only after diagnosis - and even then obtusely sluggish at best. In the absence of far-reaching regulatory, payment, and incentive reforms, we are still only rearranging deck chairs on the Titanic. 

In the wake of this pandemic, innovators will face unprecedented opportunities and unanticipated challenges alike. Witnessing how taxing these events have been on economies in general, and on the healthcare system in particular, you would imagine this observation to be rather obvious. Yet, recent conversations with Israeli health startups and their benefactors leave me unequivocally assured - it is not!

While Israeli startups look myopically to the U.S. for commercial success, pervasive ignorance of prevailing market conditions and emerging market dynamics will lead to their atrophy. If that is at all obscure, consider that nearly half of the Q1 decline in GDP (-4.8%) can be attributed to healthcare (-2.25%) alone.

The U.S. Healthcare Markets: Mess, Misery, and Misfortune

In 2019, healthcare spending in the U.S. reached $3.6-trillion, of which the Government alone laid out $1.2-trillion. In 2020, CMS anticipates $4-trillion in healthcare spending, a whopping 20% of the nation's entire gross domestic product (GDP). What appears on the surface as a large burgeoning market opportunity, is riddled with latent challenges, inefficiencies, and complexities, many that run counterintuitive to expectation or desire.

The U.S. healthcare industry’s cost structure is simply untenable. Last year alone, healthcare spending reached $11,600 per capita with an average life expectancy of 79 years, compared to just $5,200 per capita in Canada where life expectancy is 82 years. In the US, more than 60% of adults are now living with at least one chronic disease, while in Canada just 44%. These concerns are further exasperated, seeing the government pumping an additional $175-billion into providers pockets as part of a recent economic stimulus package. However we wish to measure healthcare spending and the return on that investment, there is one undeniable fact. While U.S. spending outpaces all other developed countries, it shows the lowest ROI.

This recent global pandemic not only revealed the inadequacies of the U.S. healthcare system to deal with its own internal constraints, but also how poorly it fared in relation to countries where spending has been comparatively low. In Israel, per capita healthcare spending is just $2,750 and yet the country demonstrated tremendous resolve in contending with COVID-19.

The U.S. Healthcare Markets: General Trends and Forces

Rising costs, an aging population, increased chronic disease, demand for greater transparency, evolving customer expectations, growing competition, new legislation expanding the quality and quantity of health services, new pricing controls on pharmaceutical and medical devices, and increased consolidation, are putting pressure on incumbents to re-capture expenditures and pushing value-based models to the forefront. However compelled stakeholders may be to invest in innovative delivery models, value-based care, new digital solutions, greater data interoperability and access, security and privacy, finance, resource and asset management solutions, new infrastructure and equipment, and alternative human resource solutions, they are also facing growing economic hardship. If there is one major takeaway in approaching the U.S. healthcare markets now, it is that the interests of payers, providers, and consumers rarely align, except now as they all seek ways of saving money. 

Arising Opportunities: Data Driven

The challenges exposed by the pandemic, pale in comparison to those already plaguing the industry. The virus simply forced us to confront an overwhelming burden within a very short period - widely anticipated but never prepared for in actuality. It is not so surprising for an industry built to treat disease, not prevent disease. 

Regardless of the who, what, when, where, and why, digital health is one thing alone - data. The enactment of HIPAA in the U.S. over 15 years ago, catalyzed the development of digital health solutions by creating an understanding of how data can, and should be leveraged throughout the industry. The power of this data being untethered, reverberates far and wide. There is overwhelming consensus amongst all, that far more effort is needed on these fronts, to accelerate desired outcomes:

• Convert Data into Actionable Data
• Accelerate Data Insights for Critical Decision Making
• Democratize Data to Improve Access and Delivery of Integrated Care

Emerging Care Models: Transformational or Transitional 

The incumbents of healthcare are growing behemoths, as high upfront costs (capital reserves, infrastructure costs, regulatory requirements, etc.) act as a deterrent for newcomers, and consolidation continues at a frenzied pace. There are ample opportunities for healthcare startups to deliver benefit, improving incrementally on outdated systems and workflows, and their interoperability. 

Payers, providers, and governmental institutions operated historically under traditional fee for service models, where each was incentivized to prioritize their own self-interests. The economics of quantity eclipsed the economics of quality. A high level of mistrust prevailed in the policies, processes and behaviors, to avoid sharing patients (revenue) or data. New care delivery and reimbursement models are driving change. The coordination of care, integration of services, and unfettered flow of data delivers high quality service and better outcomes for patients. To accelerate their deployment, requires a continuous feedback loop, where health outcomes act as a benchmark of performance to continuously refine the quality of care. With data collection devices becoming ubiquitous and a further understanding of what factors contribute to desired outcomes, the resources and efforts of incumbents can be far-better deployed to serve their needs and those of patients uniformly.

The Challenge: Incumbents and Encumbrance

The sheer complexity of healthcare’s incumbents, and the daunting effort needed to build consensus amongst stakeholders within these organizations, is more challenging than ever. Organizations in general, and individual stakeholders in particular are driven by distinct, and often incongruent motives. A Harvard Business Review article entitled “Hospital Budget Systems Are Holding Back Innovation” brought to light just how profoundly these stifle adoption of new innovations in a hospital environment.

Healthcare’s technological competence has matured, while a level of fatigue has settled in. Constituents are more inclined to defer adoption until a solution has been deployed and proven in the market, creating a paradox for startups. For any startup, the process can be exhausting - depleting resources, capital, time and passion. 

The voices demanding a return on investment began to amplify long before the current crisis, and those voices are further amplified as a consequence. The exuberance and eagerness of the past is far more restrained, with decision-makers demanding an impact measured in terms of outcomes, cost, and access to care. A recent study found leading US digital health companies had failed to demonstrate a substantial impact on reducing cost in the healthcare system. There is a profound lesson for every startup ready to knock on a customer’s door. They need to communicate trust, reliance, accountability, transparency and honesty in every interaction and at every opportunity. 

There may be a dearth of opportunities for startups to find that first customer and gain traction, requiring a bit of creative problem solving. But they do exist, and these startups need to be far more resolute, focused, and clear in how they approach the market. If you wish to learn what strategies and channels can best be employed for your venture, please feel free to reach out. 

A comprehensive analysis of all constituents impacted by the pandemic is beyond the scope of this article, and differs by region of coverage, business model, customer demographic, and many other factors. However, there are a number of interesting new trends to consider for those already operating, or considering entering these markets. 

Payers While the pandemic brought many of the the challenges faced by hospitals and healthcare workers to the forefront, those faced by the insurance system have been largely ignored. Before, more than half of all Americans (160-million) were insured through their employer. With unemployment reaching unprecedented levels, growing by more than 14 million in just three months time, much of the financial burden will now shift to the government. The Kaiser Family Foundation estimates that 80% of unemployed will qualify for government subsidized coverage (Medicaid / ACA marketplaces). Even if the economy rebounds and jobs return, many employees are likely to eliminate or curtail employee health benefits. This phenomenon coupled with an aging population, makes it clear that in the absence of any radical reform, the US government will increasingly be picking up the tab for healthcare costs. 

Providers The impact on the delivery of care has been profound, forcing providers to reevaluate how consumers in general are now experiencing healthcare with restricted accessibility to their services and products. Many traditional services performed in-office, information flows (scheduling, lab results, recorded diagnosis and treatments, etc.), processes (i.e. medication prescriptions, consults, diagnostic testing, etc.) are moving to far more efficient and comprehensive digital forums. In fact, a sharp rise in social and environmental factors (economic constraints, mental health concerns, unemployment, feelings of isolation, lack of motivation, excessive reliance on technology, sleep deprivation) are posing new challenges to maintaining a healthy lifestyle. To what degree providers become proactive in their patients lives, is imperative to providing the anticipated quality of care and desirable outcomes. This profound transformation is driven by consumer expectation. Providers and the systems in which they operate need to adjust expeditiously to a new reality - what happens outside the doctor’s office is more important than ever.

Consumers The beauty of healthcare as a market, is that no one gets to opt-out. How we conduct our lives continuously contributes to anticipated health risks and outcomes. Data that lives siloed today, has the potential to improve our well-being in transformative and meaningful ways, if unleashed. The consumer trends most prevalent these last years, have only accelerated in light of the crisis. These are the emerging consumer trends compelling payers and providers to shift resources to developing new innovations and services:

Virtualization: We are moving away from the episodic model of care, to a continuous virtual model that engages consumers even when they are not directly interacting with the healthcare system. Trends include telehealth, telemedicine, home diagnostics, wearables, remote clinical trials, a growing virtual mobile workforce.

Social and Environmental Determinants: A growing awareness of how social and environmental factors contribute to our well-being is growing, and the need to leverage this data to create a holistic view of consumer health. Trends include embrace of mental health, blurring lines between medical and wellness, connecting health systems to social and environmental systems.

Affordability: While skyrocketing costs continue to grab headlines, the scrutiny of consumers intensifies. Enjoying the convenience of telemedicine (clinical) and telehealth (non-clinical), perhaps now more from necessity than desire, many are questioning the traditional experience’s value, imposition, lack of transparency, and affordability. Quite simply, consumers expect to be empowered with data, able to make better informed decisions, and to receive quality services that are reasonable. Trends include predictive modeling, high-deductible health plans + health savings account, growing independent workforce.

Israel’s Digital Health Startup Economy: Challenged to Change

Israel has an advanced robust healthcare innovation ecosystem, boasting over 600 digital health startups that raised more than $600 million in 2019, a 32% increase from 2018 (source: Start-Up Nation Central). In early 2018, the Israel Government pledged investment of $275-million, with the goal of digitizing the medical records of all residents, and a broader vision of leveraging this data to catalyze advances in personalized medicine, disease management, and preventative treatment. This focus on digital health is designed to make healthcare more personalized, proactive, and cost-efficient, in the face of climbing costs and operational inefficiencies, an aging population, rising rates of chronic disease, and the growing demands placed on the healthcare sector by specific demographic populations.

Early-stage digital health startups grapple with a serious dilemma - access to customers and capital. How you secure one without the other has been an ongoing dilemma, as venture capital seeks to mitigate commercial risk by seeing some level of “buy-in”. How do you build a viable business when customers are reluctant to bear risk as first-adopters and venture funds are reluctant to endure financial exposure prior to seeing customer adoption? The typical healthcare sales cycle, already a long painstaking process, is going to prove far more challenge in the coming period. It will require startups to deploy highly qualified well-regarded resources (investors, employees, advisers) that can build advocacy for adopting any solution from within the customer organization, and instill a sense of reliance on the startup to deliver. No organization of any size and with any credibility wishes to hitch their success to the performance of an early stage venture. How effective startups are in diffusing these concerns, is going to prove a hardship when they already fail so often, and in turbulent times that likelihood is only greater.

Far greater pressure will be placed on these ventures to move beyond the hype and lip- service. The voices demanding a return on investment began to amplify long before the current crisis, and those voices are further amplified as a consequence. Resource and capital constraints render many “solutions” a luxury few can afford at this time. Proving an ROI is not arriving on U.S. shores with grandiose proclamations of “we can save you...” or “we can help you...” but showing actual realized results - bankable data. It is incumbent on startups to test and pilot their solutions in real-world applications far in advance, serving the local Israeli market at scale to demonstrate the potential to produce a meaningful and measurable impact. 

While I applaud their pride, startups making dubious claims of being “the first” or “the only”, forecasting success by measures of market size and “conservative” penetration rates, or posturing on performance measures of a solution still under development, is nothing more than misplaced arrogance and ignorance. We face a critical need for innovation to restore patient confidence and sound business acumen across the industry. Digital health startups need to communicate the values of trust, reliance, accountability, transparency and honesty in every interaction and at every opportunity. 

Digital solutions have the ability to unlock dormant value and stimulate growth in a period when payers and providers are already struggling with debilitating resource constraints. It is plausible that startups align their interests with those of their customers, by generating sales revenue based on achieving specified outcomes, as a percentage of financial benefit realized by the consumer. 

Those startups domiciled in the U.S. these past years have a clear advantage to those arriving from Israel today. By far and large, U.S. founders bring long-standing industry relationships, a keen understanding of market needs, and an ability to clearly articulate the value proposition of their solution when approaching a customer. There are few healthcare incumbents that are not already sponsoring digital health accelerators, matchmaking programs, innovation labs, pilot programs, or developing mission-critical technologies in-house. With budgets and priorities set long in advance, few have the discretion or desire to consider anything that falls outside the purview of these existing initiatives. In other words, despite all good intentioned efforts, Israel’s healthcare startups often stand at a distinct disadvantage to their U.S. counterparts. 

Israel’s digital health startups largely settle in N.Y.C., L.A., Boston, Philadelphia, Houston, Chicago, San Francisco, and The Bay Area. Why they choose these highly developed, crowded, and competitive markets is confounding. The established payers and providers in these locales have been pitched digital health solutions ad nauseam. In the meantime, they ignore underserved markets, in places like Tennessee, Pennsylvania, Alabama, Missouri, or Texas where the largest hospital networks are based. While founders may find the allure of living in New York City or the Bay Area more aligned with their personal preferences, they do not necessarily align with the business needs. Investors have a responsibility to question the prudence of such decisions, and ensure their capital is deployed to achieve intended results. As a digital health startup, understanding what you can afford is as critical as understanding what you can not afford.

The Opportunity: Forging Realistic Expectations 

There is plenty of reason to remain bullish on digital health. Those positioned to capitalize on emerging opportunities will thrive, in particular, those with applications that reduce cost and optimize efficiency without imposing large upfront investment - time, effort, or capital.

Overall, Israeli digital health startups have a distinct advantage where the country is renowned to have a highly developed competence and distinct advantage. Those technologies developed to serve Israel’s advanced military capabilities, have been at the forefront of Israel’s success. For example, military solutions that manage continuous collection and analysis of complex multidimensional data supporting mission critical urgent decisions, have the ability to deliver unique efficiencies into dynamic hospital environments. The criticality for such solutions to reduce costly financial and human risk, is growing. The use of artificial intelligence, machine learning sitting at the core of decision support systems in dynamic environments, carries a clear advantage in emerging patient-centric quality of care models. The growing demand for interoperability and data democratization in new patient-centric models will accelerate adoption of blockchain solutions.

Below are areas where Israel’s digital health startups are uniquely positioned to serve healthcare market, and have a distinct advantage to do so owing to highly developed competencies, advanced technological advantage, lower-cost human capital, and access to critical resources (patient populations, data repositories, academic research, intellectual property, technical equipment and infrastructure, etc.): 

Clinical Trials: Patient Compliance

Deployed assets and resources, particularly those allocated to cost centers as research and development, are going to come under increased scrutiny. This effect is likely to be more profound amongst pharmaceutical and medical device companies where effectiveness and safety drive rather long and costly development cycles. The clinical research market is about to realize a tectonic shift in how clinical trials are performed, and digital health solution that facilitate patient compliance will be a key contributor to their success. There are numerous studies supporting this perspective, and the ROI to these organizations are not just in terms of cost savings, but also implicit to measuring the overall performance and results of these trials. 

Digital Diagnostics and Telehealth

There is newfound appreciation for digital mediums being layered over real-world experiences, as a matter of convenience as much as need. Across demographic and geographic divide, individual’s are increasingly tasked with performing testing from the convenience of their own home (testing kits, mobile collection of data, wearables, tele-health, etc.). In lieu of the time it takes to schedule a doctor’s appointment (24+ days) to the actual time physicians allot to their patients (12-minutes), the imposition on patients to perform more tasks outside the practitioner’s office is growing. Telehealth may not be for all, but engages a younger generation of patients on their terms and in familiar ways, consistent with how they live their overall lives today. 

This shift in consumer behavior has been profound. A recent survey by PWC’s Health Research Institute found that 5% of consumers (16.5 million of the population) reported they or a family member used telehealth for the first time during the pandemic, and 88% of these new users would use it again.

Preemptive Medicine

While preemptive medicine may be a rather “new” concept, it is almost comical to imagine that while healthcare costs skyrocket we are only now figuring out how to leverage data and science to hone interventions on high-risk patient populations and reduce unnecessary expenditures. To highlight how profound this need is, hospital readmissions cost Medicare $26 billion annually, with $17 billion (65%) spent on avoidable hospital trips after discharge. There is a growing need to identify at-risk patients, and continuously monitor those factors contributing to their relapse. For example, monitoring medication adherence allows healthcare professionals to take preemptive measures that result in enormous and immediate savings. 

Preventative Medicine

Treating chronic disease accounts for 75% of all healthcare spending in the US, while as much as 80% of these conditions are self-induced, brought on by an individual’s lifestyle choices. The biggest challenge to managing health risks by imposing a preventative approach, lay in sustained behavior modification and adherence monitoring. This is an area where digital solutions (data collection, analysis, risk assessment, etc.) are the only relevant and effective tools, short of every patient moving in with a personal nutritionist, fitness coach, and therapist. A surge in value-based care models are rewarding providers for outcomes, evidence-based reduction in the effects and incidence of chronic disease. Digital health solutions offer a unique opportunity in identifying at-risk individuals real time, and to impose pre-emptive measures that help these patients along a continuum of healthy living. The value based care models require measuring health outcomes against the cost of delivering those outcomes - with technology solutions at the epicenter of delivering measurable value for payers, providers and patients.

New Delivery Models  

New modes of care delivery are evolving, as value-based healthcare models push for greater transparency, coordination and integration. Patient Centered Medical Home (PCMH), Accountable Care Organizations (ACOs), Hospital Value-Based Purchasing (VBP), all stress a coordinated approach to providing patient care, the sharing of data across organizations, and measuring outcomes. Technologies that are critical to this new paradigm, include workflow management, data security and privacy, big data analytics, bioinformatics, artificial intelligence, data driven compliance, resource management - all part of the digital health arena. 

AI Machine Learning: Decision Support Systems

The tech behemoths (Google, IBM, Microsoft, Apple) have all taken an interest in AI:ML applications in healthcare. Employing AI technologies in the areas of diagnosis and treatment, genomics, bioinformatics, patient engagement and adherence, and administrative activities all promise to greatly improve the patient experience and health outcomes. There are specific areas where this technology truly shines, and is necessary as the healthcare field becomes increasingly complex and entrenched players are saddled with questions on how to best capture value from their data and drive better outcomes. While machine learning models are slated to be the foundation of evidence-based and probability-based medicine, they need to be seen through the lens of the institutions and individuals administering these services. While they already show enormous promise in supporting more effective decision making for physicians, clinicians, administrators, and such, early efforts to marginalize or displace the human element has been met with great resistance. AI applications should be seen as an incremental improvement to existing methods, facilitating and supporting existing organizational decision making roles. Interestingly enough, in a country renowned as a leader in the development of artificial intelligence, Israel boasts more than 40% of digital health startups using AI as their core technological advantage.

AI Machine Learning: Medical Errors

It is most unfortunate to think that beyond medical conditions, patients are left to endure poor service, rising costs, and less-than-optimal health outcomes, in a country where medical errors are now the third leading cause of death. With all the advances made, medical errors remain as prevalent as they were 20 years ago. Patients in intensive care units are the most likely to experience a medical mistake, with an astounding 18% affected. With a growing roster of entities coordinating patient care, the opportunity for dire mistakes remains. The ability to leverage data, and technologies as artificial intelligence to identify the underlying risk factors and take preemptive measures, proves effective in reducing these costly mistakes. An AI solution developed by Israel’s MedAware, identified potential medical errors and adverse drug events with an accuracy rate of over 90%, according to a Harvard study. How this solution translates into direct and measurable results, is but one example of how Israeli digital health startups can leverage data to deliver a clear and compelling value proposition. It is a benefit that commands the attention of stakeholders and patients alike, and one that others should strive to offer.

Integration and Security Software 

Of all areas where Israeli tech companies have forged notoriety, security software stands above all. The need for bullet-proof security and privacy protections is growing as data starts being leveraged in more critical ways across large, geographically disparate, fragmented organizations and care delivery models. As care providers grow through acquisition and consolidation, managing hundreds and even thousands of distinct physical care sites (hospitals, surgery centers, emergency rooms, urgent care centers, physician clinics), the need to manage the flow of patient data across all these locals becomes increasingly challenging. Further, as new deliver models stress transparency, coordination and integration between disparate and distinct entities, brokering how data is shared between these and protocols employed to secure data transmissions amongst all is paramount. A care facility today is so heavily reliant on interconnected devices, systems, and technologies - i.e. patient engagement systems, connected medical devices, storage of EHR, delivery of remote tele-health services, collection of diagnostic data, multi-modal communications inside and outside of the organizations, and many others.

Blockchain:

Other than perhaps artificial intelligence, no other technology has garnered as much excitement and confusion, as blockchain. As a decentralized transparent secure framework, this technology has a vital role to play in healthcare’s push towards interoperability - coordinating care across varied disparate and complex organizations. Blockchain has the potential to address the two primary underlying concerns. The first, being how patients are uniformly identified, along a continuum of healthcare services regardless of provider, geographic location, time, or any other constraint. The challenge in balancing personal security and privacy, while striving for greater transparency and traceability in parallel, is profound. Today, 20% of patient records are not accurately matched even within the same health care system, and 50% are mismatched when data is transferred between healthcare systems. Blockchain lays the groundwork needed to secure privacy, and ensure ownership and control of personal data remains in the hands of the individual. The second challenge arising in this push towards interoperability, is that the quality of care is only as effective and efficient as the open sharing of the patient’s health information amongst all care providers. Long-standing practices, policies, concerns, have allowed the practice of information blocking to prevail, where a single entity looks to “own” the patient by acting to hinder the flow of information to other constituents. New care delivery models are helping to erode this practice, incentivizing organizations to adopt open shared practices and placing the patient’s interests front and center. A private “permissioned” blockchain network restricts access to information to only those participants authorized to share information, and in the case of healthcare offers a viable means of ensuring data flows freely between the relevant parties within a closed secure ecosystem. 

Asset, Resource, and Information Management:

Hospitals in particular have become incredibly complex, multi-site, institutions with many moving parts and little understanding of what resides where, and how it is used. Monitoring resource utilization, ROI on assets employed, deployed human capital, etc. are the underpinnings to running a cost effective and efficient operation, and in particular when budgets remain misaligned to adoption of critical innovations. Environments within a hospital can greatly differ, and the needs and resources are often uniquely deployed to those environs. Gathering actionable data from across different areas, can provide much-needed insights into how patients, medical and administrative staff, machinery, devices, instruments move throughout. As much as 86% of mistakes made in the healthcare industry are administrative, and these preventable medical errors claim the lives of some 400,000 people each year. About 80% of all serious medical errors involve miscommunication during care transitions to different care settings.

In Conclusion

This is a moment to assess evolving macro and micro economic conditions, and develop a strategy in anticipation of how these factors will accelerate opportunities and challenges across the healthcare markets. Ventures that deliver critical and measurable benefit (cost reduction, revenue generation, extraction of latent value, efficient resource allocation, optimized health outcomes, streamlined workflows, regulatory compliance, etc.) will thrive in the coming years, despite the ensuing turmoil. By taking this moment to heart, Israel’s digital health startups are in a unique position to confront emerging challenges head-on and execute on a shared view of digital health’s role in redefining the “healthcare experience” for all in the aftermath of COVID19.