Verticalization Of Healthcare == Opportunities For Startups

Aug 10, 2020: More hospital consolidation is expected post-pandemic

Jul 6, 2020: Hospital Merger and Acquisition Activity Withstands COVID-19 Slump

Jun 22, 2020: After pandemic-induced delays, healthcare deals should speed up

Headlines like these exemplify the ongoing trend in US healthcare -- fewer bigger players. It was already happening much before the pandemic:

As a general principle, when companies buy each other and get bigger they tend to focus on economies of scale. Usually the way for higher profitability either means low volume at high prices or high volume at low prices. In the case of US healthcare that has occurred more steeply with specialists but primary care physicians are not far behind.

Indeed, not to belabor the point but the last 20 years have accelerated dramatically to make healthcare a game of giants:

This emphasis on verticalization is driven considerably by rising administrative costs -- a whole topic in of itself.

Consolidation is fertile ground for more alternatives, especially for those that can pay. Combine that trend with increased deductibles i.e., consumers increasingly frustrated at the high costs of healthcare despite having insurance.

Response #1 to this trend is concierge medicine with OneMedical arguably the standard bearer. The initial stock price of $14 is today at $28, notwithstanding some ups and downs in the six months since IPO. There are many fast followers taking very different approaches, most notably Forward.

Response #2 is physician-guided ecommerce -- done at home, with continuous monitoring, and data-driven decisions. Paloma does it for thyroid, Steady for diabetes, Peak for men’s health -- these are digital-first companies going into personalized medicine and fundamentally different from traditional retail or ecommerce.

Response #3 is the acceleration of remote and on-demand services. Legions of primary care physicians are now based far from patients and seeing them remotely, accelerated by the covid pandemic:

Another case study is radiology which is one of the specialities best suited for remote and on-demand. clinics have been buying each other and squeezing out margins, which increases the need for AI-driven tools that improve efficiency and also facilitates scaling a digital-first solution. RadNet acquiring DeepHealth earlier this year is emblematic of this trend.

A short article cannot possibly do justice to covering all cases. So comment away other great opportunities for entrepreneurs that consolidation is creating.

Thanks to Harpreet Dhatt, MD and Preeti Sukerkar, MD / PhD for their feedback. Originally published on “Data Driven Investor," am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr -- good length; did read). Many of my writings are at https://www.dhirubhai.net/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. 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 my own.