As published in Tennessean, May 9, 2018
By Alex Tolbert
Silicon Valley tech companies like Apple, Google and Uber are known for using technology in new ways to solve old problems, and sometimes, radically changing consumer behavior in the process.
These three companies are reportedly pursuing health care investments, which could mean health care is the next industry to be disrupted by technology.
Of course, these companies aren’t the first to tackle health care. Health care start-ups have been launched across the country, including in Nashville.
In fact, the Nashville Entrepreneur Center, Nashville’s business development nonprofit, launched a start-up accelerator focused on health care in 2016. Thirteen local companies were initially tapped to participate in Project Healthcare in 2017, launching solutions for everything from prescription drug abuse to health care staffing.
The advantage Nashville’s start-up community has over Silicon Valley is its depth of health care experience. Nearly 400 healthcare companies have operations in Nashville, contributing an economic benefit of $38.8 billion to the local economy, and more than $84 billion in revenues globally.
Nashville’s health care expertise gives Music City entrepreneurs a big competitive edge against comparable start-ups in Silicon Valley.
Why the Silicon Valley model won’t fix health care
The Silicon Valley business model — raise a billion dollars and then build a solution fast — often doesn’t work in health care.
One needs to look no further than the software on which most of the country’s largest hospitals are run, Epic, for proof of this. While not a Music City alum, Epic’s history is one any health care tech start-up can aspire to.
Epic was founded in the 1970s by Judith Faulkner in Madison, Wisc. It took $70,000 to start the company, which grew steadily until launching the electronic medical record platform EpicCare in 1992. The company landed a few big contracts in the mid-90s, including Kaiser Permanente, Johns Hopkins and Prudential, and the rest was history. Today, hospitals that use Epic are estimated to hold over 50 percent of U.S. patient records. The company is still private.
Given how much venture capital money has poured into EMRs, how is it that a software company in Wisconsin that never took venture money won the market?
Health care is highly regulated and slow to change. The industry is a fragmented puzzle of stakeholders that work together, but often with contrary incentives. All are typically averse to having their sector disrupted.
In other words, problems in health care are not easily solved with lots of money and great technology alone.
One Silicon Valley company that recently learned this lesson the hard way is Zenefits, a benefits administration platform vendor that launched in 2013 and quickly became a “unicorn,” or a start-up with over a $1 billion in valuation. In fact, Zenefits was valued at $4.5 billion in 2015.
Zenefits tried to disrupt the benefits industry by encouraging employers to drop their local insurance broker and use a software platform to implement and manage employee benefits.
Zenefits’ downfall was swift — it ousted its CEO, laid off nearly half its workforce, and was fined by the SEC for lying to investors. In 2017, the company adopted a new strategy that includes brokers, recognizing what healthcare professionals knew all along — that healthcare is local, and having a broker with localized expertise is important.
In other words, it is critical to have health care subject matter expertise when trying to build software in the healthcare industry, and this is where Nashville has a strong advantage.
As a national headquarters for hospital operations, these companies have keen insight into how the health care system actually works on a day-to-day basis, which drives the development of better solutions.
Silicon Valley has its strengths, too. Its community has a very deep bench when it comes to tech and software skills. But someone with healthcare expertise can learn the business of software more quickly than an individual with software expertise can learn the business of health care.
This is partly because software people write so much about the business of software, whereas health care people rarely write about the business of health care. As a result, the individuals running Nashville’s health care start-ups can learn and implement software know-how faster and more readily than Silicon Valley entrepreneurs can supplement their software expertise with the necessary health care acumen.
As a result, the breadth of health care experience behind health care tech solutions from Nashville should lead to a higher rate of success than those from Silicon Valley.