Healthcare Business News

Healthcare outsiders fuel digital health startups

By Darius Tahir
Posted: August 29, 2014 - 2:45 pm ET

A gold rush inevitably lures outsiders, and digital health is no different. People with tech talent but little to no healthcare experience are encamping in the booming sector.

Dr. Bob Kocher, a venture capitalist with Venrock and a former White House healthcare adviser, has been partially responsible. Most of the startups Kocher has invested in through Venrock are headed by healthcare outsiders.

For example, Kocher backed Owen Tripp's launch of Grand Rounds, a startup that aims to provide second opinions and access to specialists. Tripp previously co-founded, a site that helps users monitor and defend their online reputations, and before that worked at eBay.

Kocher also put money behind Adam Jackson's Doctor on Demand, a startup that gives consumers access to video consultations. Before taking an interest in healthcare, Jackson co-founded a website called that helped consumers navigate the car-buying process. Doctor on Demand recently raised $21 million.

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These types of entrepreneurs, Kocher said, are “easier to fund … because they know what they're doing.” That is, they have software skills and know how to grow a business fast, and people with healthcare backgrounds often don't.

And healthcare is attractive to outsiders with those skills, said Mike Payne, the head of medical affairs for startup Omada Health, which is developing a Web-based diabetes prevention program. “There's a whole lot of folks who have been developers and managers at tech firms who have kind of made their money and are looking for something different to do,” said Payne, who previously worked for Gilead Sciences. “There's a big focus to, perhaps, do something that will return something to society in a more direct way.”

Some investors believe the technical expertise and insights that outsiders bring to healthcare could change the industry. Stephen Kraus, a healthcare-focused partner at Bessemer Venture Partners, said entrepreneurs with tech backgrounds are flocking to healthcare to import their technical skills, particularly those in cloud computing.

Venture capitalist Vinod Khosla—who has attracted attention for his prediction that, in the future, 80% of doctors' current tasks will be performed by computers—thinks that the type of innovation he's interested in “will most likely come from outside the system.” Outsiders, he believes, have fewer preconceptions and therefore are are more likely to try radical approaches that lead to breakthroughs.

Healthcare companies are also in need of people from the tech world to create the design and interfaces that have the sophistication consumers have come to expect from digital products and services.

Omada Health's Prevent program consists of a digital scale and an online portal designed to help prediabetics lose weight before they develop the disease. For a design approach, Omada went with an interface reminiscent of Facebook's, Payne said, due to consumer familiarity.

Sean Duffy, Omada Health's CEO, previously was a health and wellness specialist for the design consultancy IDEO, and he was an MD/MBA candidate at Harvard University before co-founding Omada. He has suggested that healthcare suffers from a digital design “talent gap.” Top designers “talk about human-centered design, which involves putting yourself in the mind of someone experiencing the system and asking, yourself how they are engaging with it,” Duffy said in an interview published in Healthcare: The Journal of Delivery Science and Innovation. “The healthcare institutions that have the ability to transform care might not know where to find or how to hire the world's best designers.”

Some caution, though, that the influx of talent might not solve healthcare's problems. David Shaywitz, now the chief medical officer of startup DNAnexus, said that the typical “20-year-old coder” has a very different view of the healthcare system than the typical patient. “It isn't just the rigorous analysis of 'Here's my medical problem, I'm going to input my data and get a solution,'” he said. “I think there's an emotional or empathic element to medicine that has escaped the reductionist tendency of Silicon Valley, and to the extent they don't capture it, they're going to miss critical aspects of the problem to be solved.”

Outsiders also might be prone to putting flimsy products on the market, said Dr. Roy Schoenberg, the CEO of video consultation startup American Well. The enthusiasm for digital health, he thinks, might attract entrepreneurs who are selling products that are “at best glued-together,” or without the proper evidence to support them.

“They create a reality where people trust them—people get excited, because the promise is great—but they don't know what they're doing, or in some cases they break the law,” he said. “The result is, when you have a bad apple, it gives the entire thing a setback because people say, 'Maybe it's too early to embrace these kinds of technologies.' And it's not too early at all.”

That critique has been shared by other commentators. At a December 2013 conference, for example, one questioner asked Food and Drug Administration officials why they haven't pursued enforcement action against a smartphone app that claims to cure stomach ulcers through phone vibrations. Researchers with UPMC in Pittsburgh, meanwhile, published an article last year in JAMA Dermatology finding wide variation in the reliability of apps claiming to diagnose skin cancer. One had a sensitivity rate of 6.8%.

Previous waves of tech interlopers have retreated after their innovations fizzled in the market. For example, Google shuttered its personal health-record product in June 2011. At the time, John Moore—who founded health IT analyst firm Chilmark Research—said that the product was well-designed but ill-conceived.

Google didn't seem to understand what consumers want, Moore argued. “Few consumers are interested in a digital filing cabinet for their records.” Nor was the tech giant effective at forging partnerships with doctors, Moore wrote. “Engaging the consumer/patient most often begins at the doctor's office. … Google thought that if they built it, consumers would come on their own to Google Health.” (Google and Apple are now preparing new forays in the mobile health arena.)

The history of such attempts stretches back to the first Internet boom. That period saw the formation of Healtheon, a startup intended to sit at the center of the healthcare system. In Michael Lewis' book The New New Thing, which followed the startup's fortunes, one engineer notes that leadership's attitude “was just to get enough bright people and throw them at the problem … something good would come out of it.”

The company's ambitions came down to earth. In 1999 Healtheon merged with WebMD, a purveyor of health information on the Web, and part of the company later splintered into the revenue-cycle firm Emdeon.

But previous misfires aren't likely to deter the tech community from trying again. “Ultrarationally” it might make sense to be dissuaded, said Shaywitz of DNAnexus. But that's not in the spirit of Silicon Valley. “I think there's a sense of possibility,” Shaywitz said. “There's an unreasonable hope, almost.”

Follow Darius Tahir on Twitter: @dariustahir

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