Healthcare Disruption is Coming - but from where? Part 1: Contenders & Pretenders

Where will disruption come from?

Our mission at Awesome Studios is to build breakthrough health companies. By breakthrough, we mean companies that alter the course of human behavior and culture in ways that make us healthier, freer, wealthier.

Where will these disruptions come from?

We believe that disruption comes primarily from organizations that serve consumers rather than large corporations, which tend to have a vested interest in preserving the status quo. Amazon, Apple, Google, Facebook, Netflix, and Tesla all started as direct-to-consumer companies that altered our behaviors and mindsets.

Are there young healthcare companies poised to disrupt by offering convention-defying products and services to consumers, or are they captive of the healthcare establishment?

We looked for signs of disruption in the current batch of venture capital-backed companies and then at newish publicly traded companies.

Venture capital is heavily invested in digital health. CB Insights reported that equity funding to digital health companies reached an all-time high of $9B+ in Q1’21. Yet, research from Rock Health, the digital health venture capital firm, tells us that 61% of digital health companies that start out serving consumers pivot to B2B, catering to insurance companies, hospitals, healthcare providers, and large employers. [Read]. That leaves 39% of digital health startups positioned to disrupt. Of course, less than 10% of these startups will go on to become robust independent companies.

Let’s check out the publicly traded scene. The granddaddy of publicly traded digital health companies is Teladoc. Teladoc’s revenue is over 90% from service contracts with health insurance companies — hard to see the disruption.

How about the slew of healthcare companies that have gone public since 2020?

Direct to consumer (DTC) Innovator means a company that 1) built a business model that directly serves consumers and 2) is doing something novel. We’ve excluded Medicare Advantage companies because they operate within tightly defined federal regulations and are captive of this specific program.

We can quibble over the distinctions, but the broad contours are clear. Disruption is happening on the margins of the healthcare industry. See GoodRx messing around with the powerful chain drugstore and pharmacy benefit monopolies with its quirky coupon program. See Hims/Hers bypassing the traditional medical model to get people the treatments they really want.

Part 2 will ask the Disruption Grandmaster: “Where will disruption come from?”