In my last blog post I discussed the challenges digital health startups face when trying to sell to hospitals and health systems. In this post I suggest some ways to overcome the hurdles and succeed in building a client base.
Startups need to be realistic about where they are in their product life cycle. As I mentioned previously, hospitals are risk adverse with tight budgets. These organizations want proof that your solution is actually going to have the impact you claim. Early on it is beneficial to look at smaller organizations for “proof of concept.” Ambulatory settings, such as ambulatory surgery center or multi-specialty clinics are often good places to alpha and beta test a new solution. These organizations are often nimbler, and as a result, more receptive to innovation. Smaller healthcare settings may present easier access to administrators and clinicians who can help get your solution implemented. Additionally, the information security requirements may be easier to address in smaller settings.
As a startup in healthcare you must understand the economics of the US healthcare system.
There are two key questions you need to answer as you build your business model:
Who are you asking to pay for your product versus who is going to directly benefit?
Is your product going to directly generate revenue through a billable episode of care, or is your product going to potentially lead to cost avoidance or cost reduction?
It is much easier to sell a solution that has a billable code that can lead to increased revenue. The challenge is demonstrating a return on investment for a solution that leads to cost avoidance through an increase in labor efficiency, and increase in operational efficiency, or a decrease in hospital acquired conditions. An early stage company can gain traction by proposing risk and or gain sharing agreements. In these type of agreements hospitals minimize their risks and only pay if they derive benefit from the solution. Startups need to know that some hospitals and health systems will ask for equity if they are early stage. Additionally, early adopters may ask for long term price assurance and/or a percentage of revenue if they assist with future sales.
In my next post I will discuss the issues of implementation and pilot studies.