The pathway to success for digital health startups is challenging. Hospitals are often looked at as the point of entry for digital startups. Trying to work with large hospitals can pose challenges for early stage start-ups for several reasons:
Hospitals often are a part of larger systems. As a result, there are multiple layers to the approval process with multiple decision makers prolonging the sales cycle. In my experience as COO of an academic medical center the time from initial interest to contract can exceed two years. Furthermore, complex deployment processes add to the timeline for pilot implementation.
Hospitals and health systems have narrow margins. Most hospitals have margins of 2-4%. The Congressional Budget Office has forecasted that up to 50% of hospitals may face negative margins by 2025. There is competition within the budget for both new and replacement capital. Furthermore, there is reluctance to add ongoing new expenses to capital budgets.
Hospitals are risk averse. Despite the fact that hospitals are hamstrung by poor processes there is a reluctance within the industry to change. This is partly a result of the scrutiny from regulators, as well as, the potential of negatively impacting care outcomes.
Hospital IT departments are wary of digital health solutions. Most hospital IT departments focus on three issues; revenue cycle, electronic health records, and hardware maintenance. Hospital IT departments lack the financial and human capital to implement new digital solutions.
A patient’s health record is now more valuable than their credit card number. Therefore, hospitals are frequent targets for phishing and ransomware. Additionally, hospitals must comply with patient privacy rules that place them at additional risk of penalty should patient privacy be breached. As a result, there are significant hurdles software companies need to be able to address in order to work with hospitals.