It's time for the next wave of healthcare analytics startups

“Big data” and analytics applied to healthcare is a hot area of investment. This year alone, roughly $200 million of venture capital dollars has been allocated to the space (according to Rock Health). I’m here to tell you that these glory days are gone.

New startups are finding it difficult to differentiate from the swath of other companies unless they have something extremely novel.

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While I still believe in the transformative power of data in healthcare (I’ve had two successful exits with analytics companies: RxAnte and Humedica), it’s increasingly clear to me that the current space is beginning to commoditize:

• A lot of companies are chasing the same targets. Large providers and insurers are increasingly finding it hard to choose amongst vendors — and as a result, pricing for pure analytics is decreasing.
• Most platforms provide extremely useful clinical insights, but rely on an end user that they don’t control to act. Hence these companies have no accountability for reducing the cost of healthcare and improving outcomes.
• Providers and payers are bombarded by different vendors every day. Some offer very elegant data visualization but not necessarily “new” or “better” data, and the underlying issues of accountability and pricing pressure remain.

That’s the bad news. Here’s the good news: There is still plenty of opportunity for startups in this space!

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To hear more about the opportunities for startups and investors in healthcare, join VentureBeat at HealthBeat 2014, Oct. 27-28 in San Francisco,

where Mo Kaushal will be diving deeper into the topic.

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Evolving policies around payment model reform (in which providers will be paid based on outcomes, not just services rendered) and meaningful use bonus payments for electronic medical record (EMR) adoption demonstrate that the healthcare industry is in the early days of transformation. Ongoing technology innovation, macroeconomics, and policy reactions will continue to accelerate the shift.

This creates a world of opportunity of the healthcare analytics entrepreneur. Despite my concerns over traditional healthcare data analytics companies, there are a few areas I believe we need to accelerate.

Here are some of the criteria I believe will be required in the next generation of healthcare analytics companies:

1. New business models.  For example, companies that are building out a service around a core piece of technology and that can deliver this service much more cost-effectively than any other incumbent competitor.

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Navihealth is a great example of this. Navihealth’s core analytics uses patient function to predict the ideal setting upon discharge, coupled with a service model that helps optimize individual care in each post-acute facility. In other words, people in conjunction with the right technology targeting an at-risk business model has helped create a very unique value proposition to end customers.

2. Advanced, proprietary technologies. Beyond data analytics, next-generation artificial intelligence platforms will drive the next wave of innovation. New platforms must be able to ingest multi-source data and reveal novel insights that are actionable and not commoditized. These solutions will displace many current platforms as the data output becomes more valuable.

Vicarious is attacking the market for artificial intelligence by building a unified algorithmic architecture. Along the way, Vicarious has also secured investment from many of the biggest names in tech, including Mark Zuckerberg, Peter Thiel, Jeff Bezos, Jerry Yang, and Marc Benioff (to name a few). I’m also aware of some interesting examples of companies doing this in healthcare, but to my knowledge none of them has emerged from stealth — so watch this space!

3. High-value data sets that can’t be replicated. Companies that can provide proprietary data sets that can’t otherwise be easily obtained are increasingly setting a high bar for entry for new healthcare analytics startups.

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This is one of the key reasons Optum acquired Humedica. Humedica is able to extract, standardize, and analyze millions of fully integrated clinical data versus just claims information.

As an investor, my dollars for healthcare analytics companies have already been invested, and it’s time for the next wave of innovation. For my money, healthcare entrepreneurs must focus on unique niches where little competition exists, and they must address those markets using differentiated technologies, data sets, and business models that target large problems.

Where do you see healthcare investment potential?

Mohit (Mo) Kaushal is a partner at Aberdare Ventures. He’s an MD MBA with extensive experience within clinical medicine, venture capital, and health policy. Prior to Aberdare, he was Chief Strategy Officer and EVP of Business Development at West Health, where he developed the West Health Investment Fund strategy and sourced and led investments. Prior to that he was the Director of Connected Health with the FCC, where he established the agency’s first dedicated health care team. He was also a member of the White House Health IT task force, a cross agency team focusing on implementing the technology aspects of Health Reform.

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