Five things to know about investment in healthtech
The use of technology to improve or create efficiencies in the delivery of healthcare services, and to progress precision/preventative models, is continuing to drive investment in healthtech.
Here are our 'top five' tips for investing in healthtech, arising from our work with investors, startups and established players:
Barriers to entry are great, but make sure you can navigate them!
Healthcare is a high-growth, highly regulated sector centred around ensuring patient care and safety. Investors should ensure that healthtech targets are engaged with applicable regulatory barriers across both their technology use and business model.
This means ensuring the company is navigating:
- approvals or authorisations required to be in place for their product, whether issued from the Therapeutic Goods Administration or elsewhere; and
- how their product or service can be promoted, and who is the target – health professionals and/or consumers? What claims can the company make (or is prohibited from making) about its product or service?
You are dealing with a special class of data
Healthtech companies play an important role as trusted custodians of highly sensitive data.
Pay particular attention to whether the company is embedding transparent data practices, ensuring privacy compliance and securing sensitive information. Is the company properly structured around its decisions to use identifiable or de-identified (or anonymised) data? Is it being assessed case by case? The right answer is rarely 'one size fits all'.
Healthtech companies should be alert to reputational risks (in addition to compliance risks) that arise with certain data practices, which will be best managed proactively through careful design, rather than the company reacting later if/when regulatory issues present. Avoid 'set and forget' approaches to data use to be a worthy custodian of sensitive health information.
Scaling is tricky when going state by state
The funding of healthcare, and the operating environment, is complex in Australia, and sophisticated business models will usually require navigating federal, state and territory settings. In our experience, the best business models in the healthtech sector seek to work within the complexity of the healthcare landscape to create a valued offering. However, this means scaling can be tricky unless consistent, manageable 'high water marks' can be identified. This also applies to businesses with an eye on the United States, where healthcare settings are notoriously dependent on state regulatory settings.
Any variation of a 'health consumer pays' model should be interrogated – it creates friction in getting to a critical mass of customers/users. Be mindful of other available revenue streams such as revenue sharing arrangements, referral models, commercial partnerships or 'employer pays' or 'insurer pays' models.
Assess the founders – how will the technology will be validated?
The value of the technology will often be driven by the quality of the evidence base that sits behind it and the process of validating that evidence base as the technology develops. Investors should seek information from founders on:
- their real-world experience in the health sector, and useful connections to those who will drive forward the relevant business model;
- the degree to which the technology requires real-world evidence in order to deliver outcomes to users;
- the clarity of purpose – is the technology to be applied for administrative efficiency? To support clinical decision making? To replace clinical decision making?; and
- what steps the company will take to substantially engage with expertise within the healthcare sector to develop the technology.
Understand the complexity involved in digital payment and claims infrastructure
When considering digital payment and claiming technology in the healthcare sector, you are going to need to deal with the capacity to integrate with practice management systems, connect to public and private claiming terminals, and/or offer seamless payments infrastructure to service providers.
In this complex web, it's important for investors to consider:
- if and how the healthtech target will facilitate payments to and from patients and service providers;
- if and how the healthtech target will facilitate claims to/from Medicare Australia and/or private health insurers; and
- what opportunities there are for the target to integrate with or leverage established payments infrastructure to deliver further value.
Given the complexities involved in digital health payments and claiming, investors should look to companies that have a sophisticated understanding of how their technology integrates with existing payments infrastructure, and how that infrastructure operates in a unique way in the health space.