Disaggregation of the Hospital – A Counterintuitive Opportunity for Startups?

2 min read

Tau Ventures is a seed-focused fund investing in applied AI in digital health, enterprise and automation (cars, robots). We think a lot about where healthcare is going and one of the biggest trends we observe is the disaggregation of the hospital. It may seem counterintuitive given the increased trend towards consolidation i.e., fewer and larger health systems, but it’s in line with what we are observing with many other businesses based on physical presence, from retail to gyms (our article from two years ago: Is The Gym Dying?). Since we are talking about unbundling, let’s unbundle this thesis along three dimensions.

1) Direct Primary Care

Traditional healthcare is groaning under its own weight, with a third of its costs being administrative. Direct primary care (DPC) is a growing movement where a patient pays an annual retainer for direct access to a specific healthcare provider. Typically DPC practices offer members unlimited, on-demand visits to primary care physicians for a flat, monthly fee. In this way they are very similar to concierge medicine, which we will look at in the next section, but there are a number of differences especially in that DPC simply bypasses insurance completely. It’s almost a return to the pre-HMO days when Americans would pay for their healthcare out of pocket. A number of startups are riding this wave, from Equal Health that helps self-insured groups access DPC to Hint Health which provides enterprise-grade tools and solutions for such practices.

2) Concierge Medicine

OneMedical which went IPO just about a year ago in 2020 is arguably the standard bearer here. There are many fast followers taking very different approaches, most notably Forward which is positioning itself as a tech-intensive and convenient “Apple Store experience” for healthcare. In the US concierge has found its footing in terms of convenience for the well to do, in emerging markets it has been mostly about providing access to the disenfranchised. For instance in Brazil Dr Consulta has become the largest medical service provider in less than a decade, charging an average of $20 per procedure which is within range for most of the country. VCs have played along and plowed capital in, with the belief that low ticket size with high volumers can give outsize financial returns.

3) Consumerized Healthcare

Physician-guided ecommerce — done at home, with continuous monitoring, and data-driven decisions is here to stay. Hims and Hers have had an explosive growth around men’s and women’s personal care products since being founded in 2017 but we see them as just the leading edge. There are many others including Paloma for thyroid, Steady for diabetes, and Peak for men’s health. These are digital-first companies going into personalized medicine and fundamentally different from traditional retail or ecommerce. And it means consumers will shift their dollars away from monolithic providers increasingly intro networks of physicians working/advising companies part-time. It’s the gig economy in some ways with potential efficiencies for all of us.

Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.

Amit Garg I have been in Silicon Valley for 20 years -- at Samsung NEXT Ventures, running my own startup (as of May 2019 a series D that has raised $120M and valued at $450M), at Norwest Ventures, and doing product and analytics at Google. My academic training is BS in computer science and MS in biomedical informatics, both from Stanford, and MBA from Harvard. I speak natively 3 languages, live carbon-neutral, am a 70.3 Ironman finisher, and have built a hospital in rural India serving 100,000 people.

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