Time for Entrepreneurs and VCs to Disrupt Health Care

There’s been much discussion of late about health care, including the worsening state of Americans’ health on an individual level, and the effects of recent health care reform. I think these changes create great opportunities for entrepreneurs and their investors in two areas: working to make our medical institutions better, and working outside of them to improve health.
Improving the health care system is the first and most obvious investment opportunity. In our current system, third parties pay for disconnected piecework, creating a siloed and inefficient supply chain that leaves the patient powerless to pursue either value-for-dollar outcomes. Regulatory and proprietary constraints further clog information flow.
Clinicians with extraordinary, and expensive, expertise often meet their patients with less complete and contextualized information than possessed by the average online marketer selling mundane goods. This inability to share and synthesize data makes institutions incapable of responding to system failures that rival the recent home mortgage collapse, yet persist over decades. Witness the 90,000 Americans who die every year from hospital-acquired infections, or the nearly 20,000 reported deaths last year from medication errors, drug interactions or side effects. 
Such fundamental disconnects in a $2.5 trillion industry should make entrepreneurs and venture capitalists stand up and take notice. That it has not is testimony to the bureaucratic purchasing rules that drive supplier behavior within the medical-industrial complex. Technologies that qualify for high reimbursement (proprietary drugs, incrementally better devices, highly specialized services) have received the lion’s share of venture investment. By contrast, technologies that help doctors and hospitals predict the value of their own activities, target those that have high impact, reduce defects, attract the right customer mix — technologies that have transformed manufacturing, media, transportation and other industries–have received far less attention so far.
Washington’s “reform” didn’t really address this stuff, but I believe change is coming. The technologies we’ve come to take for granted to help us reconnect with old friends, to carry our “boarding passes” on our phones and skip the check-in line, to book a table at a busy restaurant — these are poised to obliterate the gridlock that protects profit centers for poor quality incumbent health care institutions and makes the entire system so frustrating for consumers.
Three factors give me confidence that change is coming. First, information-rich networks with defined standards are ubiquitous and growing. Not all information relevant to patient care is contained in the patient chart, and progress can be made by integrating the rest while the institutions get organized. Second, health care costs are killing our economy, reform will accelerate this trend, and technology-driven productivity is the best way out of this trap. Finally, the government has allocated several tens of billions of dollars to subsidize health care IT purchases — money that may well be wasted, but will still draw attention to the issue.
This change is already coming from companies like My Health Direct (a Chrysalis Ventures’ portfolio company), which aims to become an “Open Table” for health care. The company aligns patient needs for care with available resources across complex health systems of thousands of care providers, reducing costly inefficiencies by empowering the patient to get to the right place for care.
With the economy wheezing from carrying the health care cost load and insured individuals bearing the weight of higher deductibles and co-pays, avoiding the chronic illnesses that consume so much health care spending is also coming into focus as an economic imperative. And most of these costs have their roots in how we eat, whether we smoke, and how much we exercise.
People need to be encouraged, incented, and see direct economic impacts from good and bad choices. None of this occurs in the institutional health care system.
Happily, there’s an explosion of entrepreneurship around these issues. Companies like I Move You, an “Evite” for wellness, through which users can challenge their Facebook or Twitter social networks to engage in healthy activities (e.g., “if you quit smoking, I’ll run a 10k for you”), or HealthTeacher (a Chrysalis Ventures’ portfolio company), which helps communities keep their kids healthy and fit through sponsored K-12 curricula reaching millions of school children, are great examples.
The good news for entrepreneurs and early stage venture capitalists is that the past 15 years of innovation in technology, Internet and mobile applications and communications have created low-cost tools that we need today to disrupt the health care industry. The ubiquitous connectivity and “big data” opportunities enabled by common data standards and powerful personal connectivity platforms that have transformed other parts of our lives are now evolving to help us create health.
I look forward to the day when I visit my doctor’s office and rather than pulling out his prescription pad he tells me “there’s an app for that.”
David Jones Jr. is chairman and managing director of Chrysalis Ventures of Louisville, Ky. Founded in 1993, Chrysalis makes early stage and growth investments primarily in health care and technology companies. The firm says it has about $400 million under management, including a $175 million fourth fund raised in 2008.