Healthcare AI — A critical analysis
The hype of healthcare AI
There is usually a huge amount of hype about AI in general, and this is no more true than in healthcare.
However, as we’re going through the Gartner hype cycle, and are now deep in the Trough of Disillusionment, the success of companies who have raised tens of millions of dollars are now in dire straits. They are not showing the return on investment promised to healthcare systems or indeed their investors and this is causing a reassessment of the industry.
In the past couple of years, the weaknesses of these companies were covered up by a massive bull market which coincided with the Peak of Inflated Expectations, and this resulted in healthcare companies having to out-pitch each other and make outlandish claims in order to get the funding required to build the technology they promised.
Many VC’s did not want to hear a reasonable story on clinical trials, the FDA/CE approval process, ISO13485 certification etc. They wanted to believe that AI would make radiologists redundant, due to pioneers like Prof. Geoff Hinton saying so.
Of course it’s easy to scoff at this thinking in retrospect since hindsight is 20/20, but let’s be honest, many people, including radiologists, were scared of being replaced by AI.
In the startup world, this disruptive way of thinking is of paramount importance in order to survive in the industry. Due to the reality of the power law that VC’s have to work with, they must fund ideas that seem outlandish, because they need to make a sufficient return on their investment to justify the risk.
In the world of crypto, gaming, ads, virtual reality and so on, this is probably a good idea. However even in these spaces, VCs have over spent their capital on companies that simply don’t generate clear value or solve a real problem.
As much as VCs talk about supporting startups that aim to solve humanities biggest problems, at the end of the day, their dollars still end up on startups that only tangentially solve a real problem, while promising vast returns.
The best example I can think of is the 10-minute delivery craze, where hundreds of millions of dollars were invested in a dozen companies to deliver food even faster than what already existed. I suppose it was seen as vitally important to get a toothbrush in 10min vs 30min.
Many of these companies are now of course overvalued and will likely not survive this current downturn as they are burning more cash than one could have reasonably imagined a few years ago.
A prominent example of a company that managed to burn more money than I can even comprehend (albeit in a different industry) at a time frame that seems almost unbelievable is Fast. They raised and burned through $124M in a grand total of 3 years.
Just thinking about what $124M could have been used for instead of potentially, maybe, a slightly easier check-out experience would make any reasonable person feel a sense of shock, which is only overshadowed by their inability to understand how seemingly intelligent people managed to throw money at a non-existing problem, at a time when the world was going through a pandemic with millions of deaths worldwide.
But anyway, back to the topic of healthcare. Healthcare is not immune to the hype and promise of world changing technology with zero rational backing. We don’t need to think too far back when the whole Theranos scandal happened.
In that case, $700M was wasted on a fantasy, but at least the fantasy was about making blood testing more accessible and cheaper by using cutting edge lab-on-a-chip technology. And to be fair to Silicon valley, many biotech VC’s did not invest in this company.
However, the point still stands that a lot of healthcare startups are raising money on promises that they can’t keep and technology that is not validated.
Dr Hugh Harvey has been talking a lot about this issue. In particular, most healthcare startups don’t even have robust clinical evidence that justifies the claims they are making.
It is of course easy to blame the startups for being so irresponsible with their medical claims, but each stakeholder also carries part of the blame. The VC’s push for SaaS level metrics to make healthcare companies operate like a high growth ad-based business. Meanwhile, the companies live in a hyper regulated and conservative healthcare environment whereby debates about switching from a 90’s level electronic medical records system is still being held.
It took a worldwide pandemic for healthcare systems to use basic tools like video conferencing, never mind the adoption of cutting edge technology. The healthcare sector is riddled with misaligned incentives whereby payers, providers, patients and regulators all have different goals.
The word innovation is thrown around a lot from all stakeholders, but the proposed innovation is not actually expected to change anything. The innovation is supposed to work within the existing structure and not improve the structure. As a medtech CEO and friend recently said, “hospitals want a better horse, not a car”.
Where do we go from here?
The above analysis although critical, is not meant to discourage entrepreneurs or investors. The silver lining of being in the Trough of Disillusionment is that the next phase is the Slope of Enlightenment.
Investors, healthcare systems and entrepreneurs have learned lessons from the failures. The fact that we so readily quote Theranos as a cautionary tale means that we have digested these lessons in the public consciousness. Even slow moving entities like regulators have created better processes that deal with AI in healthcare.
For example, the FDA has published an AI Medical Device Action Plan, and we have examples of startup companies that seem to have gathered both good clinical and health economic evidence such as Viz.Ai.
More healthcare specialised VC’s do exist to support healthcare companies in the early stage, with a better understanding of the requisite regulatory hurdles and timelines that are expected by early stage healthcare startup companies. For example Calm/Storm Ventures and Nina Capital among others.
The key takeaway from the successes and failures for all stakeholders in the healthcare ecosystem is that mindful and nuanced understanding of the healthcare system is vital.
Investor takeaway
Healthcare as an industry simply can’t be ignored. It represents $4.1 trillion of value, which is 19.7% of the US GDP. Indeed, double digits GDP spend on healthcare is normal for nations across the world. However, patience must be given to startups to enter the market properly.
Simply pouring in cash for lavish claims is not going to make the companies move faster. That is not to say money is not helpful. Indeed, it costs a huge amount of money to get through clinical trials and regulatory clearance, but the timelines and speed of sales must be put in proportion to the claims being made.
In other words, if you want to fund a company that will transform cancer treatment, then you better wait a while and be ready for several rounds of funding before there is any ROI.
The less outlandish the claims, the more likely the company will in fact make a positive change as they build up evidence, enter the market and build up adoption. It might be more sensible for the company to then gather further evidence and increase the claims it makes.
This step-wise strategy might be better adopted for a healthcare system that is sceptical of large changes in their workflow or management of patients.
Startup takeaway
For startups, clinical and health economic evidence gathering is key. The work required to show real return on investment for hospitals cannot be skipped. This means well-designed clinical studies (even if they have to be prospective). Simply getting FDA or CE clearance means nothing. Even if this is what investors ask for.
Getting your FDA/CE mark means you can legally make a particular claim to sell the product. But it does not mean that anyone will actually buy it. Getting FDA/CE clearance because investors ask for it is a bad idea, because the next question will be, when your sales will start?
In other words, you simply kick the can down the road.
If you get feedback from investors that you are too slow, or as they would put it “too early”, then they are simply not the right investor. Find another one.
Healthcare systems takeaway
Usually, healthcare decisions makers don’t need to get too involved as the startup space is not where they operate. However, the pandemic has shown how wildly unprepared they were to a serious crisis and how important technology adoption has been.
Historically, hospitals and other healthcare providers expected technology companies to go through all the regulatory approvals and gather all requisite clinical and health economic evidence (including reimbursement) before seriously engaging the companies. This is somewhat of an understandable position because of the way they operate and the timelines they have.
However, early communication can avoid a lot of the problems very early on. Being overly sceptical of all new innovation, even if it does not strictly follow the existing clinical workflow can truly backfire. The rising cost of care cannot continue, and although many hospital systems across the world are raising the alarm about this, governments, insurance and other payers cannot indefinitely pay for increased costs.
It should not have taken a worldwide pandemic for telemedicine and video conferencing to become adopted in healthcare systems. There are a myriad of examples of potential solutions to problems faced by healthcare systems that don’t get adopted because of an environment that is antithetical to innovation.
Scepticism by many healthcare systems has come from a historic issue with drug companies and large medical technology providers whom tried to increase profits without improving patient outcomes, or indeed cause harm to patients.
This scepticism has not stopped healthcare systems using these large incumbents, but rather stopped startups from being able to effectively communicate and work with hospital systems. Ironically, this has made hospital systems even more dependent on these large players.
Of course there is no incentive for those large companies to take any risks, and hence the problems stay unsolved. This not only becomes a loss for hospitals, but also for clinicians and fundamentally, for patients.
There is a cost to working with startups in terms of time, effort and to adopt new technology. However, there is also a hidden cost not to do so. Every entrepreneur that gets discouraged and every investor that loses money on supporting them in trying to improve the healthcare system means one less person trying to create positive change.
There is a big opportunity cost for good entrepreneurs in terms of their time and effort, and if they find that the healthcare environment is hostile to innovation, they will simply work on other problems which are more appealing and probably much more lucrative.
If entrepreneurs and investors leave the healthcare space, we all lose. The future treatments of diseases, the improved imaging technologies, the technological breakthroughs, all need risk taking entrepreneurs and investors to back them.
Hence, they should be supported in their work, although with clear expectations when it comes to clinical evidence, health economics and patient safety.
Oh and for full context, I am co-founder of ThinkSono, a healthcare company.
