3 things AI startups, investors must know to clear hurdles in healthcare technology markets
As 2024 winds down and the number of FDA-approved medical devices packing AI approaches 1,000—the agency had the tally at 950 as of August—the industry finds itself at a “critical inflection point.”
Bessemer Venture Partners made the observation in a report they issued late last month, “Roadmap: Healthcare AI.” (AIin.Healthcare briefly noted the report’s release last week.)
“Today,” the Bessemer authors write, “each new breakthrough in research has the potential to solve real-world problems—an opportunity that should galvanize [AI startup] founders and investors to engage more deeply with emerging developments in the field.”
After describing some of the particulars inherent to the opportunities, Bessemer turns its attention to some challenges. Here are excerpts from the latter section.
1. Traditional market forces don’t apply in healthcare, but physics does.
While the U.S. healthcare system may defy classical market economics, Bessemer points out, it adheres rigorously to Newton’s Third Law: For every action, there is an equal and opposite reaction. More:
‘Healthcare AI founders need to be aware that their companies are not immune to these dynamics, and that, in the era of AI, resistance to change will likely emerge more quickly and with greater intensity.’
2. Regulation is both a barrier to entry and an enduring moat.
Healthcare is a tightly regulated industry where the law tends to protect the status quo, the authors note. “The barrier to entry for startups to get to market can be sky-high,” they add, “and for companies operating in areas of healthcare where regulations are indeterminate or gray such as AI, this is even more true.”
‘The dense regulatory landscape that creates obstacles for newcomers doubles as an enduring moat for the old guard—a small group of deeply entrenched healthcare incumbents that wield immense power and influence over the industry.’
3. Markets are smaller than they appear.
Healthcare is one of the largest industries in the U.S., with expenditures accounting for 17% of the GDP and employing 1 in 10 American workers. It’s also “wildly inefficient,” the Bessemer analysts remark, “with $1 trillion spent annually on administration-related costs.”
‘While healthcare is technically a $4.5 trillion market, the industry is far from a monolith. We’ve come to view the healthcare market as a container for around 4,500 distinct markets, each with a total available market closer $1 billion; or, approximately 1,000 unique markets, each with a total available market of $4.5 billion.’
For success in any market, the authors add, “unlocking sufficient total available [or addressable] market is essential, and it can be especially tricky in healthcare,” they write. “Still, we’ve already witnessed a new generation of healthcare AI companies that are forging ahead.” More:
‘We’re seeing teams adopt innovative modalities and business models to tap into bigger budgets and multiple buyers, allowing them not just to survive but to thrive, and even access total available markets that were unthinkable in the previous wave of what we used to call healthcare IT.’
Dave P. has worked in journalism, marketing and public relations for more than 30 years, frequently concentrating on hospitals, healthcare technology and Catholic communications. He has also specialized in fundraising communications, ghostwriting for CEOs of local, national and global charities, nonprofits and foundations.