Healthcare costs for Americans skyrocketed over the last decade, even for those with insurance, creating opportunities for startups that help companies, insurers and patients cut costs.

An average family of four with large employer-provided insurance spent $7,726 on premiums and cost sharing in 2018, according to a study from the Kaiser Family Foundation, a whopping 67% increase from 2008. That surge has far outpaced the 26% gain in wages. 

Those soaring costs, as well as weak treatment outcomes, are in the crosshairs of many healthcare startups. Investors poured $8.1 billion into digital health startups last year, up from $5.7 billion in 2017, says a recent report from Boundless Impact Investing and EntryPoint Capital.

“An industry that was designed to take care of people has become an industry that is putting unbelievable challenges on governments and individuals, just because of the sheer cost of care,” said Daniel Lubin, CEO of EntryPoint and a co-author of the report. “We’re heading for a global train wreck in terms of how we take care of our aging societies, and do it affordably.”

Boundless Impact Investing, a New York-based consulting firm, advises investors on impacting social and environmental challenges. Together with EntryPoint, a New York investment management firm, their report interviewed 12 healthcare experts to help give investors a “starting point for identifying the companies with the most meaningful outcomes.” 

Pharmaceutical companies and insurers are increasingly looking to startups to help them cut costs. 

“The healthcare market is exploding with new technologies and business models that transform the way care is delivered,” Boundless CEO Michele Demers said. “The U.S. diabetes market alone has grown from $17.9 billion in 2016 to an expected $25.6 billion by 2023, a compound annual growth rate of 5.3%. And yet private investors can’t get exposure to transformational companies in the traditional financial indices, which are artificially tilted toward the largest companies.”

One company analyzed in the report as a case study, Guardant Health, has developed liquid biopsies detecting specific kinds of cancer that cost less than half of standard tissue biopsies. Another, Teladoc Health Inc., offers virtual healthcare “visits” that can save patients hundreds of dollars compared to in-person visits. 

“Many new companies are not only disrupting traditional care models, they drive better patient outcomes, improve access to healthcare, and reduce costs. Family offices and the wealth advisors managing their capital would benefit from research that assesses companies true public health value,” Demers said. 

The question, however, is how to measure the impact of these new technologies.

“Health has been measured extensively in terms of interventions and policies for many years,” said Jaishree Singh, health researcher at Boundless Impact Investing and a co-author of the report. “But companies have yet to be assessed rigorously and systematically.” 

In the Measuring Health Impact report, published by Boundless and EntryPoint, a new framework for impact investors in healthcare is proposed, one that puts outcomes over outputs. Over the course of 5 months, Singh said, the authors performed an extensive review of the “latest research surrounding health impact measurement, particularly of tech-driven health interventions and patient populations,” and conducted interviews with a dozen healthcare experts.

“There are certain things that healthcare companies can do that are very measurable,” said Lubin, the EntryPoint CEO. “And if they’re measurable, a systematized methodology can ultimately lead to a data-driven impact model around healthcare.”

Focusing on Results

Existing metrics are overly focused on easily-measurable outputs, like the number of repeat patients, the report found. This is opposed to outcomes, such as the number of successful treatments. Outcome improvement is critical to sustainable success in the sector, it says, because patients will end up relying on those solutions in the long term.

The new framework is comprised of six pillars: saving lives, treating life-threatening diseases, lowering costs, improving the lives of the elderly, enabling improved care coordination, and embracing value-based care. 

“At its core, in addition to being an impact industry, it’s a data-driven industry,” said Lubin. “You can’t make the claim that you save lives without data, you can’t make the claim that you treat a disease without data, and you can’t make the claim that you lower costs without data.”

Investors should recognize that a positive outcome means different things to different patients, the report says. “A patient who had eye surgery is likely to define ‘quality of life’ differently than a patient who’s suffering from schizophrenia.” Depending on the population being targeted, positive impact can mean everything from making daily life easier to becoming disease-free. 

One focus of the report is on the so-called “super users,” the 5% of American patients that drive half of all healthcare costs. “These patients tend to be older and suffer from multiple chronic diseases, such as heart disease, diabetes, and obesity, as well as mental illnesses like anxiety and depression,” said Singh. 

She said that a range of innovations, from better testing for early disease-detection and the use of personalized medicine, are helping providers cut costs. Technologies like telemedicine can reduce expensive in-person visits, and mobile analytics can be used to prevent health episodes before they happen. 

While the role of government in the healthcare system gets much of the spotlight, some experts focus on private care as the driver of costs.

“Currently the private sector is paying more than twice what the public sector is paying for hospital and physician services,” said Gerard Anderson, professor of health policy and management at Johns Hopkins University’s School of Medicine. “The problem is not that the public sector pays too little but the private sector pays too much.”

Measuring Health Impact arrives at three recommendations for impact investors. They should establish their public health goals, determine the benchmarks they’ll use to evaluate companies, and define metrics based on specific diseases and industries. A more rigorous process, the report says, will serve their ultimate goal: “to drive better investment decisions and better care, to save and improve lives.”

Deductible payments have skyrocketed, growing more than ten times faster than wages over the last ten years, according to the Kaiser report. Employers are spending less on wages and more on insuring their workforce, paying 51% more in premium contributions in 2018 than in 2008.

The continued rising costs of healthcare in the U.S. is an opportunity for tech startups who can provide less-expensive treatments and for social impact investors who are looking for areas where their money can be put to good use.

Boundless Impact Investing is a strategic partner of Karma.