Unlocking the $3 trillion opportunity that will allow us to simultaneously reduce healthcare costs, improve patient outcomes, and build highly profitable businesses.
Throughout all of human history, nearly all healthcare services have been performed in person by a human.
We’re on the verge of a revolution that will open the door to a $3 trillion opportunity that will reduce healthcare costs, improve patient outcomes, and usher in a new generation of incredibly successful healthcare businesses.
At FirstMark, we’re calling this new category of healthcare technology businesses: software-first care.
As longtime believers in the power of technology to transform the healthcare industry, we have historically backed ambitious entrepreneurs pushing the boundaries of a complex and antiquated system.
This includes disruptors in care delivery (Ro), insurance & benefits (Justworks, Gravie), supply chain (TraceLink), administration (Klara), digital front door (Roon), diagnostics (Ezra), and more. With $1.1bn of fresh capital, we are more excited than ever to continue pushing the technological transformation of the healthcare industry forward.
Healthcare services (which comprise 70% of the $4.3 trillion annual US healthcare spend) are particularly ripe for disruption. As healthcare costs grow faster than GDP, the current state of the US healthcare system is becoming increasingly unsustainable and dire.
An aging population with a growing need for care, combined with an acute labor shortage, exacerbates the strain on the system and places an ever-growing amount of pressure on healthcare service providers (doctors, nurses, home health aids, etc.).
Consequently, healthcare is projected to become even more expensive and even less accessible for everyone.
Thanks to critical changes in the market, technology, and government policy, however, an emerging set of founders has recognized the significant opportunity to leverage software to simultaneously reduce healthcare costs, deliver high-quality patient care, and build highly profitable businesses (if this sounds like you, we’d love to meet you).
What Is Software-First Care?
Software-first care is a solution that deploys software as the first line of defense, rather than a human.
Software-first care can provide a basic level of healthcare (triaging, diagnostics, patient education, ongoing management, etc.) without any human involvement, allowing providers to focus solely on the most critical and complicated needs.
One example of software-first care is Roon, as its growing library of questions & answers enables patients & caregivers first to consume virtual answers from world-leading experts and then reserve their more complicated and individualized questions for their own doctor.
Ezra is another example, as it offers an AI-powered full body scan, where AI not only powers a much faster MRI, but also goes on to interpret the scan for the radiologist and patient.
Thanks to this new technological leverage, software-first care businesses are also likely to build network effects, fit into a value-based care model, and deliver a 3x or higher ROI for payers and/or providers. For these new companies to succeed as venture-backed businesses, they also need a path to a 70% margin and a TAM of $1 billion or higher.
While this margin is high, because of the demographic and labor challenges impacting our healthcare system, it’s critical that these new healthcare solutions are able to scale and create tremendous leverage for providers, while providing patients with continuous, high-quality care. And, in order to build a highly scalable business, high margins are necessary, as low-margin healthcare businesses require more clinical personnel in order to grow.
The Catalyst Behind This Healthcare Transformation
There are three reasons why now is the perfect time for this new generation of software-first care businesses to take flight: new federal legislation, increasing data accessibility, and key technological advances.
Up until 2009, healthcare was almost entirely offline. Then, in 2009, the HITECH Act mandated the implementation of EHRs (electronic health record systems), which pushed data online for the first time. While a significant step forward, this effort was hampered by the EHRs, which kept all the data gated and inaccessible to external systems until the last couple of years, when the Cures Act began forcing EHRs to make their data accessible to third parties.
In the pre-2009 system, for example, you had to go see your neighborhood doctor for in-person visits if you had any health concerns.
In the 2010s, companies began taking commoditized services like doctor visits and putting them online. This made it possible for you to talk to a doctor online through a video visit.
The services these companies provided were immensely beneficial; however, it has proven difficult for many of them to truly differentiate from each other since the services offered were oftentimes ultimately the same, regardless of the platform each patient chose.
By 2022, the Cures Act had led to the meaningful opening up of patient data access, and now in 2023, the same thing has begun with payer data. This new legislation and the opening up of data access are critical components of the enabling infrastructure for software-first care.
Another critical shift that makes this possible is the expansion of value-based care, which compensates providers for the quality of their outcomes, rather than simply for performing certain services. This model has taken various forms over the last 15+ years, but throughout the 2010s, it caught significant traction, and now Medicare has set the aggressive goal of having 100% of their beneficiaries be in a value-based care arrangement by 2030.
This shift to value-based care creates an incentive structure that directly benefits software-first care businesses.
As hospitals look to further improve outcomes while contending with the growing labor shortage, they will inevitably turn to new technology to improve care and increase revenue. Additionally, companies that provide direct care to patients through technology rather than human services, will be able to bill for the software-first care they provide.
The final reason that now is the inflection point where software-first care takes hold, is recent changes in technology and attitudes towards technology.
Many of the software-first care companies we have been speaking with at FirstMark leverage machine learning, natural language processing, LLMs, and other innovative technologies to enable the care their platforms provide patients.
While at one point it was difficult to drive adoption of technology in healthcare systems, incentives are now properly aligned for the first time. By leveraging new technology, providers can make more money and provide a better patient experience. They also recognize that the system is widely understaffed, so any tool that will increase efficiency, allow them to care for more patients with fewer resources, and reduce staff burnout, is extremely valuable.
A New Era Of Healthcare
The next era of healthcare will look remarkably different than it did during the last decade. Unfortunately, as an aging population meets increased provider shortages, the shortfalls of the US healthcare system will only become amplified.
Unsurprisingly, this will create a necessity for a massive increase in software-first care businesses. Because of the factors outlined above and early traction we’re seeing with companies that have adopted this model, it’s clear that there will be a significant transition whereby patients will be given at least baseline healthcare by software rather than a human. This software will be smart enough to know its limitations, and exactly when and how to escalate any health concerns to a human.
The good news is that this rise in software-first care and the efficiencies it will unlock will lead to massive improvements in parts of the healthcare system that have been lagging far behind.
This includes things like lowering patient costs, increasing access to healthcare services for every American regardless of where they live, shorter wait times to see specialists and get procedures done, fewer unnecessary surgeries, a more intense focus on preventative health, and much more.
The US healthcare system is facing critical challenges right now, but there is a clear path to a much better future, and software-first care is the paradigm shift that will take us there.
If you’re a Seed or Series A founder and employing a Software-First Care model, please get in touch with me at email@example.com.
With $1.1bn of fresh capital, we are open for business and excited to meet you!