A Venture Capitalist Perspective: Rural Health Markets are Ideal Markets for Testing Innovations

By William Paiva, Managing Partner, Oklahoma Life Science Fund

William Paiva, Managing Partner, Oklahoma Life Science Fund

Healthcare in the United States, and the rest of the world, continues to be in need of innovative products and solutions. Yes, we have made astonishing advances over the years, but there will always be room for improvement.

It is estimated that the United States spends over $170 billion on medical and health R&D and venture capitalist invest over $12 billion in healthcare companies to develop and bring to market innovative products and solutions.

Despite this enormous investment in research and development and technology commercialization, all too many efforts fail, losing billions of dollars along the way.

So why is innovation so difficult in healthcare?

The urban healthcare sector has many stakeholders, each with their own interests, and often those interests are competing. Many of these urban stakeholders have substantial resources and power to attack an innovation or the innovator if it threatens their core businesses. For example, hospitals, doctors, and healthcare providers wage turf wars for control of patients. To make it even more complicated, the competing interests of these different groups aren’t always clear and many times those interests change over time.

"The ‘need’ for innovations to solve rural health challenges far exceeds the traditional ‘turf’ barriers and competing interests you see in urban settings"

Unless innovators understand this morass of competing interests in urban settings, which is often where innovators go first to get market validation, they will at a minimum see their innovations stymied or at a maximum see their innovations die on the vine.

As a member of the healthcare entrepreneurial ecosystem and 20-year venture capitalist, I have seen a number of innovations never reach their full potential because they can’t seem to navigate this complicated morass resident in urban settings. More often than not innovations get stuck in a “do loop” that they can’t get out of—they can’t get adoption without market and clinical proof points, and they can’t get market and clinical proof points without adoption.

Then about four years my eyes were opened up when we launched Oklahoma State University’s Center for Health Systems Innovation. The Center has a core mission to “transform rural and Native American health” and we accomplish this through the implementation of innovative business models and information technology solutions in rural and Native American markets. It is through these implementation efforts that my perspective has clearly evolved.

60 million+ people live in rural areas across the United States, including millions of Medicare and Medicaid beneficiaries. Compared to their urban counterparts, rural Americans are poorer, older, sicker, uninsured or underinsured, and medically underserved. This creates a greater demand on the rural healthcare system than an equivalent urban healthcare environment.

Additionally, rural America has a fragmented healthcare delivery system, stretched and diminishing rural health workforce, insurance affordability issues, and lack of access to specialty and primary care providers.

Taken together, you have a healthcare ecosystem in the rural market that has significant demand on the system and significant supply challenges to provide the care. Furthermore, you don’t have many stakeholders that have substantial resources and power to attack an innovation or innovator.

Basically, the “need” for innovations to solve rural health challenges far exceeds the traditional “turf” barriers and competing interests you see in urban settings. This results in easier technology adoption. In urban settings, the “turf” barriers and competing interests are greater than the “need” resulting in lower technology adoption.

For example, we have developed a series of predictive analytic tools to assist physicians better manage diabetic complications like diabetic retinopathy and diabetic nephropathy. When we have shown these tools to urban physicians we sometimes get push back because they are concerned these tools will impact their patient screening revenue. However, when we show these tools to rural providers their response is often “great, we rarely see an ophthalmologist or nephrologist in our community, so when can we get this tool for our clinic?”

There are many examples where rural health markets were early adopters for healthcare innovations. Birth control digital consultation platform adoption rates were highest in rural markets. Walmart prescription app achieved their highest utilization in rural markets. EMR adoption rates were higher in rural than urban settings. And telehealth was deployed faster in rural markets.

Putting my venture capital and innovation center executive director hats on, I have a new philosophy and perspective on how healthcare innovators can escape the “do loop”—look to the rural markets for your proof points!

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