Health IT: How Developing Markets Can Trump US

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A quick glance at the headlines might suggest to Americans that there's no place like home for IT innovation in healthcare. Health-related IT venture funding hit $2.3 billion in the first half of 2014 and is on pace to double last year's record level of investment.

And it's not just startups that are placing big bets. Samsung and Apple are among a growing number of established players now wading into the healthcare IT space with significant investments.

The bet, of course, is that US healthcare will seek new solutions to improve quality and efficiency, creating a wave of IT-related innovation. And though I have faith that we will get there someday, new entrants to the market are learning a lesson familiar to those of us who have been working to transform the industry from the inside: The US healthcare industry is still a terrible place to get new ideas off the ground.

Most hospitals are paid by insurers and Medicaid/Medicare for the quantity of services they provide, despite much talk about moving toward pay-for-performance healthcare. These hospitals have little incentive, if any, to invest in more cost-effective ways to provide these services. This is a big problem for IT innovators as the discovery of more efficient ways to do things and the ability to automate more effective workflows is exactly the value proposition of information technology.

[Are these new healthcare companies poised for takeoff? Read 9 Healthcare Startups To Watch.]

Lacking appropriate financial incentive, hospital IT departments and their budgets are largely focused on maintaining installed systems that tend to be associated with revenue generation (e.g., MRI machines or billing systems). In addition, hospitals have been investing enormously in the installation of electronic medical records, thanks to the up-to-$44,000 per eligible doctor incentive provided by the federal government via the HITECH Act. Such installations are significant undertakings that will consume the bandwidth of clinicians and IT departments for years to come. Health IT startups that are patient enough to weather the EMR installation marathon will then face government-subsidized EMR oligarchs that have much to lose and little to gain by allowing access to their data and interfaces.

Entrepreneurs, engineers, and forward-looking clinicians dream of tablets connected to diagnostic devices that use the cloud and advanced analytics to identify and deliver lifesaving recommendations just when and where they're needed most. Unfortunately, when they wake to their day jobs, most find themselves working on direct-to-consumer products or developing "sidecar" systems that remain an arm's length from patient care.

But there's another possibility: What if we look to developing markets for healthcare IT innovation to flourish? Many of the necessary ingredients are there. Overseas markets are so inviting, in fact, that would-be US entrepreneurs should even consider taking their game overseas, proving their health IT products in developing markets, and returning when US healthcare is finally ready for widespread health IT innovation.

A better place to innovate?
I'm currently part of a team working with the Indian government and the Bill and Melinda Gates Foundation to improve childbirth in Uttar Pradesh, India. Healthcare delivery and maintenance in rural India is hampered by shortages of qualified clinicians, supplies, and clean water. Electricity goes out quite frequently. Record keeping is sparse, if existent. Corruption can be a problem. All of this makes it seem like less-than-prime conditions for healthcare IT innovation.

And yet there are hard-to-ignore features of developing healthcare systems that make places like India ripe for health IT innovation.

Aligned incentives: Having a problem to solve is certainly a prerequisite for innovation. And there are no shortages of challenges in delivering healthcare both locally and abroad. However, as we've seen in the US, without economic incentives, the greatest solutions do little more than consume venture capital or take up shelf space in medical libraries. In contrast, the healthcare systems of many developing nations are economically incentivized to invest in improving care.

In India, for example, care is provided via a mix of public and private clinics. Care provided in private clinics is typically paid for out-of-pocket. This means private clinics must compete not only against other private clinics, but also against public clinics, where care is largely free. The public clinics also are incentivized to realize more efficient ways to provide care, since they serve as both payer and provider.

Market opportunity: The next deal-breaker question is whether there is real money to be made. Certainly there is not the type of money that sloshes through the US healthcare system, which makes up around 18% of the US GDP. Healthcare spending is, after all, the one global health measure in which the US continually comes in first place. However, "developing nation" implies a growing middle class with an increasing amount of resources to spend on healthcare. And though the dollar amount per transaction may be relatively low, in some developing nations that may be made up in volume.

According to Bloomberg, healthcare-related spending in China will nearly triple to $1 trillion annually by 2020. In India, there is public as well as private investment available for

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