Build vs. Buy Telehealth Infrastructure for Startups

The Rise of Digital Health in the United States

The COVID-19 pandemic significantly accelerated the adoption of digital health solutions within the U.S. healthcare system. A greater number of individuals began utilizing remote consultations with physicians and urgent care facilities during periods of lockdown and social distancing.

Estimates from McKinsey suggest that as much as $250 billion in current U.S. healthcare spending could potentially shift to virtual care models. The increased prevalence of digital health is expected to continue, though the specific implementation varies considerably between different companies.

Challenges in Virtual Care Delivery

Offering virtual care nationwide isn't simply a matter of incorporating video conferencing into existing appointments. Successful implementation demands careful planning and consideration at every stage.

This includes meticulous attention to the clinicians providing remote services, as well as the selection of appropriate payment processors.

Leveraging White-Label Solutions

Healthcare providers and startups have the option of utilizing white-label solutions offered by established companies like Teladoc and Truepill. These platforms have a proven track record.

They have supported the growth of prominent companies such as Hims & Hers, Nurx, and GoodRx, enabling them to scale operations while maintaining compliance and efficiency.

Build vs. Buy: Key Considerations for Startups

While turnkey solutions present an attractive option, startups must carefully evaluate which functions to outsource and which to develop internally. Strategic decisions are paramount.

For example, should staffing be handled by a third party, or managed in-house? Should a custom payment processing system be built, or an existing service integrated? Similarly, should Zoom be utilized, or a proprietary video conferencing solution developed?

These questions are vital for startups – whether operating in a B2B or B2C model – to address early on in order to effectively prepare for future expansion and growth.

Beyond Simple Video Conferencing

SteadyMD, having secured $25 million in Series B funding from Lux Capital in March, aims to become the foundational infrastructure enabling other businesses to readily deploy telehealth solutions. The impetus for this ambition stemmed from challenges the company itself encountered previously: the intricate process of establishing telehealth services compliant with regulations across all fifty states.

Initially launched in 2016, SteadyMD’s original goal was to deliver superior virtual primary care through partnerships with existing physical locations. During this phase, the company developed a comprehensive set of tools. These included integrations with Electronic Medical Records (EMR) systems, secure doctor-patient communication channels, digital recruitment and staffing prediction software, and streamlined prescription management and operational workflows.

The complexity of this undertaking resonated with the founders, leading to a strategic shift. They repositioned the company to function as a healthcare equivalent of Amazon Web Services (AWS).

SteadyMD’s offerings to its clientele extend beyond a mere video-conferencing platform, according to co-founder Guy Friedman. This is the least significant component of their service suite.

“The core value isn’t the technological capabilities themselves,” Friedman explains. “Even large organizations with substantial resources are leveraging our platform to expand their capacity and workforce reach.”

The company also facilitates the provision of at-home lab testing and diagnostic services. This involves a clinician initiating the testing process for a patient, providing a competitive edge for providers.

Looking ahead, SteadyMD envisions itself as a key resource for supplying primary care practitioners and diagnostic capabilities to provider networks. This would enable these networks to function as comprehensive, one-stop healthcare providers, capable of addressing a wide range of patient needs.

Deena Shakir, a partner at Lux Capital and lead investor in SteadyMD’s recent funding round, emphasizes that the company delivers more than just a virtual consultation experience. “Previously, access was often limited by geographical proximity – the ideal specialist might be an hour away. But now, virtual interactions are commonplace.”

Shakir continues, “If you find the right healthcare professional, regardless of their location, you can connect with them virtually. This expands access significantly.”

A crucial question remains: how many digital health startups will require the services of a company like SteadyMD, and what will this customer base look like? “Many companies perceived as competitors are, in fact, collaborating with SteadyMD,” Shakir notes. “They may have their own internal systems, but need to augment them to meet increased demand.”

She concludes, “It doesn’t have to be a competitive situation; it can be a complementary one.”

The Potential End to Fragmented Development in Digital Health

Expressable, a platform dedicated to speech therapy and recently securing $4.5 million in seed funding, exemplifies a strategic blend of building technology in-house and leveraging existing solutions within the healthcare sector.

Nicholas Barbara, CEO and co-founder alongside his spouse Leanne Sherred, posits that substantial investment in recreating established technologies, such as videoconferencing, is often unnecessary. Consequently, Expressable integrated Zoom for Healthcare, a well-regarded and compliant platform, to ensure stability and adherence to industry standards.

The company’s technological infrastructure extends beyond Zoom, incorporating Twill for logistical support, Stripe for secure payment processing, AcuityMD for appointment scheduling, and Contentful for efficient content management and delivery. Barbara emphasizes that successful digital health startups typically avoid complete, ground-up development.

However, Expressable distinguishes itself through its core offering: qualified speech-language pathologists (SLPs). The startup provides ongoing virtual speech therapy, often spanning months or even years. Recognizing the long-term nature of this service, the founders opted to directly employ a team of SLPs rather than relying on external staffing agencies.

“My goal is to establish Expressable as a provider of care featuring the nation’s leading clinicians, delivering superior results at a reduced cost,” Barbara stated. “Maintaining direct employment of clinicians is essential to fulfilling this commitment.”

By directly hiring SLPs, Expressable safeguards its key competitive advantage – a diverse and adaptable clinical workforce – making it a more sustainable and defensible business model. Currently, the company employs approximately 50 SLPs on W-2 contracts.

A significant challenge remains: scaling requires individual recruitment of each pathologist, introducing operational complexities. Digital health services frequently necessitate a licensed clinician within the patient’s state to legally provide care.

While aiming for nationwide coverage, Expressable presently operates in 15 states, necessitating SLPs licensed in each location. A competitor utilizing outsourced staffing could rapidly achieve national reach, potentially displacing Expressable based solely on geographic footprint, despite the value of its in-depth clinical expertise.

“Ultimately, the decision hinges on the degree of control desired over the quality and operational procedures of your clinical staff,” Barbara explained.

He suggests that startups can safely explore new service lines by initially outsourcing clinicians. For instance, offering a standardized service with minimal variation between practitioners, such as a prescription for anxiety, might be suitable for outsourced staffing solutions. Barbara contends that the more continuous and personalized the patient-provider relationship, the greater the benefit of direct ownership for sustained growth.

The Importance of Strategic Build vs. Buy Decisions

Melody Koh, a partner at NextView Ventures who participated in Expressable’s recent funding round, emphasizes that a universal approach doesn't exist when deciding between developing solutions internally or procuring them externally. She suggests that founders should prioritize dedicating their resources to areas that will genuinely distinguish their offerings, particularly concerning the digital product experience or underlying technology.

Koh draws a parallel between the current state of healthcare infrastructure and the nascent stages of e-commerce from ten years prior. During e-commerce’s early phases, the available technological foundations were less developed.

Founders operating in the commerce sector were often compelled to construct many foundational elements themselves, as robust platforms like Shopify, comprehensive subscription services, coupon functionalities, and logistics/payment APIs were less prevalent.

Currently, launching an e-commerce venture is significantly streamlined – often achievable simply by establishing a Shopify storefront. Similarly, a digital health startup can expand its reach by collaborating with a white-label provider, mirroring how an e-commerce business might partner with a logistics firm to provide expedited shipping comparable to Amazon’s.

The ultimate triumph of startups focused on digital health technology stacks will be contingent upon the overall health and expansion of the broader ecosystem. Shopify’s success is directly linked to the large number of merchants it serves and the extensive ecosystem that sustains its business model.

However, the question remains: can this model be replicated within the healthcare industry? Koh believes a large number of companies won't succeed in the white-labeling space.

She anticipates that a few key players will emerge as leaders – potentially in areas like payment processing, Electronic Medical Records (EMR), and pricing/analytics.

The core of this discussion lies in a startup’s fundamental value proposition; the decision to outsource or build in-house should directly reflect and clarify this proposition. The emergence of this new digital health tech stack signals strong and growing momentum for consumer-centric healthcare, benefiting both patients and providers.