Why Uber Won’t Be Coming To Healthcare

By Dan Munro for Forbes

Headlines abound for the idea that Uber will appear shortly to massively disrupt the healthcare industry in the same way it’s disrupted the taxi industry. Some boldly proclaim it’s not only here, but it’s here to stay.

The technical challenges are daunting, of course, not the least of which is the idea that there’s an enormous and untapped pool of resources (drivers in the case of Uber ‒ doctors in the case of healthcare) eagerly looking (and available) to turn big blocks of idle hours into cold hard cash.

But there’s another reason and it’s tied very directly to the risk-reward model of early stage venture investing. The challenges from that perspective were described recently by one of Uber’s earliest investors ‒ Bill Gurley.

Bill was in Austin last week and appeared on stage with Malcolm Gladwell at the annual tech festival (and rite of spring) known simply as South by Southwest (SXSW). Malcolm’s credentials as a science/healthcare journalist (and now author) are, of course, just as impressive as Bill’s are to venture investing.

Given this exact pairing, it came as no surprise when the topic of healthcare appeared so quickly in their 60 minute chat.

Malcolm: Last time I saw you we talked a lot about healthcare and I thought it would be really fun to start with the question of whether your world ‒ technology world ‒ can help us fix our healthcare problem.

Fun is a relative term for the carnival atmosphere of SXSW, but Bill was gracious and dove right in.

Bill: Yup, I’ve been involved in a number of companies that have used the resources that silicon valley [is] helping create ‒ the smartphone infrastructure, the internet, the cloud ‒ to try and make industries more efficient. Things like OpenTable and Uber that have been successful ‒ and you look at the technology and what’s possible and your immediate reaction is ‒ but of course, there must be hundreds and hundreds of opportunities for us to solve the healthcare problem. And so about a year‒and‒half ago I tweeted, you know, I’d love to roll up my sleeves and see if I can find one of these opportunities and help an entrepreneur in this field and I met with ‒ I don’t know ‒ a hundred companies ‒ and I became more and more skeptical as I went through the process.

This tweet was one of several that signaled Bill’s original interest in healthcare more broadly.

That interest ‒ at about 14 months ‒ was short-lived.

Bill: And the real problem is ‒ and I don’t think entrepreneurs realize this ‒ but there’s an assumption of market forces when you do a startup. Like you expect customers to pay for value and to not pay for bad things ‒ and to want to be more efficient ‒ and the physics are just completely mucked up in the healthcare system. Like those drawing’s where you can’t tell which way is up ‒ and everywhere you turn it’s like that.

He then went on to describe the HITECH Act (enacted under Title XIII of ARRA in 2009) which was designed to pay doctors to implement electronic health record (EHR) software. To date, the government has paid out about $29 billion to all types of healthcare providers under the Act and more “incentive” payments are in the Government pipeline.

Bill: Putting [the software] in was Meaningful Use 1 ‒ that’s $44,000 ‒ [but] because they’re not sure you’ll use it ‒ Meaningful Use 2 is proving that you’re using the software you put in place in Meaningful Use 1 and that’s another $17,000 for the doctor. And it’s insane. It’s asinine.

He’s definitely not alone in that assessment. One of the Top Ten Healthcare Quotes I selected for 2014 was this one from Google GOOGL -1.15% Co‒Founder Sergey Brin:

Generally, health is just so heavily regulated. It’s just a painful business to be in. It’s just not necessarily how I want to spend my time. Sergey Brin during Fireside chat with Vinod Khosla

Veteran VC blogger Fred Wilson wrote this on his popular blog ‒ AVC.

When we look at healthcare, what’s wrong with it, and what needs to happen to fix it, we can’t see as clearly how the web, technology, and large networks of engaged users can impact healthcare in a positive way. But that is starting to change. We know that consumers need to take more control of their healthcare choices, their healthcare costs, and their health. And we know the web and large networks of engaged users can help all of that happen. It is likely that we’ll be doing more looking and studying and less investing in healthcare for a while (as we did in education). Fred Wilson ‒ Healthcare ‒ November, 2011

All of which maps directly to the seminal piece written by Silicon Valley legend Steve Blank in 2012. The headline was simply (and aptly) Why Facebook is Killing Silicon Valley.

If investors have a choice of investing in a blockbuster cancer drug that will pay them nothing for fifteen years or a social media application that can go big in a few years, which do you think they’re going to pick? If you’re a VC firm, you’re phasing out your life science division. As investors funding clean tech watch the Chinese dump cheap solar cells in the U.S. and put U.S. startups out of business, do you think they’re going to continue to fund solar? And as Clean Tech VC’s have painfully learned, trying to scale Clean Tech past demonstration plants to industrial scale takes capital and time past the resources of venture capital. A new car company? It takes at least a decade and needs at least a billion dollars. Compared to IOS/Android apps, all that other stuff is hard and the returns take forever. Why Facebook is Killing Silicon Valley ‒ May, 2012

The reality of early stage venture investing in healthcare is mirrored across multiple vectors. Big, successful venture capitalists just aren’t interested in healthcare until it can demonstrate the unicorn-sized returns they’re now accustomed to. This new scale (and rapid timeline) is integral to their “investment thesis.” Healthcare doesn’t have the same unicorn-like trajectory as other industries so the signaling is crystal clear. The one venture bet that everyone is comfortable making is that an Uber-like disruption won’t be happening in healthcare.