Seven P’s to Evaluate Healthcare Companies
A framework for physicians to determine the strengths and weaknesses of startups.
By John R. Dayton, MD, FACEP, FAAEM
[ORIGINALLY APPEARED IN MDNEXT Q4-2022]
Doctors are increasingly interested in medical innovation. They are intellectually curious and it meets their need to stay abreast of the most modern treatment options to help their patients. Increasingly, we encounter professionals looking for an outlet. Unfortunately, many physicians face burnout due to COVID-19 and professional frustrations. Unique outlets and opportunities like entrepreneurship, consulting work and investing can offer a lifeline and help physicians regain an internal locus of control.
If you are one of those clinicians looking to take the next steps and get serious about entrepreneurship as a way to generate additional income or engineer a career transition, then you are well served by creating a defined framework for evaluating startups.
I like to call mine the 7 P’s. I use them to identify a company’s strengths and areas of improvement, describe opportunities for improvement, and influence future company goals. This framework informs investment decisions. It can also be paired with your unique professional background to offer relevant insights as a company advisor or chief medical officer (CMO).
Each of these topics deserves its own individual treatment. And I will be presenting them as an ongoing blog series with company case studies and other personal examples from my own experience. You can find the first two, ‘Product’ and ‘Physician Feedback,’ at angelmd.com.
The 7 P’s
1. Product
Does the proposed solution address a medical practice pain point? The company may be in the idea phase, may have a minimum viable product (MVP), or have a functioning prototype.
We certainly want to know if their solution is better and cheaper than the available alternatives. But while improvement over the standard of care is necessary, it is not sufficient. We also need to know how big is the pain point they are addressing? Is it a known problem supported by and constructed with the experts in their space? What does that mean about the size of the capturable market?
And that, my friends, is the beginning and end of “Product” (Don’t get me wrong we have A LOT to unpack there). But it is also why so many startups can fail even with a viable product and why it is so important that we travel much further. The other 6 P’s are where we find dragons.
2. Physician and patient feedback
Successful startups are often led by physicians or have physician advisors. Getting feedback from medical experts helps a company at every stage of company growth: from ideation to product development to running a successful pilot. Two crucial questions to ask a startup team are when they spoke with physicians about their idea and what kind of feedback they received.
3. (Intellectual) Property (IP)
Patents can be obtained for medical devices, pharmaceutical compounds and digital health assets. These provide protection from knockoff products and also provide companies with a valuable asset that is the core of many healthcare acquisitions. Without strong IP, a company may succeed in the
short term yet fail to monetize in the long run.
4. Process for product clearance
What kind of medical device needs a 501(k) clearance? How does the FDA’s Software as a Medical Device (SaMD) work for machine learning? When does an innovation need a De Novo request? The FDA has different approval processes for medical devices, digital health tools, pharmaceuticals and AI applications. Understanding how the product you’re evaluating is regulated is essential for assuring patient safety and helps you budget for future regulatory needs.
5. Payment
This includes the company cost of production and revenue models. How much does it cost a company to build or implement their solution and how much does it cost them to acquire a new customer? You’ll want to know how much the company charges patients, offices or hospitals to use their product and whether that is covered by a Current Procedure Terminology (CPT) billing code. Although patients benefit from innovation, are they the purchaser or will the company sell to healthcare organizations or physician offices?
6. Pilots
Healthcare startups improve their product and achieve traction by obtaining early customers. The first physician office to use that innovation is able to provide invaluable feedback that will help the startup improve their solution before scaling their business. When evaluating a company, ask about current pilot programs, how well they are going and how the company has responded to feedback from physicians and patients.
7. Publications
In addition to obtaining physician feedback, startups also need to document how well their product performs in those pilots. Is it effective? Is it more effective than the current gold standard? In addition to using this data to improve early versions of the product, companies should also publish reports on their product’s performance. You should ask how startups are tracking data and their current goals for improvement. Even if they don’t have peer-reviewed journal publication, they will have materials you can review and assess.
As a clinician, you are a healthcare expert. You are acutely aware of your practice pain points, whether a product could be incorporated into your workflow and the current market competition. You are able to offer valuable insight into the viability of an idea, potential use cases, and how to bring it to market. Companies are increasingly aware of both the value of that insight and the need to integrate it into their business strategy. With a proper repeatable framework you will find yourself much more comfortable navigating between multiple startups to identify the most likely to succeed.
John Dayton, MD, is an emergency physician and the first Medical Innovation Fellow with Stanford’s Department of Emergency Medicine. He is a physician consultant for Zus Health, a Venture Partner for SpringTide, and he writes about healthcare innovation for several publications, including Emergency Physicians Monthly. He also founded MedForums, a ‘yelp’ for physician feedback that focuses on social proof and research related to education resources and healthcare innovations. You can reach out to him via LinkedIn.
