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Having gone through my venture capital financing hazing in the late nineties, one of the features I’ve noticed about businesses that get funded are those which have a “disruptive” model to them.   VCs enjoy the idea that their investments will not only create value for their own businesses but, in the words of a (very successful) VC firm, First Round Capital:

We love investing in technologies and business models that are able to shrink existing markets. If your company can take $5 of revenue from a competitor for every $1 you earn – let’s talk!

Now, there are some solid economic reasons for this objective in a start-up.  If you can shrink existing markets and remain profitable, you’re more efficient and the free market will reward you as the eventual winner.  It works great for discretionary spending, like a new ATV or cell phone gadgets or weight loss creme, but it does not work well for healthcare.

You see, dear readers, if you work at a hospital, that market is you.

You will notice a variety of entrants into this space who are all fired about how bad healthcare is and, sure enough, they’re right.  Healthcare is broken.  As I said on my last post, we can all agree on that.   The question is why, and what can be done about it.

One answer is that we need to give the individual patients the access to the “best” doctors, regardless of location or cost and empower them with the “best” knowledge for how they can navigate the arcane healthcare system.  That way, we can cause a consumer revolution!  Because, you know, consumerism is the best!  Rah, rah, yeah!

I understand that our American education is insufficient when it comes to fundamental economic knowledge, nevermind the essentials of game theory, but I wonder, have these people ever seen A Beautiful Mind?

If so, they might grasp the fundamentals of at least John Nash’s work on competition and scarcity: an individual striving for their own gain cost without regard for others costs the group as a whole more than if the group conspired together to allocate resources collaboratively.   (A vast over-simplification, for which I apologize, Mr. Nash.)

In other words: there is nothing to suggest a purely individualistic, consumer-driven healthcare strategy will produce any more “efficiency” than our current system and much to suggest it will create considerably less.   As some get much, much better care (and pay for it), others will necessarily get much, much worse care.

Healthcare is not a pure commodity because it is a social good and the same rules don’t apply.

This is why, although I share the sentiments of many of these companies, at MedTouch, we choose to work with hospitals.  When hospitals stay healthy, they can continue to serve the communities in which they are located.  That’s a (socially) good thing.

I’m all for efficiency, but efficiency at the cost of disrupting the healthcare delivery mechanism for the poorest members of our society is not just a bad idea, it’s un-American.