How's Your Health?

When health care is healthy, it's the industry to be in--and the current chaos in the sector may be the opening you need.

Health care is a $1.4 trillion industry. It's been estimated to consume 15 percent of our gross domestic product. But it's also an industry in flux. Consider hospitals, which are struggling to improve their financial performance as they compete increasingly with private clinics and urgent care centers that offer specialized services at less cost. "That's revenue that won't go to the hospitals anymore," says Jody Root, a partner and chair of the health law department at Foley & Lardner, a law firm in San Diego. "The traditional model of health-care delivery has changed."

Today, health care is a Pandora's box of problems. Well-trained health-care professionals are in short supply. Providers and insurance companies are trying to meet a spring 2003 deadline for compliance with the Health Insurance Portability and Accountability Act (HIPAA), which sets new federal privacy standards for patient documents. Meanwhile, employers--stymied by rising insurance premiums--are looking to shift more cost to employees at the same time that consumers and doctors, tired of managed care, are wanting more control over their health choices. As a result, insurers are moving far away from the HMO model toward defined contribution health plans that offer more choices. State governors, driven by deficits, have asked the federal government for $6 billion to cover expected Medicaid shortfalls, an amount they're not likely to receive from politicians in Washington who so far have been dragging their feet on the health-care issue. The list goes on.

"There are a lot of opportunities if you can solve a business problem through a process change, outsourcing a service or creating a new technology."

The good news? Your business plan could emerge from all this chaos. "There are a lot of opportunities if you're an entrepreneur who can solve a business problem through a process change, outsourcing a service or creating a new technology," says Lewis Redd, head of the health practice segment of management consulting firm Cap Gemini Ernst & Young in Atlanta.

Consumer choice will be the trend over the next few years, says Victor Tabbush, faculty director of the Johnson & Johnson Healthcare Executive Program at the University of California, Los Angeles. Cost-conscious patients will be picking up more of the tab in exchange for more control, and they'll start shopping around for the best service at the best price. Is a PET scan better than an MRI? Is it worth the extra cost out of my own pocket?

Patients will have to make these choices, and while their primary doctors may offer sound advice, more and more of them will go to independent sources for information, Tabbush says: "Businesses that cater to the added need for patient information, cost and effectiveness have a real future."

Your fledgling health company could end up in critical condition, however, if you're not careful. Health care isn't an industry you just jump into and hit the ground running. It's highly regulated, start-up costs can be steep, and long sales cycles can make it difficult to land new clients.

To be successful, "you really have to do your homework," says Richard B. Siegrist Jr., president, CEO and co-founder of health-care software firm HealthShare Technology in Acton, Massachusetts, and an adjunct faculty member at the Harvard School of Public Health. "You need to get an understanding of the language of health care and how health-care organizations work." Here are the stories of three start-ups that did their homework and are already pictures of health.

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Chris Penttila is a Washington, DC-based freelance journalist who covers workplace issues on her blog,

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This article was originally published in the July 2002 print edition of Entrepreneur with the headline: How's Your Health?.

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