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Disclaimer
This text is about how some startups outsmart European health­care systems for a success­ful go-to-market. The views in this article are purely my own and inten­tion­al­ly simpli­fied to make a point. Keep in mind that it’s written by a trained medical doctor turned VC — hence a cynical view on the system, heavi­ly skewed towards Germany, France and the UK as the largest European economies.

1. Healthcare’s Innovation Dilemma

European Health Technology is Stuck in the 2000s

If you work in health­care, you will constant­ly find yourself think­ing “This would be a great idea, someone should build this”, only to find out it has been attempt­ed 30 times and never stuck.

Consid­er digital thera­py apps, easier-to-use Electron­ic Health Records (EHRs) for clinics, match­ing tools for clini­cal trials, or smooth and digital patient journeys. On paper, these are excel­lent ideas. Yet they often fail to scale. Take Germany as an example: Despite horren­dous health­care budgets, hospi­tals here often lack stable Wi-fi and logging into the 20-year-old EHR takes a master’s degree. Not to mention the infamous fax machines that are still in use.

Why is that? In a nutshell, every­body likes innova­tion — but nobody wants to pay for it. Or worse, change their habits.

Don’t get me wrong — there are many other factors. Europe (and most of all Germany) has shot it’s digital health prospects in the foot by overdo­ing data protec­tion, combined with a heavy dose of regula­to­ry uncer­tain­ty around medical devices and AI. Lack of digital infra­struc­ture adds to the stack of systemic disad­van­tages. I could go on, but this is not a polit­i­cal text and such issues will not be solved by any single start­up.

Why Nobody Wants to Pay

In order to under­stand the issue, we need to under­stand each stakeholder’s incen­tives. Unfor­tu­nate­ly, health­care requires more decision makers than any other indus­try.

Insurers/Payers:

Health insur­ers are mostly slow-moving ships that require a mountain of evidence and years of negoti­a­tion to enter into a new contract. The landscape is often insane­ly fragment­ed. In Germany for example, you’re looking at over 100 health insur­ers divid­ed into a statu­to­ry and a private system. Each insur­er follows its own mini agenda, painful­ly slowing down widespread adoption of innova­tion. In other words, no matter how great your start­up is, you are not going to “quick­ly scale” a new product across 100+ insur­ance clients. In the UK, things are more centralised via the NHS, but you will still deal with a set of 42 region­al Integrat­ed Care Systems (ICSs) and Integrat­ed Care Boards (ICBs). Indepen­dent of location, most insur­ers’ atten­tion is ultimate­ly on reduc­ing costs within the exist­ing budget­ed system, vs adding costly healthtech innova­tion with unproven ROI to their stack.

Patients:

European patients are infamous for their unwill­ing­ness to pay much out of pocket compared to the total health­care budget. The reason lies in a sort of “all inclusive”-mentality caused by very gener­ous public insur­ance schemes in many countries. Most patients simply lack an under­stand­ing of how expen­sive good health­care is. Out-of-pocket rates in % of total health­care spend­ing are partic­u­lar­ly low in the largest European economies like France (8,7%), Germany (11.9%) and the UK (13.5%), where the system heavi­ly subsi­dizes care, most of which is free of charge. The notable excep­tions are Central Eastern European countries like Serbia (36%), Bulgar­ia (34%) and Lithua­nia (30%). Unfor­tu­nate­ly, their absolute out-of-pocket spend­ing “only” amounts to € 1.5b — 2.5b each, which is usual­ly too small to justi­fy a VC market. For compar­i­son: The US annual­ly spends an estimat­ed $ 450b on health out of pocket.

Healthcare providers:

Health­care providers on the other hand are notori­ous­ly squeezed on margins and avoid any addition­al cost drivers in their P&L. They already pay signif­i­cant amounts for their staff and basic IT infra­struc­ture, so why add anoth­er item to the list? The patients keep coming in anyways. This customer type is also risk-averse by nature. They are wary of any invest­ment that doesn’t show immedi­ate and measur­able returns. Many providers are overbur­dened, leaving them with little time or energy to evalu­ate new tools, let alone imple­ment them.

2. There is Hope

It sounds hopeless, but there are strate­gies. Once in a while, we see startups circum­vent the hostile incen­tive struc­tures in creative and complex ways. They typical­ly under­stand the loopholes in each stakeholder’s incen­tives and which carrot to dangle in front of them:

Insurers/Payers:

Health insur­ances’ core activ­i­ty is distrib­ut­ing large amounts of money within exist­ing reimburse­ment agree­ments. Conse­quent­ly, the biggest value pool in health­care is unlocked by tapping into reimburse­ment struc­tures insur­ers have already agreed to. Of course you can try and negoti­ate addition­al contracts with individ­ual insur­ers, but value pools are small­er and they will only pay for a) a clear and proven cost benefit or b) market­ing impact to attract a certain patient profile.

Patients:

Despite being hesitant, you can get patients to pay out of pocket. In my experi­ence, they need to have  an immedi­ate “wow”-effect. This is often linked to cosmet­ic or beauty proce­dures. In a wealth­i­er popula­tion, you might even find health-conscious nerds wiling to pay for preven­tion and diagnos­tics. My point being, there are health items people spend money on, but you need to find that outstand­ing, one-in-a-million product, to unlock a large market.

Healthcare providers:

Quali­ty of care matters, but providers are rarely willing to pay extra or spend time on it without finan­cial gain. It is not even their fault, they have clear finan­cial incen­tives imposed by the insur­ance system and ultimate­ly run a business. Anoth­er inter­est­ing obser­va­tion is that time efficien­cy alone doesn’t excite them too much, unless it’s coupled with a tangi­ble finan­cial outcome. A pitch like “we help you make €500 more per patient per year” works magni­tudes better than “our software will save some time on backend process­es”. 

Now let’s combine these obser­va­tions and let’s get specif­ic. I have seen startups execute a surpris­ing­ly quick go-to-market using this approach:

3. Re-Programming Incentives with Revenue Sharing

The solution I’m point­ing to is essen­tial­ly revenue sharing. It’s not a new concept, but it’s tougher to execute in health­care.

Here’s how the best startups imple­ment it success­ful­ly: first, identi­fy a proce­dure that health­care providers strug­gle to deliv­er efficient­ly. Next, devel­op a solution, such as service, software or hardware, that address­es that pain point and allows them to perform the proce­dure 10x easier. Ensure that the service is seamless to onboard and use for both health­care providers and patients. Wait for the provider to be paid for the proce­dure, then ask them for a share of the addition­al revenue gener­at­ed. This revenue can come both from reimburse­ment or out-of-pocket payments — what matters is an exist­ing budget or a proven willing­ness to pay. This cannot be overem­pha­sized, since the whole scheme falls apart if there’s no value pool to tap into. The sales pitch to the health­care provider is simple: Would you like addition­al income with no upfront costs, a reason­able time invest­ment and ultimate­ly better quali­ty of care?

Based on my obser­va­tions, a 50/50 revenue split often works, and high-value proce­dures (think over €1,000 per patient per year) are especial­ly appeal­ing. This approach aligns the inter­ests of providers with your business, effec­tive­ly turning them into your distri­b­u­tion partners.

To make this work, product simplic­i­ty is crucial. Overly complex solutions, even if they’re ground­break­ing, are likely to fail. Providers need tools that integrate into their workflows with minimal friction. 

I will give you some real-life examples: German radiol­o­gy AI start­up Floy has made waves by sharing out-of-pocket payments with their partner physi­cians, onboard­ing practices in unprece­dent­ed speed. Fertil­i­ty start­up Amilis is testing a compa­ra­ble model for self-payed fertil­i­ty services in the UK. Cardi­ol­o­gy telemon­i­tor­ing start­up Noah Labs has unlocked other­wise untapped insur­ance budgets for cardi­ol­o­gists across Germany. These startups excel at onboard­ing physi­cians faster than most in their market. I know sever­al more startups – amongst others from Spain and Denmark — explor­ing this approach, although too early to share publicly. It will be inter­est­ing to observe their results.

Some Practical Context

The recipe above can come in colour­ful varia­tions. You can include multi­ple stake­hold­ers and revenue streams, as recent­ly observed with Tessan in France. They enable pharma­cists to offer telemed­i­cine inside their pharma­cies, creat­ing addition­al revenue from telemed­i­cine and prescrip­tion drugs (=both exist­ing and reimbursed budgets!). This results in a finan­cial win-win for the pharma­cies and Tessan. Even better, their model is scalable across multi­ple countries with large health­care systems, since most regions have reimburse­ment for telemed­i­cine in place and a strong pharma­cy infra­struc­ture.

While I like this approach, it’s of course not the only strat­e­gy: pure direct-to-consumer healthtech can work, as Oura has proven. Tradi­tion­al B2B SaaS is tough in health­care, but with excel­lent execu­tion it can scale, as Doctolib and Nelly have demon­strat­ed. And I predict that in the coming years, we will see a new wave of AI agents hacking their own way into health­care systems by replac­ing whole functions in health­care business­es.

Bottom line? Health­care go-to-market is never straight­for­ward. It’s not the best product that wins, it’s distri­b­u­tion – and re-program­ming incen­tives certain­ly helps.

Call to Action

If you’ve discov­ered other hacks, I’d love to hear from you. If you already built such a model, let’s talk! You can reach me on LinkedIn anytime.