General Catalyst hospital: A risky bet with worthy ambitions

Experts across the health care spectrum are racing to predict the outcomes of General Catalyst's unprecedented move to buy a hospital, with some seeing potential to reinvigorate a health system model crippled by red tape.

Why it matters: Hospitals and digital health have been running on parallel beleaguered tracks, with the former saddled by organizational inefficiencies and financial bottlenecks and the latter struggling to integrate.

• Axios spoke with hospital administrators, academics, startup leaders, investors, consultants, and analysts.

What they're saying: "This could be the best opportunity to prove the art of the possible of what we've all been waiting for," SCAN Health Plan CEO Sachin Jain tells Axios. "That great tech can lead to better outcomes for patients."

• "We're all sick and tired of piecemeal solutions," says Included Health CEO Owen Tripp. "They're not enough to move the needle."

Be smart: While General Catalyst has been tight-lipped around its strategy, the firm could pursue a struggling hospital with a value-based care delivery system and health plan, with some experts citing the deal between Geisinger and Kaiser as an example.

• "I think a bold move would be to go more at risk, which creates more incentives for bringing in technology and automating," digital health consultant Steven Wardell says.
• Among the goals of such a setup: quickening the pace at which hospitals deploy technology, improving patient care and decreasing physician burnout.
• "Most health systems have become so big that even department chairs feel powerless and disempowered," says Jain, who also serves as an academic hospitalist at the U.S. Department of Veterans Affairs and an adjunct professor at Stanford School of Medicine.

How it could work: The best-case scenario for a VC-backed hospital would result in a plug-and-play innovation template other health systems could replicate.

• "What I'd expect is they'll go out with a tech stack that does things like provider credentialing, record storage, scheduling, and clinical and administrative activities," says Tripp.
• "This could be, similar to One Medical, an opportunity to make a hospital more patient-centric," says Wardell.

Zoom in: After General Catalyst makes its buy, it could take around three years just to embed the tech from its portfolio companies into the system — and the real work will come when it tries to integrate them, says General Catalyst-backed Transcarent CEO Glen Tullman.

• The digital health ecosystem is built on point solutions, he notes. "We're going to jump all the way in and say putting together these various products can actually change the trajectory of a health care system," Tullman says.
• General Catalyst could see an additional opportunity to back additional health care startups that it's not currently invested in, says Tullman, who emphasized he is not familiar with the exact details of the firm's plans.
• "It's one thing to learn about how a cake is made and another to bake a cake," says Tullman. "They're going to see what works and be right in the middle of it."

Between the lines: It's likely General Catalyst will use its hospital as a resource for its portfolio companies, and that the move will function a bit more like a private equity roll-up than a traditional VC play.

• "If you have 20 startups struggling to get commercial adoption, that is going to have a ton of intrinsic value," says Jain.
• "If they're buying a mature company, that's not venture," says Wardell. "This falls more into the private equity category."

The other side: The ambitious initiative faces several obstacles — from enormous operational costs to organizational and structural hurdles, all of which were exacerbated by COVID.

• "I'm not sure I see the value adding up relative to the capital and operational lift required to run this," says PitchBook lead health care analyst Rebecca Springer.
• "This isn't a technology problem," says GSR Ventures partner Justin Norden. "It's about getting everyone to agree and sign off, and decision-making and change management and organizational behavior."
• General Catalyst must also familiarize itself with other aspects of the hospital business, from unionized employees to what Included's Tripp calls "a city-like set of requirements" around janitorial, utilities, and parking.
• "The day-to-day of the average hospital in America is as much about those things as it is about everything else," he says.

Plus, the deal doesn't offer General Catalyst a clear first-mover advantage, says Norden, who also works as an adjunct professor at Stanford.

• "Let's say you have this amazing test lab to do something. It's end-to-end, you're capturing all the data to make it happen," Norden says. "That does not guarantee that next step, which is that other people will want this too."

The bottom line: "You don't bet against this group of people," Jain says, "but they do have to be thoughtful about how they set themselves up for success."

General Catalyst declined to comment.