General Catalyst enters a "struggle for the soul" of the US hospital
General Catalyst's bold decision to buy a hospital ignites hopes of resuscitating a flatlining health system.
Why it matters: Reversing the traditional hospital-buys-tech model could transform the dominant, beleaguered sick care setup into a consumer-friendly, prevention-focused one, hospital administrators, investors and startup leaders tell Axios.
What they're saying: "These places used to be large and soulful places," says SCAN Health Plan CEO and U.S. Department of Veterans Affairs academic hospitalist Sachin Jain.
- "There's a struggle for the soul of the large health system," he adds.
Between the lines: That means entering into value-based care arrangements (rewarding providers for quality over quantity) and overhauling a hospital's current billing-focused tech approach into one focused on the patient and provider experience.
- PitchBook lead health care analyst Rebecca Springer says she's assuming General Catalyst buys a system "with a decent IT infrastructure in place because they don't want to spend the first three years of this doing data cleanup."
What we're watching: Marc Harrison — CEO of Healthcare Assurance Transformation Corporation (HatCo), the company General Catalyst formed for the strategy — told Forbes it is in the market for a system in the $1 billion to $3 billion range because that's where "the majority of Americans get their health care."
- Experts speaking with Axios were divided on whether the firm will target a small or regional hospital or multi-region system, but most agreed it would not be a pricey, prestigious academic medical center.
- "One geographic location would give them more local power," says GSR Ventures partner Justin Norden.
- "A suburban, underperforming hospital seems most likely," says Included Health CEO Owen Tripp.
- "Hopefully, they go after something like Steward in Boston," says Jain.
Be smart: Hospitals have long used tech — including tools from venture-backed startups — but have largely failed to do so sustainably and efficiently due to organizational hurdles and misaligned incentives, several experts say.
- "Health systems remain the largest buyers of health care IT," says PitchBook's Springer, "but everything is very fragmented."
- "Health systems are beleaguered right now — from a financial and a morale perspective," says SCAN's Jain, because they "haven't figured out how to harness the expertise, knowledge, and will of their workforce to drive positive change."
By the numbers: Nearly half of providers increased their spending on software in 2022, per a Bain & Company and Klas Research report.
- Of those, 80% cited labor shortages, inflation, and organizational shifts like M&A and leadership changes as motivating factors.
- "If you're a health system leader struggling to staff your clinics and someone says: 'We'll buy you and invest a billion dollars in new tools and technologies to drive engagement,' I'd think you'd be kind of a dummy to not jump and say 'Let's get going,'" adds Jain.
Reality check: General Catalyst's focus on a traditional, brick-and-mortar asset like a hospital could itself prove a hurdle to transforming the health care system, Tripp says.
- "One of my primary concerns here is that for a VC fund that has massive amounts of dollars, a national reputation, and some very smart people ... this is ultimately doubling down on the way things are today," says Tripp.
- The future of care will likely look more virtual or hybrid than in-person and within the four walls of a hospital, he adds.
- "If you build around a physical location, I think you're missing the point," Tripp says.
The bottom line: Whatever institution General Catalyst buys, creating a patient experience that sets the hospital above other second- or third-tier systems will take time.
- "I always tell people, 'If you want a one- or two-year play, don't come here," says Glen Tullman, CEO of General Catalyst portfolio company Transcarent. "It requires patient capital."