By Izabel Gallera, partner at Canary
It seems like forever since Covid-19 hit the whole world in early 2020. In January last year, it was hard to believe that a virus on the other side of the globe could put me and my loved ones in danger. In February, well, I’d see people in the streets of Rio during Carnival dressed as “coronavirus” (a costume mashing up masks and Corona beer, completely nonsense, but creative). That was the mood. In March, lockdown — and then we began to live in the pandemic context along with Asia and Europe. You know the rest of the story. For me, as for so many of us, those months have been completely overwhelming (not to use f*ed up). But one thing that has caught my attention since the pandemic’s early weeks is the fragility of the healthcare industry. And although I can say that on a global scale, I want to focus on Brazil’s healthcare space (the one I have a bit more experience on, far from being an expert though).
In Brazil, healthcare is a constitutional right. It’s guaranteed by law to every Brazilian since 1988. As a Brazilian citizen, in general, you have 3 possibilities of accessing health related care:
- use your insurance network;
- use private healthcare network and pay out of pocket;
- use Brazil’s public healthcare system (called “SUS”), funded by taxpayers.
Our country has 211 million people, around 22% of the population is insured by a health plan, according to the National Health Agency (ANS) — a higher rate than other countries in LatAm (Mexico has less than 10% coverage, for instance). Approximately two thirds of this group have their health insurance paid by an employer, a common situation in other countries too (like US or Mexico). Given that context, let’s double click on the possibilities of accessing health related care, mentioned above:
- Use your insurance network — To have insurance, you probably need to be rich and/or employed. If you earn more than 5x the minimum wage, you have an 86% chance of being insured (the probability drops exponentially once you get below the minimum wage). Geography is also a factor: 60% of the insured population lives in the Southeast region (São Paulo and Rio de Janeiro states, mainly). Your plan coverage is also dependent of your employer’s negotiation with the insurer (usually larger employers have more insured lifes, therefore, more negotiation leverage). The payor’s pocket size (yours directly or your company’s) is another variable correlated with your insurance network quality/coverage.
- Use private healthcare networks and pay out of pocket — Anyone can use the private network of health providers… they just have to pay for it. Out of pocket health expenses are an option for both uninsured population that can pay for their health necessities and for those with insurance that have a preference for specific “out of the network” providers. Those expenses represent around 27% of all healthcare spending, that means roughly $50 billion/year.
- Use Brazil’s public healthcare system (called “SUS”) — SUS embraces the whole Brazilian population for emergencies (the protocol for urgent care, such as traffic accidents, is to use a public ER) and 160 million people (or around 80% of the population) for all health related care. It’s a beautifully designed system of universal healthcare, responsible for approximately 40% of all healthcare spending in Brazil. But SUS is overwhelmed and it can fail to deliver quality care in a reasonable period of time. Patients can wait months for a doctor consultation and years in line for surgery.
Goes without saying that Brazilians have uneven access to healthcare. That fact, by itself, could be attractive to future entrepreneurs. The problem is deeper though. We have inefficiencies within the systems: incentives are not aligned in the health insurance chain (take into consideration that who pays for the service is not who benefits from, and who’s making decisions — such as network coverage — is neither who pays for the service or who benefits from it) and there’s a massive unbalance of demand and supply in the public health system.
Let’s use a more optimistic tone and embrace those issues as opportunities. More flexible regulation towards technology implementation (such as telemedicine) can open the doors to remote parts of the country, building a scalable and accessible first layer of care. Technology also enables targeted care to specific demographics, improving the quality of care delivered and the efficiency of the services. Coordinated care is taking its first steps to become the industry’s default, reducing drastically the need for expensive preventable treatments in the near future. The ultimate goal for a healthcare solution is delivering better care in a more accessible way. It’s not an easy job when you have to realign the incentives of different players or create an aligned system from scratch. But again, the opportunity is huge.
As a VC investor, I tend to see huge and fragmented industries with structural problems as targeted markets to build tech or tech enabled solutions. If some of these problems were not as apparent before COVID hit Brazil, they became explicit after March 2020. I’m not the only one seeing that…. From 2017 to 2019, the health industry represented ~7% of all deals Canary analyzed (and I can humbly affirm that is a good proxy of the Brazilian early stage startup ecosystem). In 2020, the space’s relevance grew to 11%, only behind fintechs. We have seen experienced entrepreneurs tackling problems in the space, and that reflects our allocation: as of today, 15% of Canary’s active invested companies are addressing health opportunities.
The healthcare game is not for amateurs, though, and requires extra resilience. There’s no way you can “go fast and break things” when caring for someone’s life. Products have to be tested with a very limited margin to make mistakes. Besides, as we said before, this is an industry filled with frictions and structural problems. There are limited revenue streams. There are scaling constraints since every single patient is different, considering life, behavior, state of mind, biology, genetics. To add, most doctors (who’d probably have the highest “founder market fit” to start a health care company) are trained to follow protocols, not building startups to disrupt the industry. All of that usually means “longer time to find product-market-fit”. On top of all the problems, those first difficult steps usually demand a differentiated fundraising strategy, in order to guarantee enough time to test and validate the value prop. And not all VC investors are familiar (or comfortable) with these dynamics. Well, building a healthtech is a very hard job.
But we like teams willing to take that responsibility. Look at Alice and Sami, for instance. In a very regulated market, they’ve decided to build health insurance companies from scratch, disrupting the incumbent industry by aligning incentives and thinking long term. That’s not for everyone. Alice and Sami are changing how the system works, focusing on primary attention and delivering better and more efficient care in a semiverticalized way. The key term here is care coordination: getting to know the person in a holistic way, providing assertive and quality care (preventive or acute) in a more efficient way.
Using an idle private infrastructure is also a good way of reducing waste. This is something that Vidia is tackling, aligning a network of clinics and doctors to perform accessible procedures for an uninsured population that, otherwise, would spend years in the SUS line for non complex surgeries, like vasectomies and cataract operations. Capim also helps people accessing health care, by enabling different payment methods.
Delivering better and cost efficient care can also mean becoming a specialist and targeting specific demographics. Klivo is making that clear for people with chronic conditions: the diabetes-focused tech enabled solution has been able to deliver proper and assertive care for its members, resulting in amazing clinical results so far. Genial has also experienced exciting positive clinical outcomes for autism treatment, a specialty that lacks quality care.
Women are also a targeted demographic and we’re proud to say Canary is the first investor of both Oya Care and Plenna, Brazil’s and Mexico’s first VC backed femtechs. We can’t say that targeting half of the world’s population is exactly half of the market, since women have more willingness to spend with their health.
Tech is present in 100% of the health solutions Canary has invested in. COVID has given the industry an ultimato to improve efficiency and the industry has responded. Nilo has surfed this wave, positioning itself as the enabler solution for digital care, combining coordinated care and data to help industry giants to comply with the new way of care.
These examples are only a fraction of the successful solutions out there and this article has the only goal of shouting this perspective to whoever is interested in healthcare. COVID has been overwhelming in all possible ways and it has made more explicit that our healthcare industry urges for a disruption.