And if it will, what will be the (token) economics of it?
The digital health innovation landscape systematically includes: AI, ML, telehealth, digital therapeutics, -omics, medical devices, Health IT and recently mental health technology. Yet blockchain somehow always fails to be on the list.
Not surprisingly in this $141B digital health market, which already has attracted in the first half of 2021 as much private investment as all 2020 (below), I see little to no investment in blockchain or cryptohealth.
I have previously written about this back in 2018, and despite a promising 2020 blockchain healthcare market valuation of $2B, with a 8.7% CAGR forecast till 2026, investments still remain minimal in number and size.
I would like to share 3 reasons that I think may explain this protracted underinvestment in blockchain and healthcare, despite the sustained exponential growth in digital health investment.
Reason #1: Many investors still don’t understand the role of blockchain in healthcare
- Supply chains for testing, vaccine distribution and medical supplies
- Facilitating remittances, cash transfers and tracking donor funds
- Automating health payments and clinical trial management
- COVID passes, professional credentialing and self-sovereign identity
- Data and Electronic Health Record management and care continuity
In fact when analyzing dozens of blockchain health companies, only a handful are commercially viable (below).
I propose that beyond investor lack of awareness, hesitancy and risk aversiveness, blockchain-based solutions introduce an existential threat to the business of healthcare and therefore detract investment.
Blockchain does not just dis-intermediate heavily-invested and powerful third parties in healthcare, like pharmacy benefit managers, group purchasing organizations, and third party administrators; blockchain changes the economic power balance that drives the current status quo, which represents nearly 20% of the US GDP.
Reason #2: Healthcare is a centralized game, where only very few gain
This is despite the fact that pandemic preparedness and investment in public health, has shown to contribute to better health, longevity, improved quality of life, and in return, an expanded labor force and stronger economic growth (below).
Having said that, the US healthcare system for decades has incentivized and paid for utilization of services, drugs and hospitalization, rather than reward prevention, education and public health interventions.
COVID-19 has only deepened these misaligned incentives, which have generated record earnings for payers, large hospitals and the industry, while pushing patients into poverty and threatening the viability of independent clinical practices.
With this in mind, it is not surprising that investors prefer to invest in big-tech (although some are leaving the healthcare business), rather than venturing into companies that are experimenting with new economic models.
Reason #3: Data = Dollars and as long as data is not yours, decentralized economics is not a thing
The economic engine of healthcare is data.
Actionable information is not only essential to prevent, diagnose and treat diseases, or stimulate innovation, it is essentially how healthcare companies make money. Debt and credit instruments, purchasing power, and market domination is based on data curation, analytics, trade and leveraging power from creating knowledge asymmetry (below).
The data healthcare market is not only big ($75.1 billion by 2026 from an estimated $21.1 billion in 2021) and complex, (B2B, IoHT, D2C), it is an oligopoly. For example, of the 1200 electronic health records in the US market, five capture 80% the market, and one (Epic) holds 30% of the contracts in the hospital environment.
And even though in response to the COVID-19 pandemic, the regulatory landscape forbids electronic health information blocking between health systems, apps, and devices, there is little economic, IP and compliance incentives to share data.
Although data is patient-centric, it is not patient-owned, and so the economics of healthcare are not-patient driven.
Is decentralized token economics the future of healthcare economics?
The idea that health data is ours, that it has value and that value can be used to incentivize us to stay healthy sounds simple, fair and straight forward (imagine some kind of Universal Health Income). Why shouldn’t consumers participate, benefit and contribute to the data marketplace?
But even if we ignore the privacy, regulatory, and tax implications such a participation would cause, the question then is: how do we capture (“tokenize”) the value of our health data? or in other words, which token should we use in healthcare?
Beyond the technical differences between coins (a digital currency or store of value that uses it’s own blockchain) vs. tokens (a digital asset that does not have it’s own blockchain and can, but not necessarily, be used as a payment), tokens are an important and fascinating feature of blockchain, and their distribution models (“token economics”) is an ever evolving field (below).
Tokens can be used in many innovative ways in healthcare:
- Utility tokens can provide access or payment for a particular service or product, as well as facilitate governance and voting in a network.
- Security tokens can be proof of investment in real-world assets, such as equities and fixed income.
- Stablecoins are digital tokens used as a programmable currency, that have a fixed value often pegged to fiat currencies, but can be backed by other crypto, or non-crypto assets.
- Non-fungible tokens (NFTs) digitally represent unique items, which could be real or virtual, and can be used as collectibles, identity, credentialing or reputation certificates.
- Combination of fungible and NFTs or hybrid NFT are being developed for IP protection.
- Social and personal NFTs represent a way how creators and their communities can directly exchange value (Universal Creator Income).
So what is the best token to use in healthcare?
It depends what value you would like to capture.
As a physician who has educated for decades patients to self-care, I feel that personal NFTs will become an interesting vehicle to invest in oneself. NFTs can allow creators (be it professionals or patients) to create new distributed economic activities that the current healthcare system does not support, like in the form of Universal Health or Creator Incomes.
Final thoughts: Will investors ever buy into this?
Beyond investor’s perceptions of volatility, legality and the viability of blockchain and cryptocurrencies, investing in decentralized health (as in DeFi) poses serious challenges and opportunities for the current VC model.
Decentralized economic fundamentals exist, but they require embracing new business models that include transparency, co-opetition (collaborative competition) and inter-co-operability mindsets.
It will be good if healthcare will emulate the experiments and changes seen in decentralized finance, because if there is one thing COVID-19 has taught us- is that the future will be full of variants-.
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