For those who haven’t been following the Theranos drama, it’s a total mess. At first Theranos and its founder, Elizabeth Holmes, were being touted as the next major thing to happen to healthcare. They used that fame to raise $700 million (per Techcrunch) on the back of lab tests from samples as small as a few drops of blood. However, through a series of missteps, Theranos got itself in real trouble with CMS.
Today, it seems like things have gone from bad to worse as regulators plan to revoke Theranos’ lab license and to remove Elizabeth Holmes and Sunny Balwani, company president, from their positions as leaders of Theranos. You can read more in this Techcrunch story and see the letter from CMS. I’ll leave the analysis of Theranos’ future to others who are covering every detail. However, it’s worth noting that others are working on similar lab testing that uses small amounts of blood, so I’m hopeful we’ll still see that technology come to market.
Instead of focusing on Theranos’ future, I think we’re better served learning an important lesson from the Theranos experience. Government regulation matters in healthcare and you better have all your i’s dotted and t’s crossed.
There are a lot of startup companies that enter the healthcare startup world thinking that they can be rebels and succeed in healthcare. In some respects they can and I’d be the last to discourage rebels from entering healthcare. We need more rebels that fight against some of the lame status quo experiences we have today in healthcare. However, rebellion can only go so far in a massively regulated environment like healthcare. Whatever rebellion you want to lead has to fit within the constructs of regulation or it will come back to bite you.
The good thing is that the Senate is trying to make it more clear what healthcare technology will be regulated and which won’t with bills like the MEDTECH Act. However, there’s still a ways to go and there’s still some leeway for the FDA to get involved if you overstep your startup into regulated territory.
This exact problem is why many startup founders see so much opportunity in healthcare, but then shy away. I remember reading a venture capitalist that said “All the normal business mechanics that you’re use to seeing don’t apply to healthcare.” I don’t agree completely with that quote, but there’s definitely some truth to it.
I’m not saying that startups shouldn’t enter healthcare. They should, but they should think very seriously about the regulation required to participate in many parts of the healthcare system. Some will see the regulation as a downside, but remember that regulation can also be a great barrier to entry for your competitors. You have to take the good with the bad. We all know that healthcare regulation isn’t going anywhere. In fact, it’s likely to get worse over time.