Investment thesis: Paying for healthcare in Australia


How much is your life worth? It’s priceless obviously. But how much can you afford to pay to look after your life? How much can the government afford to pay? Those are very different questions.

Healthcare is expensive. In Australia, we spend $185b a year – that’s an average of $7.5k per person. That amount has been growing over time. Over the last 20 years healthcare spend has:

  • Grown 4.3% annually (excluding inflation)
  • Risen from 8.3% of GDP in 2000, to over 10% now

And, we can expect healthcare expenditure to keep growing due to three ongoing trends:

  1. Ageing population
  2. Price inflation on the products, services and wages in the health sector
  3. Developing and dispensing new treatments is expensive

So then the question becomes – how can we possibly afford to pay for this in the future?

Areas for innovation (and investment)

Whilst to date rising costs have been absorbed by governments and individuals, with some efforts to squeeze the margin of product and service providers in the healthcare sector, I’d argue that this is not sustainable forever.

Instead, we need innovation at the intersection of finance and health. We need new companies and new business models that:

  • Radically reduce spend on health, without compromising on health outcomes (or perhaps even enhancing them), or
  • Increase the value of what happens in healthcare, so that the price becomes justifiable


There are several promising themes I believe are worth following, and investing in:

  • Catch disease earlier (so it’s cheaper to treat)
  • Disaggregating health from location (to reduce the physical infrastructure costs)
  • Adding value to healthcare (to make the cost worth it)
  • Reduce the cost of health devices and services (to make healthcare cheaper)
  • New financial models (to break the current cost / funding models)

The market for health is everyone. Literally every single person will have an interaction with the health system at some point in their lives. For a start-up that can make a significant impact in one of the above categories, the potential upside (for founders, investors and customers) is huge.

More detail on each theme below:

Catch disease earlier (so it’s cheaper to treat)

1. Detection of disease at earlier stages

The cost to treat health issues at the very beginning is many magnitudes of order cheaper than the cost to treat those same issues at a later stage of progression. For example, the national colon cancer screening program (which has a 40% participation rate for males aged 50-74) has been shown to save ~3k lives per year due to early detection, but also reduce overall health spend by ~$1.7b per decade. And that includes the cost of rolling out the mass screening program. Not bad for an early detection program. Source

Innovations that address detection include:

  • AI supports radiologists and specialist doctors in detecting abnormalities in scans
  • Wearables for detection of symptoms
  • AI for more accurate diagnosis of disease causing symptoms
  • Nanotechnology for internal disease detection
  • Genome reading for determining disease predispositions
  • Improvements in access to testing (like the example above)

Australian start-ups to watch:

  • Vexev – Vascular imaging to detect vascular disease earlier
  • Annalise – AI that assists clinicians with interpreting chest X-ray results for early disease detection
  • Harrison AI – AI that assists clinicians with predicting likely success of IVF, and moving into radiology space for detection of disease
  • Eugene – At home genetic testing to detect whether individuals have genes for certain cancers, or are carriers of the gene for certain genetic conditions (relevant for pregnancy)
  • Nutromics – Continuous monitoring of biomarkers for diet, sleep, stress and exercise in order to prevent chronic disease
  • Cylite – New machine that improves ocular (eye) imaging
  • Maxwell Plus – Using data for early detection of prostate cancer


2. Preventative health measures to avoid the onset of disease

If you never get sick in the first place, then that is the cheapest possible outcome for both you and the health system. If we consider that health is a continuum – ranging from sickness, to wellness, to fitness – then it’s clear that being fit keeps you far away from sickness on the health continuum.

For instance, consider that obesity is a driver of 22 different diseases ranging from diabetes to asthma to kidney disease. Dr John Dixon’s research suggests that 7% of total healthcare spend in Australia is due to obesity – and in most cases that’s definitely a preventable condition.

Innovations that address preventative health include:

  • Self-tracking and treatment apps
  • Personalised nutrition, supplementation, and fitness programs
  • Increasing accessibility to education and basic health literacy

Australian start-ups to watch:

  • Vitable – Personalised vitamins delivered
  • BodyGuide – Personalised exercises and education to address muscular pain
  • Eugene – genetic testing to look for predispositions to cancer and screen for pregnancy

Disaggregating health from location (to reduce the physical infrastructure costs)

3. Remote health care

Remote health brings down the cost of health care by removing physical location restraints and travel costs. Doctors can treat patients from anywhere, and it’s cheaper to send medical supplies directly to patients rather than patients travelling to city centres.

A psychologist who charges $200 per hour, can reduce her prices by half when she doesn’t have to pay the rent and commuting costs associated with having a physical space. Likewise, we can bring down the costs of complex surgeries with remote robotics by not having to transport doctors and patients to the same location.

Innovations that address remote health care include:

  • Telehealth
  • Remote surgery and treatment
  • Delivery of health products to remote areas


Australian start-ups to watch:

  • Telecare – Telehealth platform for specialist and allied health practitioners
  • Coviu – Telehealth platform for health practitioners
  • Pilot – Men’s telehealth
  • Kin – Women’s fertility treatment done remotely
  • SwoopAero – Drone delivery of essential medicines to remote places


4. Geographic arbitrage for health

Healthcare is one of the last remaining services that has not experienced significant globalisation.  While research and drug development have crossed international borders, the actual delivery of healthcare remains almost exclusively within national borders. This is largely due to government and insurance companies only paying for healthcare domestically.

For cosmetic surgery (which you pay for out of your own pocket), you can book yourself and a friend a two week holiday in south east Asia at the same time as your boob job, and it’ll cost you literally half the price as having the surgery done in Australia (and that’s without a holiday!) It won’t be long until we consider ‘off-shoring’ having a hip replacement, a longevity treatment, or a knee arthroscope. Skip the waiting list and the winter weather at the same time.

Innovations that address geographic arbitrage for health include:

  • Hospitals and health services catering to international visitors
  • Support companies in this space (eg. Booking platforms, travel agencies, health focused hotels for rehab)
  • Supply chain companies that manage the distribution of health products and practitioners globally
  • Digital health records owned by patients, that can travel with them

Adding value to healthcare (to make the cost worth it)

5. Peer to peer health

Your doctor is no longer the expert on your condition. They might have a passing knowledge – but probably just enough to diagnose you. A specialist will know a lot more but even then they are unlikely to be able to be across extremely rare conditions, or your personal situation and genetics. With Google, the expert on your health condition is now… you.

No one is as motivated as you to understand your condition, or to cure it. No one except other people with the same condition. Thus, peer to peer health – where individuals with the same health problems connect with each other – is a rising trend. Most of this is happening on Reddit, or Facebook groups, but it won’t be long until start-ups capture this space.

Innovations that address peer to peer health include:

  • Platforms that allow individuals with the same condition to connect
  • Platforms that allow the secure global sharing of information between patients with the same condition (and their doctors) to aid with developing treatments


Australian start-ups to watch:

  • Arli – Community platform for those dealing with addiction


6. Data as a source of value

Data. We collect so much of it these days but we rarely know what to do with it. In the healthtech space data is especially value. We can use it train AI programs, develop new treatments, understand the causes of disease, personalise healthcare, make insurance premiums more nuanced, and predict your health future.

There is no question that data is valuable, and monetising this value can help make what we pay for health care worth the cost. Monetising it could mean paying the user for their health data (eg. drug developers), or it could mean adding additional value to health treatments because access to a person’s data is made available (eg. predictive or personalised healthcare).

Innovations that address data as a source of value include:

  • New ways to source health data (biosensors, wearables, natural language processing etc)
  • New ways to aggregate and share health data whilst respecting privacy
  • Predictive health (including using genetic, lifestyle, and medical data to predict the likelihood of disease)
  • Personalised healthcare (drugs and treatments tailored to an individual’s DNA, gender, race, age, lifestyle etc)


Australian start-ups to watch:

  • Vexev – Scanning and data collection of blood flow to predict cardiac events
  • Harrison AI – Using AI in IVF treatment to increase the odds of success
  • Prospection – Uses longitudinal data, large health data sets and predictive analytics to deliver health insights
  • Keylead Health – Applies data science to clinical trial data

Reducing the cost of health devices and services (to make healthcare cheaper)

7. Reducing the cost of delivering health services

The metal joint that is used in a hip replacement surgery goes for around $12,000. It’s possible to 3D print an equivalent hip for several hundred dollars. A night in hospital can range from $500 to $4000 – but with improvements in surgery, a knee arthroscope or a pregnancy mean patients can be safely discharged the same day.

Bringing down the cost of health devices and services has a direct impact on the affordability of healthcare.

Innovations that address the cost of health devices and services include:

  • Materials science to reduce cost of items
  • Shorter hospital stays through improved surgery and treatment techniques
  • Scale and distribution efficiencies (manufacturing items in bulk, or distributing them efficiently brings down costs)


8. Improve the supply of health professionals

In economics we learn that price is a function of demand and supply. Prices in the healthcare sector have been able to rise significantly because demand outstrips supply – there are waiting lists, hospitals are full, it is hard to get appointments.

Improving supply could mean educating more doctors, or making their roles more focused so they are able to see more patients in a day.

Innovations that address the supply of health professionals include:

  • Educating more health professionals (eg. by improving access to medical education through remote learning)
  • Redistribution of work for efficiencies (eg. Dentists use hygienists to do ‘scale and cleans’, freeing their time for more complex procedures)
  • Productivity improvements in processes, often through digitisation (saving time of healthcare workers means they are able to see more patients in a day, bringing down the cost per patient)
  • Telehealth also increases supply of health professionals (by removing commuting time) but this is covered under ‘remote healthcare’ section


Australian start-ups to watch:

  • Celo – NZ based start-up that provides collaboration tools for health professionals
  • Foxo – Australian startup providing collaboration tools to increase efficiency of health professionals
  • uPaged – Nurse staffing service that saves hospitals money
  • Med App – A digital director for education, clinician guidelines and onboarding for hospital staff
  • MedTasker – Task management app for hospital staff
  • HotDoc – Platform to find and book GP visits saving administration time
  • HealthEngine – Platform to find and book allied health, saving time and improving patient matching to health professional’s specialty

New financial models (to break the current cost / funding trade-offs )

9. Dynamic pricing

Embedded into the Australian health system is this concept that the price should be the same for everyone. We are even the only country to have ‘community rated’ pricing in our private health insurance system – meaning everyone pays the same premium for the same product regardless of age, health, gender or other factors. But what if we were willing to bend that principle?

Dynamic pricing means that the cost of treatment can change. Non-urgent, and non-critical healthcare is probably a likely starting point for this. If your chiropractic or dentist appointment isn’t urgent, then it’s likely that some people would pay more to have that treatment immediately, and some would be happy to delay their treatment in order to access a lower price.

Dynamic pricing has advantages for health professionals too. It gives them more choices around when they work and who they serve in order to maximise their income or lifestyle.

Innovations that address dynamic pricing include:

  • Changing pricing based on demand
  • Changing pricing based on other factors (eg. Financial need, years of quality life remaining, quality of lifestyle etc)


10. Alternatives to traditional health insurance

~45% of the Australian population have private health insurance cover for hospital. However, it’s possible that insurers will no longer be profitable in a few years. Gross margins for the industry (premiums minus claims) are ~12%, and net margins (after operating costs) are only 5-7%. Since claims are growing by ~8% per year, and the government is only allowing premiums to increase by 2-3% per year it won’t be long until their margins are eroded.

Hence, there is an opportunity for alternative models of funding. And for a start-up that gets it right, there is a huge market opportunity.

Innovations that address alternatives to traditional health insurance include:

  • New insurance models:
    • Community based insurance (insurance in groups of people you know, or people with similar risk profiles – successfully implemented for bicycle insurance in Europe)
    • Bundled insurance (all types of insurance in one policy, leading to cheaper prices due to lower admin and acquisition cost overheads)
    • Variable insurance (you can increase and decrease your level of cover at will – such as increasing it when you play sport, and turning it off while overseas)
    • Value based insurance (health insurers agree the amount they will pay for a specific condition upfront – not based on number of appointments)
  • Loan based funding:
    • Standard loans to cover health care costs as they occur
    • Similar system to HECs (low interest loans paid off as a percentage of income, with significant discounts for those who pay upfront)
    • Buy now, pay later (similar to AfterPay but for health expenses)
  • Savings models of funding:
    • Superannuation model (a percentage of your income is put aside into a dedicated ‘health bank account’ which can only be spent on health care related expenses)
    • Inheritance model (your health expenses are covered while you are alive, but you have to commit a significant portion of your assets to paying it back upon your death)
  • Life insurance based models of funding:
    • Insurers commit to keeping you healthy and will cover treatment needed to do so (eg. diagnostic scans, nutrition advice etc), and if you get sick then you get a payout to cover health expenses
  • Employer health schemes:
    • Workplaces are taking on the burden of preventative health care and health insurance in order to increase productivity and retention of staff. They are exploring models where the return on investment into health is more easily tracked


Australian start-ups to watch:

  • ExtrasJar – a savings account with benefits that replaces Extras insurance
  • Quashed – NZ startup that gives consumers a single view of all their insurance policies
  • AfterPay – Buy now pay later company that has been making moves into health
  • Zip – Another buy now pay later company moving into health


Healthcare isn’t optional, but at some point governments and individuals will no longer be able to afford the ever increasing costs. Innovation is needed to either bring down costs, or break the current funding models with creative new solutions.

It’s difficult to launch a fintech start-up due to regulation. It’s even harder to launch a healthtech start-up. But for founders ambitious enough to tackle the intersection of these two difficult categories, there is enormous potential upside. Every single Australian, and every human on the planet, is a potential customer.

And for the investors willing to back those founders, you might not just be involved in a successful company, but you might help change how we pay for healthcare in this country forever.

May 28, 2021