Good morning to all new and old readers! Here is your Wednesday edition of Capital Ideas, exploring four startup ideas and five success stories from the last week to help you find your next business or investment.

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Today’s edition:

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Alex

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Ideas

1: Getting Rid of Middlemen in Healthcare

The U.S. healthcare system is notorious for its high costs and inefficiencies, largely due to the presence of numerous middlemen.

These intermediaries, including pharmacy benefit managers (PBMs), wholesalers, and insurance companies, add complexity and expense without necessarily improving patient outcomes.

A significant portion of healthcare spending is absorbed by these middlemen, leaving less for actual care providers.

In 2022, national health expenditures (NHE) in the U.S. reached $4.5 trillion, which accounted for 17.3% of the Gross Domestic Product (GDP)—a massive market to tap into.

This presents a unique opportunity for innovative startups to disrupt the status quo and create more efficient, cost-effective healthcare solutions.

Middlemen in healthcare serve as intermediaries between manufacturers, healthcare providers, and patients. Their roles include negotiating drug prices, distributing medical products, and managing insurance claims.

While these functions are intended to streamline processes, they often lead to:

• High Costs: Middlemen contribute significantly to healthcare expenses. In Medicare drug spending, 70% goes to middlemen, and only 30% reaches pharmaceutical manufacturers. This pattern is consistent across other healthcare sectors, such as hospital care and medical equipment.

• Lack of Transparency: The involvement of multiple intermediaries obscures pricing structures, making it difficult for patients and providers to understand actual costs and negotiate better deals.

• Inefficient Supply Chains: Middlemen can disrupt direct supply chains, leading to inefficiencies and waste.

• Poor Patient Outcomes: Despite high spending, patient outcomes in the U.S. aren’t significantly better compared to countries with fewer intermediaries.

Some startups have already begun to make strides in reducing the role of middlemen in healthcare:

• GoodRx: This platform allows consumers to compare pharmacy prices and access discounts directly, bypassing traditional PBM channels.

• Clover Health: A Medicare Advantage plan that focuses on preventive care and reducing the need for intermediaries, providing more direct care to patients.

The opportunity to eliminate middlemen in healthcare is vast and ripe for innovation. By leveraging technology and adopting new business models, startups can create more efficient, cost-effective solutions that improve patient outcomes.

And with healthcare spending projected to grow faster than the economy over the next decade, this opportunity looks like it’ll be massive.

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