Mark Cuban has a test he puts to health tech founders before he backs them, and most of them don’t like the answer.
The co-founder of Mark Cuban Cost Plus Drug Co. spoke Nov. 5 at Becker’s 14th Annual CEO + CFO Roundtable in Chicago.
“It depends on whether the point solution is macro or micro,” Mr. Cuban said. “Are you having to fit into somebody else’s solution? In that case, you’re probably going to be a feature of theirs at some point and they’ll disintermediate you very quickly. If you’re just completely distorting and disrupting an industry like we think that CostPlusDrugs.com does, then I’m interested.”
He described where he sees founders stumble.
“Where a lot of entrepreneurs go wrong is they’ll be in an industry, they’ll have a lot of domain knowledge and they’ll say, OK, I’m going to use technology to change this,” Mr. Cuban said. “And the first question I ask is, well, whoever the incumbent is, when they see what you’re doing, are they just going to make it a feature of their product or service? And 99% of the time the answer is yes.”
During the keynote interview, Becker’s founder Scott Becker pointed to a pattern familiar to health IT leaders: A startup builds a point solution, and Epic folds that capability into its broader package.
“You’re just doing the R&D for Epic or whoever,” Mr. Cuban said. “And so you have to be very careful there. So you have to be much more disruptive than just one feature. Because if I’m competing with you and you come up with a little better idea, I’m like, I’m going to learn from it and say, OK, I’m just going to add this.”
Becker’s has reached out to Epic for comment and will update this story if more information becomes available.
Mr. Cuban tied the lesson back to his years as an investor on “Shark Tank.”
“On ‘Shark Tank,’ we talked about it all the time. Is it a product or is it a feature of somebody else’s product? And you have to know the difference,” Mr. Cuban said. “You can’t assume that the company you’re trying to disrupt, the industry you’re selling to is dumb. You have to assume they’re going to figure it out.”
Asked whether he weighs the founder or the idea more heavily when he invests, Mr. Cuban offered a different yardstick.
“I think about it from an impact perspective, yes, I want to make money, I want to get my money back, but what can it change?” he said. “Because typically, particularly when technology is changing so rapidly, like we’re seeing with AI, if you can use it to disrupt an industry, to me that is the fundamental issue.”
That yardstick shapes how he views the AI startups pitching health systems.
“The challenge of healthcare right now is not the healthcare part of it. It’s not the innovation. With pharmaceuticals, we lead the world in that. It’s not even close,” Mr. Cuban said. “The problem is there’s been regulatory and scale capture on the economic side.”
“People say, well, I can use AI to do this, I can use AI to do that. And it’s like revenue cycle management versus denials, appeals and approvals, they kind of balance themselves out,” he said. “Those of us old enough to read Mad magazine, remember ‘Spy vs. Spy,’ where the two spies would battle it out. That’s what AI is now.
“But for entrepreneurs, I’m not as big a fan of just using AI to capture pennies on the margin. If you can recreate a TPA, if you can bring contractual transparency to employers, if you can help them review their contracts and know what to do with the output of AI, or train the AI to make it even better, that, I think, is a huge opportunity.”
Mr. Becker asked whether, after years of working in healthcare, Mr. Cuban finds the industry exciting or frustrating to disrupt.
“I think this is the easiest industry to disrupt I’ve ever tried to disrupt because it’s very simple,” he said. “On the economic side, how much does it cost? Who pays for it and if you can’t afford it, what happens next? That’s it.”
