What Are The Best Cities For Healthcare Startups?

With the passing of the Affordable Care Act and the increasing demand for transparent, accountable, and patient-centered services, the American healthcare system is ripe for innovation. In 2014, digital health investments in the United States reached $4.1 billion, and lately, bigger companies like Google, Amazon, Microsoft, and Apple are diving into the healthcare sector.

Health Innovators, a Seattle-based health innovation community, recently completed a fascinating study titled, “Health Innovation Location Attractiveness.” Spearheaded by Angela Hong and Ed Butler (both co-founders of early stage digital start-ups), this study sought to answer the question, “What is the best city to grow a new health technology company?”

To address this question, the study assessed five cities (Boston, NYC, San Francisco, Seattle, and Chicago), and compared them against the following criteria:

1. Cost & Regulatory Complexity
2. Availability of Talent
3. Financial Capital
4. Centrality of Healthcare Institutions
5. Regional Culture

This criteria sought to compare each city by the ease of forming a business. ​How hard and expensive is it to form a company? Are there any state or local laws that make it easier or harder to build a digital health product?

Key Findings:

1. This study used the CNN Money Cost of Living Calculator to compare software engineer salaries across cities. Let’s assume a software engineer in Seattle earns an annual salary of $100,000. For an equivalent lifestyle in Chicago, his or her salary would need to be $92,000. Similarly, in Boston it would be $108,000, in San Francisco $131,000, and in New York City $175,000.
2. Using theKPMG 2014 Competitive Alternative Study Index, this study compared the overall cost of business. According to this analysis, Seattle (101.4) is right in the middle, nearly tied with Boston (101.1), and substantially more than Chicago (99.1). New York City (103.6) and San Francisco (104.2) are the most expensive places to do business

For most startups, access to financial capital (venture or angel) is of the utmost importance, and unfortunately, the number of investors who understand the complexity of the healthcare system is small. This criteria sought to compare the financial capital and the number of healthcare industry investors.

Key Findings:

1. According to this Angel List data, $80 million dollars were invested in Seattle-based health startups.This is lower than the other four comparison cities. The highest amount was invested in San Francisco at $1.04 billion.

Health institutions include hospitals, payer organizations, pharmaceuticals, and life science research institutions. This criteria investigated the number of these “big-name” institutions in each of the comparison cities.

​Key Findings:

1. The healthcare delivery system market is similarly concentrated across all five major cities.
2. The per capita staffed bed ratio is highest in Seattle, suggesting that its hospital systems may lack competitiveness. This may result in less interest in innovative approaches to care.
3. Healthcare payer organizations in Seattle have not traditionally supported startups. The development of Cambia Health Solutions is exciting.
4. National Institute of Health funding in Seattle trails behind Boston, New York, and San Francisco. In Seattle, University of Washington and Fred Hutch attract the most federal research grants.
5. Seattle’s life sciences organizations have experienced a 12% job growth from 2007 to 2013 and they are the 5th largest employer in the state of Washington.

Finally, this criteria looked at whether each city fostered a “startup-friendly culture.” How open and friendly is the startup culture in the metro area?  Is it cut-throat competitive? How likely is it that other companies will poach your team?

Key Findings:

1. 91% of individuals surveyed believe that the Seattle startup community is open, transparent, and collaborative.
2. The Seattle “freeze” is a term used by locals to describe the difficulty of making friends if you are a transplant to Seattle. About 50% of those working at a start-up believed the “freeze” to be a real phenomenon compared with only 35% of those at a larger company. ​