Health-tech: UK Policy to Grow the Health-Tech Ecosystem
A thriving UK health-tech ecosystem is required to meet the challenges of the NHS
Introduction
In the 2010s, the UK government wrote off more than £10 billion for the custom-built software, Lorenzo, in one of the largest IT infrastructure failures ever. It was an attempt to digitise core patient care in the NHS to build a healthcare system that was faster, better, and greener. Yet, while Lorenzo failed due to a top-down design that alienated its users, its promise remains: indeed, other software has taken its place to the extent that NHS doctors now spend up to 50% of their time interacting with various electronic system interfaces. This time spent documenting and clinical coding directly replaces providing care for patients, at a time when there is worsening scarcity of highly trained healthcare workers. The drastic increase in clinical alerts also leads to increasing instances of burnout and decision fatigue, as clinicians lose the ability to discern the signal amongst the noise.
In some ways, the UK’s government’s IT infrastructure failure is hardly unexpected. It is just another example of Britain being ‘at the frontier’ in terms of life sciences research, but lacklustre at the basics of project delivery and health outcomes. This is why, from a UK innovation policy standpoint, the digitisation of healthcare is particularly worth focussing on; it showcases a potential path out from this abysmal equilibrium. Moreover, the complex union required between entrepreneurs, public institutions and regulators in order to improve public health is indicative of other areas such as university policy that require change in highly personal, path dependent environments.
Tipping Point
UK healthcare is at a tipping point: there is simultaneously a slow burning crisis within the NHS set to rapidly accelerate and a Cambrian explosion of start-ups attracted by the enormous market size and low quality of current care. The acceleration of the crisis is driven by long-term healthcare trends based on an ageing population with increasingly chronic illnesses. This increases patient demand widening its gap with healthcare supply. To make things worse, the supply of healthcare cannot keep pace: as the pay of nurses and doctors needs to keep rising to compete with wages elsewhere in the labour market, the scarcity of healthcare workers must necessarily increase, per Baumol Cost disease.
As the number and quality of health-tech start-ups has increased rapidly over the last five years, the solution to the NHS’s challenges lies in harnessing health-tech innovation. To figure out what the right government policy to support health-tech entrepreneurs is, this article will consider three recommendations for the UK government: (1) expand health-tech accelerators, (2) offer routes to sustainable commercialisation, and (3) provide clear regulatory guidance.
Three Policies
Firstly, the Department of Health and Social Care has recently cut the NHS AI lab programme, launched in 2019, from a £250m investment to £139m without the publishing of any evaluation of the investments so far made. The programme aims to support AI initiatives within the NHS such as funding a fellowship to upskill doctors in AI and experimental tools to predict the health trajectory of patients. An analysis by Frontier Economics, an economic consultancy, of £21 million spent on AI tools for improved diagnosis of lung cancer found a projected £235 million gain over five years. In sum, the AI lab programme is crucial in providing the foundation for future medical innovations involving digital health twins, synthetic dataset generation, real world risk forecasting, longitudinal research, and medical education. The scale of the NHS AI programme – and other NHS accelerators – is crucial to retain because it provides a uniquely risk-positive appetite to support early-stage health-tech innovation; in contrast, private alternative accelerator programmes tend to be more risk-averse, selecting more mature firms because they are easier to support and more likely to win contracts. Therefore, generous government funding for programmes like the NHS AI lab is crucial to retaining a thriving, early-stage health-tech ecosystem in the UK.
Secondly, the government should offer a route to commercialisation that encourages collaboration between entrepreneurs and the 217 NHS trusts. Due to their collaborative potential and valuable data feedback on their products, NHS trusts are a desirable market for health-tech companies worldwide. However, for a VC-funded health-tech company, there is currently only one viable commercialisation route, wherein products must be compatible with the 5–7-year return schedule of venture capital firms. The NHS thus becomes a sandbox for companies to generate data in before they expand overseas, leaving the UK out of sharing in the innovation it has fostered. This business model can be summarised as:
Current commercialisation paradigm for VC-backed health-tech start-ups
An infamous example of this business model is Babylon Health which, at its peak, was valued at $4.2bn and – before it shut down in 2023 – had expanded to 17 countries. While the UK should be proud to offer a sandbox for early-stage companies, we should also strive to capture more of the value created by NHS trusts piloting and collaborating with start-ups – before they mature overseas. To ensure NHS trusts continue to collaborate with innovative start-ups, the government should open the door to alternative business models that increase experimentation and value sharing between start-ups and NHS trusts. For example, agreements could involve royalties, risk-sharing or equity agreements between companies and the NHS trusts. These are example mechanisms where NHS trusts are included in the potentially explosive growth of a start-up if it successfully commercialises. This would incentivise trusts to integrate deeper than ever before with the UK’s health-tech ecosystem.
Thirdly, the UK government should continue to clarify regulation in the med-tech industry. The med-tech pathway ranges from the initial stage of regulatory approval that the product is both safe and effective to the final stage of deciding whether to adopt it by weighing up its cost versus the uplift in QALYs. Currently, the government is in consultation with industry on a first draft of a med-tech innovation classification framework. Its goal is to align language and common conceptions on what counts as a med-tech innovation. This work has foundational importance: it doesn’t just provide the intellectual agility for regulators to adapt their regulations to the ever-evolving med-tech landscape, it has positive downstream effects on start-ups themselves. This is because it aligns start-ups on what they can expect from regulation: the level of scrutiny their product will undergo, and the competitive moat they can achieve if they meet the regulator’s standards. It puts a ceiling on naive founders proclaiming their fine-tuned LLMs can diagnose all disease, and gives high-quality start-ups a regulatory pathway to embark on to distinguish themselves from competition. More than 50% of med-tech companies fail or run out of cash because of the long timelines to obtain regulatory approval, and the processing time will likely always be long given the necessary testing in a market where real lives are at stake. But, by UK regulators publishing their thinking and signalling future changes in regulation, high-quality start-ups can bake into their culture good engineering and safety practices that ensure they can meet any future regulatory shifts. This is especially important in fast-moving areas such as the Software-as-a-Medical Device category where software such as so-called clinical co-pilots places itself at the heart of patient-doctor interactions. In summary, the regulators should continue to publish transparently and in collaboration with industry to define rigorous regulation that separates high and low quality start-ups in the healthcare ecosystem.
Conclusion
Ultimately, given the enormous challenges facing the NHS, only the transformative effect of technology can match the limited supply of clinicians to the overwhelming forecasted patient demand. NHS waiting lists for elective treatment in England have almost tripled in size over the last decade to 7.7 million and the latest figures show there were a record 2.35 million attendances at A&E across England in March 2024. Improved UK government policy could address this by harnessing the burgeoning local entrepreneurial healthcare ecosystem: increased accelerator funding, more sustainable commercialisation pathways, and clearer, faster regulation. Bottom-up health-tech entrepreneurship, not monolithic IT programmes like Lorenzo, will lead the NHS into the future.
