The Promise and Peril of Israeli Health Tech

In the ever-dynamic landscape of health technology, Israel is a formidable player. Therefore questions regarding its standing on the global stage raised by Alan Feld in his Times of Israel article this past weekend, caught my eye.

Feld writes that, “healthcare represents an unsustainable 20% of the United States’ GDP. The US population is aging; by 2030, 20% of the country’s population will be 65 years or older. As the US does not have enough hospital beds even for today’s needs, it will have to re-invent its healthcare system to shift care outside hospitals to patients’ homes in order to serve its aging population. There is only one way to solve that challenge: dramatically better technology than we have today. However, Israel is simply not a significant or leading player in the healthcare technology industry or any of these other sectors.”

He claims, that the Israeli health tech ecosystem, is out of sync with the rest of the world due to three factors. One lack of investment in academia, two focus of VC investment in cyber, and three lack of local talent.

Acknowledging Feld’s articulate perspective and extensive Venture Capital experience, the claim that Israel is not a leader in HealthTech or lacks talent density, requires closer examination. His scrutiny regarding Israels health care sector is particularly noteworthy given that just two years ago, amid the throes of the Covid-19 pandemic, the entire world looked to Israel as an industry leader in this sector.

As a pioneer of Health Care digitization, Israel’s (HMOs) have amassed digitized medical data over the past 25 years, positioning the country as an ideal validation site for startups exploring data-driven solutions. Global giants such as Microsoft, IBM, AWS, Google, Pfizer, AstraZeneca, GE Healthcare, and Medtronic have recognized the potential and established significant footholds in Israel.

The nation’s early investment in digital transformation, evidenced by its implementation of the FIHR standard, uniquely positions Israeli companies to address global challenges in healthcare adoption.

Working directly in the Israeli health tech sector, I can attest to the critical mass of global Israeli talent engaged in groundbreaking work, from innovative Start Ups to established Fortune 500 companies.

In my experience, the core obstacles faced by the Israeli health sector are not centered around talent nor lack of investor interest, but rather the current misalignment between funding models and constraints of health tech policy.

The nature of the health tech ecosystem, namely extensive bureaucratic regulation and lengthy clinical trials, contrasts with the agile nature of the Cyber sector. Even in the midst of the High Tech funding bubble in early 2021, medical device companies globally raised $7.3bn in venture funding compared to Cyber Start Ups who raised $18.5bn in the same year. Imagine the short term incentive model that this creates for prospective founders, despite the huge market potential and need for a vibrant Israeli Health Care tech ecosystem.

A significant funding setback occurred earlier last year with budget cuts to the Innovation Authority. Introducing substantial new health start up capital risks for investors. To offset this investment risk, the local health tech sector has fostered a culture that rewards hoarding intellectual property, pedaling stagnating ideas, and priortizing strict confidentiality at the expense of innovation and agility.

These practices driven by policy and RoI incentives, pose major challenges to achieving product market fit . Imagine if a Cyber or AI company could only validate its product after a 5 to 15 year development cycle. If this were the case there would simply not be a Cyber or AI ecosystem in Israel.

As interest rates have risen, the higher risk, greater upfront costs, and longer RoI windows of health tech investment led to a reduction of investment in this sector in 2023. Going forward into 2024, the need for nuanced discourse and improved policy is imperative to navigate the delicate balance required for meaningful progress in this sector.

The Israeli Health Ecosystem presents a tapestry of challenges and most of all opportunities. Addressing concerns, supporting claims with evidence, and fostering a dialogue on aligning policy incentives with the need for innovation and patient safety will be crucial to unlocking the full potential of Israel’s vibrant health tech ecosystem.