Confident physicians armed with world-renowned medical school training. Gleaming new hospital wings endowed by wealthy benefactors. Sophisticated medical equipment with awe-inspiring diagnostic technologies. Overall, the American health care system looks pretty good. From the outside, at least.

Stephen Sammut WG84, a senior fellow in Wharton’s Health Care Management Department, notes that when you consider the training of American physicians and nurses, the technology at their disposal and the investment made in hospital facilities, health care in America “really should be the best of what humanity has to offer.” Yet when you assess U.S. citizens’ overall health, he continues, “relative to a good bit of the world, we don’t fare particularly well.”

The statistics back him up, unfortunately. Last year a Forbes headline trumpeted, “U.S. Healthcare Ranked Dead Last Compared to 10 Other Countries” (they were Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland and the U.K.). The source of the study, The Commonwealth Fund, noted that U.S. has ranked last in every edition of the study since 2004 despite having the most expensive health care in the world.

Another assessment of health care efficiency—how well we use the billions of dollars we pour into a system that accounts for about 17 percent of the nation’s gross domestic product—is Bloomberg’s “Most Efficient Health Care” report. In the 2014 report, the U.S. slumped in 44th place out of 51 nations, besting only Bulgaria, Iran, Colombia, Algeria, Azerbaijan, Brazil and Russia.

According to Sammut, many economists point to the fee-for-service structure of American medicine as a major culprit in driving costs. Fee-for-service means each procedure that a doctor performs is itemized, billed and paid for separately. Theoretically, it incentivizes physicians to provide more treatments because payment hinges on the quantity, rather than the quality, of care. This is one reason that President Barack Obama’s health care law is trying to push reimbursement in the direction of health outcomes and results, and away from simply paying for a collection of procedures, Sammut says.

The passage of the Affordable Care Act (ACA) in 2010 continues to shake up the status quo in many other ways too, creating new regulations, expectations and questions around who has access to care and how it is administered and paid for. There are unfamiliar pressures on hospitals, insurance companies, doctors, nurses, pharmaceutical firms—really everyone who touches the field.

For some forward-looking individuals both inside and outside the system, this has meant new business opportunities. Sammut, who teaches courses in health care innovation and entrepreneurship, as well as global health, says, “When you dissect out the different programs within the Affordable Care Act, you realize there’s a lot there to encourage innovation and even disruptive innovation. … Necessity will drive invention.”

That raises the question as to whether the health care industry itself is capable of that invention—or if it requires outside innovators and entrepreneurs to not only help the industry conform with the health care law but become “the best of what humanity has to offer.” Case in point: the number of Wharton alumni involved in solving some of health care’s biggest problems.

PROBLEM: Keeping Patients From Winding Up Back in the Hospital

According to the Centers of Medicare and Medicaid Services, one of every five patients on Medicare who are discharged from a hospital ultimately find themselves back in the hospital within 30 days, says Eric Heil ENG05 WG12. The cause: Many of them are discharged without receiving adequate post-discharge care services, or patients don’t understand their discharge instructions. In addition to the obvious toll taken on patients’ health and wellbeing, hospital readmission in the United States is a $30 billion burden ($17.5 billion for Medicare alone). The ACA attempts to address the issue, notes Heil, and “is forcing people to change and is all about better care coordination.”

Before the ACA, hospitals benefited financially when patients were released swiftly, and also when they came back.

“In the fee-for-service model, they had a ‘head in a bed’ mentality, but this is changing pretty quickly,” Heil says.

For example, a pneumonia patient is typically allotted a length of stay of 5,4 days. If the facility discharges the patient after two days, it gets paid for a full hospitalization but doesn’t incur any costs for the third or fourth day. Moreover, the bed is available to fill with another “head.”

The Affordable Care Act now says, “No more, you’re going to start getting paid on the [health] outcomes for the patients in those beds,” Heil explains. Hospitals with excessive readmission rates now face financial penalties. The ACA’s stated goal is that by 2018, half of all reimbursement to hospitals will be based on quality data and performance.

Enter Heil’s company, RightCare Solutions, started with two classmates, Matt Tanzer W02 WG12 and Mrinal Bhasker WG12 in 2012 (the same year it won the Wharton Business Plan Competition). It aims to help hospitals identify the right patients, make better discharge decisions, optimize post-acure care delivery and track those outcomes to ensure they are reimbursed under the new legislation. (Heil gained experience in health care previously through consulting and health care finance positions.)

The RightCare software identifies every patient at admission who is expected to need programs and services when released: home health care, rehabilitation, community-based services, Meals on Wheels, transportation assistance or follow-up technologies such as phone calls or remote monitoring.HealthcarePullquote1

“We match the right patient to the right level of care, and then develop a choice list … of agencies and organizations ranked by outcomes. And we’re actually executing the referrals for case managers at our hospital partners,” Heil says.

Heil reports that the RightCare system is used in nearly 20 hospitals nationwide, across six states. The platform is connected with over 100 post-acute care agencies, and assessments were performed on over 250,000 patients last year. Data suggest that the system can reduce 30-day readmissions by up to 34 percent and lower length of stay by nearly one day, helping hospitals avoid penalties and improve efficiencies.

“What Eric and his company are doing potentially saves hospitals a lot of money and can protect them against early readmission penalties, but more importantly, the application of that technology in that business becomes a very positive factor in quality care and outcomes,” observes Sammut.

RightCare’s Penn roots run deep. The company actually sprang from Heil’s 2004 senior thesis in the Penn Engineering department. Heil’s advisor was Kathryn Bowles, a professor at the School of Nursing, and he was involved in developing algorithms and risk stratification tools for Bowles’ research on hospital readmission.

Bowles is now involved with RightCare as a co-founder and clinical advisor, and Heil states that his company’s unique value proposition stems from her “10 years of academic, validated, evidence-based insights and research.” Sammut remarks on RightCare’s beginnings as well, calling the company a “perfect storm” of “really solid clinical study and observation over a long period, a change in the environment that asked hospitals and medical staffs to find new tools and new solutions, and the emergence of an entrepreneurial team that knew what to do with it.”

PROBLEM: People Don’t Take Their PillsHealthcareFix2

Josh Stein WG12 recalls talking with his physician dad a couple of years before he came to Wharton about the major challenges of the U.S. health care system. He remembers his father answering, “People don’t take their prescribed meds.”

Most experts agree that medication non-adherence is one of the biggest problems in American health care. According to the National Institutes of Health, “Patient non-adherence to prescribed medications is associated with poor therapeutic outcomes, progression of disease and an estimated burden of billions per year in avoidable direct health care costs.”

Stein remembers jotting down his father’s observation on his “proverbial list of ideas, which every entrepreneur has,” and thinking, ‘Hey, maybe someone should put a little timer on a pill bottle so people don’t forget.’” From this root of an idea, Stein founded AdhereTech in 2011 while still at Wharton, transitioning full time to the startup after graduation in 2012. The company has evolved from its initial concept; it makes patented “smart” pill bottles that track, and improve, medication adherence in real time.

How does it work? According to Stein, the AdhereTech bottle looks and operates just like a normal pill bottle—down to the standard child-resistant cap—but contains a worldwide cellular chip; multiple sensors; and a small, rechargeable battery that holds a charge for six months. The bottle wirelessly transmits information and analysis to providers and caregivers that enable them to track whether patients are sticking to their dosage schedule. It also prompts the patient to stay on that schedule. Customizable interventions include lights, chimes, and automated phone calls and text messages.

Stein distinguishes his device from other adherence and patient monitoring devices, which generally require the patient to own a smartphone, download an app, sync the device, perform complicated setup and learn new operations. These conditions can be deterrents for patients who may already be forgetful, confused or not actively engaged in their health.

“When I say [we need] zero setup, I literally mean from the moment the patient gets our bottle, it’s already sending us data.” He adds, “You can bring it home, to work, on vacation, anywhere on the planet.”

Sammut comments that a reminder product like AdhereTech’s bottle constitutes a very good start toward combating nonadherence. However, he says, research shows that non-adherence has many possible causes other than forgetfulness, such as not understanding the medication schedule, lacking the ability to pay, losing the prescription, or feeling mistrust toward the doctor or the pharmaceutical company—or worst of all, misinformation promulgated on the Internet or other public sources.

Stein agrees that it’s a complex problem and notes one way in which AdhereTech goes beyond “I forgot.” He says his company specializes in medications for serious conditions including cancer, HIV and hepatitis C, some of which have substantial side effects, high costs or complicated dosing schedules. “Our system asks specific patients why they miss doses. Typically this occurs with a multiple-choice question sent by automated phone call or text. Our system receives patients’ responses in real-time and routes the information to a live care team,” says Stein. The care team can then call up the patient and talk through the side effects or other issues.

“One of the neat things about medication adherence,” says Stein, “is that when you improve it, it positively benefits every stakeholder in health care.” He explains that patients become healthier; insurance companies’ costs are reduced because outcomes are improved; and pharmaceutical companies increase their sales and patient engagement.

AdhereTech’s customers so far include several major pharmaceutical firms, a top insurance company, a top pharmacy company, the Mount Sinai Health System, the Walter Reed National Military Medical Center and many others. (These entities, rather than patients, bear the cost of the bottles.) Stein says, on average, patients using AdhereTech see an overall over 20 percent improvement in adherence.

PROBLEM: Missing Data in Cancer Care

Nat Turner W08 is no stranger to startups. In 2007, he and former classmate Zach Weinberg founded Invite Media, a media-buying software platform for banner ads. Invite was acquired by Google in 2010 for a reported $81 million. But, Turner told Forbes this year (he was featured in the magazine’s “30 Under 30” in health care), “Zach’s and my heart wasn’t in advertising.” It is, however, in cancer care, leading Turner and Weinberg in 2012 to found Flatiron Health, the first data platform dedicated to oncology.

Like many people, both Turner and Weinberg unfortunately have witnessed several family members and friends battle some form of cancer. But Turner’s inspirational story is a bit more unusual. His cousin Brennan Simkins was diagnosed with AML, a rare form of leukemia, at the age of 7. The boy’s treatment journey included being misdiagnosed, participating in clinical trials and undergoing four bone marrow transplants. His family had to search the country for the right care team, ultimately landing at St. Jude Children’s Research Hospital in Memphis. Thanks to his family and medical providers, says Turner, “[Brennan’s] in a fantastic place right now, all things considered.”

As Turner and Weinberg investigated the cancer landscape, they determined that although the field continues to evolve rapidly, there is inadequate technology to support it. Most cancer centers, oncologists and researchers lack basic data analysis tools that other industries use daily, they say.

“There are very few companies [like Flatiron] focused on building software to advance cancer care,” notes Turner.

Another thing that makes Flatiron unique, he says, is its founders are relative outsiders to the field, bringing “a fresh approach to problems in the oncology industry.”

The company’s stated mission is to organize the world’s oncology information and make it useful for patients, physicians, scientists and researchers. Its ultimate goal is to “power a national benchmarking and research network to transform how cancer care is delivered.”

Flatiron’s main product is the Oncology Cloud provider network, which links over 1,700 health care providers and receives over 400,000 cancer patient visits per month. According to the company, the cloud-based software suite supports the entire clinical workflow process and the delivery of patient care—from an electronic health record system to an insurance billing platform, from a patient-facing communications tool to a first-of-its kind analytics tool that gleans data from multiple systems and delivers clinical insights and business intelligence. The software suite also enables cancer centers to monitor their adherence to national cancer care guidelines and benchmark their performance.

According to Turner, Flatiron’s platform already has been taken up by a “significant, double-digit percentage” of the medical oncologist community in the U.S. Institutions purchasing access to the platform range from small private practices to large academic centers. He says he can’t release much in the way of stats at this point, but gives as an example the fact that the software helped increase enrollment in clinical trials, over a three-month period, by over 60 percent.

Flatiron has raised $130 million Series B funding, led by Google Ventures.

PROBLEM: “Incurable” DiseasesHealthcareFix

What if you could help a legally blind 8-year-old see well enough to play baseball—just by giving him a single injection? That’s what a team of researchers from Children’s Hospital of Philadelphia (CHOP) were able to do for Corey Haas, using gene therapy to partially reverse the boy’s genetic blinding condition. The remarkable clinical trial—which included 11 other children and adults who regained varying degrees of vision—was written up in 2009 in the distinguished medical journal The Lancet.

Jeffrey Marrazzo C00 ENG00 WG09, the co-founder of Spark Therapeutics, has partnered with Children’s Hospital to help continue this promising line of research. Spark is a gene therapy company, explains Marrazzo, working on developing what are potentially one-time therapies (like the injection that improved Corey Haas’ vision) for a range of genetic diseases. Marrazzo co-founded the company two years ago but has been working on the project in some capacity for five, incubating the startup within Children’s Hospital. (In exchange for the proprietary gene technology, CHOP became a co-founder and investor in the young company, maintaining a substantial ownership of over 35 percent.) Before Spark, Marrazzo helped build the first genetic testing benefit management and pharmacogenomics medicine company (Generation Health) and sold it to CVS Caremark in 2009. He also acquired an inside look at health care from the government perspective, serving as a special assistant to thenPennsylvania governor Ed Rendell from 2003 to 2007 on issues including Medicaid and long-term care.

Spark’s projects target certain diseases of the eye as well as hemophilia and conditions of the central nervous system. The diseases are monogenic, meaning caused by a single mutated gene, and are rare ones for which no treatment, or only palliative treatment, exists. Gene therapy can potentially repair or replace an individual’s defective DNA blueprint by adding the correct copy of the gene into the cells that are missing it. Marrazzo calls his company’s treatments “potentially transformative” in the sense that they not only may cure incurable diseases but do so in a single treatment session. “This is really in and of itself a major paradigm shift [in medicine],” he comments.

Spark’s gene therapy products are currently in clinical trials, including a recently completed Phase II trials, which made headlines in October by becoming the first such trial ever to safely demonstrate a clear clinical benefit in gene therapy for a genetic disease. This trial constitutes constitute the last step before applying for Food and Drug Administration approval, which the company plans for 2016. Marrazzo said the achievement is a milestone not only for people and families directly affected, but for many other diseases potentially treated this way in the future.

“We are entering a new era, which will have broad implications for all aspects of medical care,” he says. “It’s a privilege to be helping to shape the future of health care.”

PROBLEM: The Health Insurance Maze

Deductibles, co-pays, networks—the American health insurance market is overgrown with impenetrable language and Byzantine rules, leading to utter lack of transparency when it comes to the actual costs, overwhelming administrative burden for providers and frustration for patients.

“We’ve talked to so many people who are thoroughly confused about how to go about picking a health insurance plan,” says Anirudh Vemprala WG14. His startup, Picwell, is intended to help consumers make better choices and have more confidence around choosing their coverage.HealthcarePullquote2

Vemprala points out that today there are more health insurance choices than ever. Your employer may ask you to make benefits elections online; you could buy coverage on a public exchange such as, a state exchange or an insurance company’s website. Moreover, for the person sitting in front of a computer trying to parse and compare different plans, the process offers no decision support. Vemprala contrasts it with familiar e-commerce transactions such as ordering a movie on Netflix or a book on Amazon. We get plenty of advice around these fairly inconsequential things, but not for something as important as our health insurance.

Picwell uses technology, big data and predictive analytics to provide individuals with personalized and objective recommendations, according to its founder.

“We take [your] information and run that against data we have on 30 million people in America. This lets us model a trajectory of your health care spending,” says Vemprala. Armed with that intelligence, Picwell can suggest the health plan that will yield the best, most economical coverage for an individual’s predicted needs.

Picwell’s customers are not individuals but large health insurance companies and insurance exchanges, to which it charges a licensing fee. But why do these firms need an outside platform to make their products clearer to customers? Why are the plans confusing and complex in the first place?

The answer lies in the changing landscape of American health care. Vemprala explains that because people are living longer, they are using correspondingly more health services. Plus, the cost of drugs has gone up dramatically. Hence insurance companies have tried to find “creative ways of sharing the cost with the beneficiary,” designing plans that were not necessarily intuitive to consumers but that kept expenses down. The cognitive burden, says Vemprala, then fell on the customer.

But as the ACA has expanded the avenues through which people can buy coverage, “the idea that you are captive with an insurance company is eroding.” So insurers are shifting their priorities toward customer retention. The Picwell tool addresses this new business orientation, essentially allowing the companies to communicate to consumers: ‘Stay with us, and we’ll help you find a plan that works.’

Vemprala co-founded Picwell last year with three Penn faculty members: Tom Baker, a professor of law and health sciences; Robert Town, a professor of health care management at Wharton; and Jonathan Kolstad, formerly of Wharton and now at the Haas School of Business. Having studied consumer dynamics in the health marketplace with these experts, he notes, “What’s amazing is that there are literally billions of dollars being wasted simply because people pick the wrong plan.”

PROBLEM: No Digital Present

Outside efforts to reform health care can come in the form of investments as well, not just entrepreneurial vision.

As an angel investor, Enmi Kendall WG05 had mostly focused on general technology and consumer products. She also had a glancing interest in the digital health care arena. But that interest suddenly took on personal meaning when in March 2013, in her third trimester of pregnancy with her second child, she was involved in a car accident.

“Thankfully, everyone was OK,” she adds, but preterm labor was set off, and after giving birth Kendall found that she was suffering from “a whole host of nerve pain and dysfunction … that led me on a pretty protracted diagnostic odyssey for about 14 to 16 months.”

She ended up consulting nearly 40 different providers. In doing so she experienced, as never before, some of the frustrating aspects of American health care: being required to fill out endless patient information forms, having to laboriously recount the accident and her medical history to each new provider—which cut into the precious few minutes that one is allotted with a doctor to begin with—and becoming well aware that there was little communication from one medical office to the next. She was really struck by “the lack of interoperability among systems and the lack of rational patient intake processes.”

Kendall says that health care is deficient in proven data technologies that have been applied in “pretty much every other vertical.” This deficiency demands of patients that they be “far more proactive and ‘project manager-y,’ in a way that by definition—when you’re incapacitated and unwell—you’re the least equipped to behave.” She realized, too, how much worse the situation would be for patients with impaired mental faculties or very limited time and financial resources.

Kendall asserts that the patient record should travel with the patient, not sit siloed in various doctor’s offices and medical facilities. Some electronic medical records systems do exist, such as Epic and Cerner, but the systems don’t talk to each other. “It’s as if Microsoft and Apple were still duking it out and not making documents interoperable,” she comments.

Wanting to further explore investment opportunities in digital health, but needing additional health care expertise, Kendall reached out to classmate Anya Schiess WG05. Schiess was then a vice president of strategy and business development at Cardinal Health. Both had previous venture capital experience—Kendall in general tech before Wharton, and Schiess in health care right after. In February 2015, the two officially launched Healthy Ventures, a seed-stage VC fund focused on digital health startups.

Schiess notes that Healthy Ventures is looking beyond just having “a couple of companies make some money” to try to fund core infrastructural businesses. “Enmi and I spend a lot of our time … thinking about, what is the infrastructure that needs to be in place for digital health to work.” What about the question of privacy: Doesn’t that preclude having a universal database? “Having a ubiquitous system to transfer medical records doesn’t mean you can’t have one that has all the privacy safeguards in place,” says Schiess. “I can use my ATM card anywhere … and I don’t fear that my bank account details are going to be leaked or stolen. The same thing should be true for health care.”

Infrastructure companies that Schiess and Kendall are investing in include Akido Labs, a company that integrates a medical provider’s software with any hospital health record system and securely provides access to health data; SolveBio, a centralized search engine for human genomic data; and One Codex, a database for genetic information for microbial organisms.

Some of Healthy Ventures’ other investments fall under what Kendall calls “ad tech meets health care.” Wellthie, founded by Sally Poblete WG00, provides health insurance companies with a cloud-based solution for marketing and selling their products effectively to consumers. HealthCrowd, whose CTO is Clive Wu WG11, helps health plans manage and coordinate their digital communications to members to optimize the customer relationship.

“Whenever you see a market that’s being inverted, I think that’s a really right time to go in. The shift from a fee-for-service or just compensation-based paradigm, to one that’s much more about quality outcomes and value-based compensation… is now actually being [formalized] and implemented—across systems, payers and providers,” Kendall comments.

Or as Heil puts it: “It’s a broken system, so if you want to make a career, there’s plenty of opportunities to solve problems in health care.”

—Carole Bernstein is a freelance writer based in Philadelphia who has covered health and business topics for a number of publications.