Watch out Silicon Valley, Boston and New York, Austin, Texas is on track to become the next hub for digital health startups.

Many of the city’s entrepreneurs are applying their knowledge of consumer technology to health care, which still relies on outdated IT systems. Others are finding ways to improve access to care in the most rural and underserved parts of Texas.

“Three years ago I don’t know if I could name one digital health startup in Austin,” said Joshua Baer, executive director of Capital Factory, an accelerator program for startups. Baer said he’s now experiencing a high volume of applications to his program from companies in the space.

“We definitely have a scene now.”

We spoke with local investors and learned about a small group of promising health-tech startups. We decided to visit Chiron Health, due to the swelling interest in tools that hospitals and health systems can use to virtually connect with patients.

True to startup culture and their mission of promoting health, Chiron includes a ping pong table at its Austin-based office. (courtesy Chiron Health) — True to startup culture and their mission of promoting health, Chiron includes a Ping-Pong table at its Austin-based office. (courtesy Chiron Health)

Chiron, one of the recent graduates of Baer’s program, is experiencing some early success with its web-based video chat service for doctors. Since it launched its demo at Capital Factory in 2014, the company has sold its service to about 20 small medical practices, according to the startup’s chief executive officer Andrew O’Hara.

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“We want to help patients with chronic conditions get easier access to care,” said O’Hara. “This is especially a problem in Texas.” In the most rural parts of Texas, patients often travel long distances to see a doctor.

Chiron Health’s target customer is a physician working in a small practice in Texas or in a neighboring state. Most care providers use the service to follow-up with a patient after they’ve left the office and deliver a lab result, for instance.

I paid O’Hara a visit to his office, a few blocks east of downtown Austin on a temperate morning during the South by Southwest Music and Media Conference. The space resembled any small business with the exception of the Ping-Pong table, a tech startup staple. O’Hara said he’s hired just over a dozen people since he formed the company in 2013 and raised just over $1 million in capital.

The company is focused on connecting with health insurance software and the physicians’ scheduling system. But O’Hara hopes Chiron will integrate with patients’ glucometers, heart rate monitors and other health-tracking devices. Doctors could receive notifications or alerts if a patient is exhibiting any worrying symptoms.

O’Hara believes that Chiron and other video-chat services will hit the mainstream market in the next few years. For one thing, it offers an additional income stream for doctors.

Prior to using Chiron Health, O’Hara said many physicians would set aside an afternoon to follow-up with patients via phone. They don’t typically get paid for these calls, as there’s no billing or insurance code that covers them.

But Texas is one of over 20 states that now require private insurers to cover telehealth services like Chiron Health, meaning the remote delivery of care using a secure telecommunications technology. Medicare does pay doctors for virtual conferencing with patients, but only in a limited set of circumstances.

“Telemedicine has been talked about for the past 20 years, but I feel that its time is now,” said O’Hara. He also pointed to such policy developments as the Affordable Care Act, which added 30 million patients to an already costly and overloaded health care system. Telemedicine could help doctors see a far greater number of patients each day, said O’Hara.

And patients are proving receptive to the idea, particularly those that have grown up glued to smartphones and laptops.

Across the U.S., dozens of telemedicine startups are emerging to take advantage of the friendly regulatory environment. Among the best known are Doctor on Demand, a startup that was founded by television personality Dr. Phil McGraw to offer virtual doctors’ appointments for a $40 flat flee, and MDLive, a similar service that is backed by the former CEO of Apple, John Sculley.

Why Austin?

Prior to starting Chiron, O’Hara worked as a stock analyst at an investment bank in Chicago, specializing in health IT. He noticed a lack of telemedicine services in outpatient settings, like primary care.

He chose to relocate to Austin to start the company to take advantage of the affordability and new sources of capital.

“Austin has a great entrepreneurship and investment scene, and the cost of living is cheap,” he said. In Silicon Valley and San Francisco, entrepreneurs need to raise vast sums to afford the sky-high costs of renting commercial real estate and hiring talent.

O’Hara also pointed to the “access problem” in Texas, meaning that those in rural areas often have to travel a long way to see a doctor in person. And rates of chronic disease are on the rise.

According to the Centers for Disease Control and Prevention’s most recent figures from 2007, 66 percent of adults in Texas are obese or overweight, and over 50 percent of adults do not regularly engage in even moderate physical activity. This obesity epidemic has led to rising rates of chronic disease: One report predicts that the number of adult Texans with diabetes is expected to quadruple over the next three decades.

“Investors have realized that one of the surest and fastest ways to improve healthcare quality without ballooning costs is through all varieties of digital health and healthcare IT,” said Jim Graham, a former health care venture capitalist with Santé Ventures, who now works as a consultant for Life Sciences startups.

“The [digital health] space has exploded in the last three years”

Graham pointed to some new additions to Austin’s health care ecosystem:

The Texas-based computer technology company, Dell’s foundation recently invested $50 million to establish a new medical school at the University of Texas at Austin, which is welcoming its first class of students in 2016. And construction is underway for the Seton Medical Center at the University of Texas, a new teaching hospital.

Both schools could serve as an incubator of sorts to test new health apps and devices, similarly to Stanford University and UCSF in the Bay Area.

But, there are some challenges to launching a startup in Austin.

Austin’s entrepreneurs also face tough competition when hiring technical talent, particularly those with a few years of experience. O’Hara has recruited three software engineers, but is perpetually on the hunt for more.

Another stumbling block for early and mid-stage startups: Venture funding is still in short supply. According to Rock Health, a San Francisco-based seed fund, only nine digital health startups raised over $2 million in funding between 2012 and 2014.

“The quantity and quality of startups in Austin could probably support twice the amount of venture capital funding that we have here,” said O’Hara.

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Our story on Austin based Chiron Health kicks off a new, occasional series. Future of You Editor, Christina Farr, will pay a visit to an up-and-coming health-technology startup once a month. Reach out to her at cfarr@kqed.org to make a suggestion for a future profile.

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Digital Health Explodes in Austin: A Visit to Chiron Health