Why Healthspot, the CES Remote Healthcare Disruptor, Went Bankrupt

By Gu Beini

Healthspot’s walk-in telemedicine kiosk attracted significant attention for its innovative product design when it made its debut at the 2013 Consumer Electronics Show (CES). It was covered by major business and technology media outlets, including Wired, Forbes, InformationWeek, Bloomberg Businessweek, and TechCrunch. Teladoc, the first online consultation service company to go public, immediately recognized Healthspot’s potential that year and eagerly entered into a partnership with it. The Cleveland Clinic and Mayo Clinic, two of the most innovative medical institutions in the United States, also adopted Healthspot for pilot programs. In late 2014, Healthspot secured an investment of over $18.3 million from Xerox. Its founder, Steve Cashman, once confidently stated, “Our product is disruptive.” However, in January 2016, Healthspot announced bankruptcy liquidation and ceased operations.Healthspot is truly refreshing in the realm of remote diagnosis.Unlike many unremarkable startup projects that blindly followed trends during the bubble and ultimately failed to keep pace, Healthspot is genuinely innovative. Its designed telemedicine kiosk has been dubbed “A Hospital In A Box” by TechCrunch. This capsule-shaped booth provides patients with private telemedicine services. Patients connect via high-definition video conferencing with board-certified physicians for real-time consultations and, when necessary, receive electronic prescriptions. The cornerstone of its offering, however, lies in its remote diagnostic tools.

Fig. Healthspot medical kiosk with privacy-focused design

Healthspot offers superior functionality compared to on-demand telemedicine services accessed via mobile apps or PCs, as it addresses the critical challenge of conducting clinical examinations in remote care settings. This kiosk-style clinic is equipped with a comprehensive suite of digital diagnostic tools that enable physicians to perform various remote assessments. It includes devices such as stethoscopes, dermatoscopes, thermometers, pulse oximeters, blood pressure cuffs, and even otoscopes. Consequently, occupying just 40 square feet (approximately 3.7 square meters), it delivers the core functions of a standard clinic: consulting with physicians, undergoing routine examinations, and obtaining prescriptions. Furthermore, Healthspot typically installs its medical kiosks within large chain pharmacies, allowing patients to fill their prescriptions immediately on-site. This creates a complete service workflow, aligning with the widely recognized concept of a “closed loop.” So why did it fail?

Figure. Patient undergoing remote diagnosis using a dermal vascular device inside a Healthspot medical kiosk

Healthspot is both a medical device manufacturer and an internet company operating a telemedicine service platform. We can analyze the reasons for Healthspot’s failure from the perspectives of these two distinct roles.As a medical device manufacturer: The value proposition is not irreplaceable, and relying on a small number of large customers poses significant risks.Healthspot plans to sell its “box hospitals” to relevant stakeholders, particularly large pharmacy chains.Since 2010, in-store clinics have gradually gained popularity in the United States. Retail giants have begun establishing these clinics, which offer low-cost, appointment-free outpatient services that quickly address consumers’ common medical needs. Traditional in-store clinics require dedicated space, a small number of medical staff, and essential clinical diagnostic tools. Retail giants such as Walmart and Target have opened in-store clinics. Moreover, such clinics have become a standard service offering within major U.S. pharmacy chains—the top three players, CVS Health, Walgreens, and Rite Aid, all operate in-store clinics.Healthspot was founded in 2010. The company’s original intention was for its product to replace traditional in-store clinics, thereby further reducing operational costs. According to data obtained by VCBeat, the cost of building an in-store clinic under the traditional model can reach as high as $250,000. In contrast, Healthspot charges only a $15,000 initial installation fee. Retailers then pay Healthspot a monthly maintenance fee of $950, plus a $10 technology support fee per consultation to cover costs related to privacy, data security, cybersecurity, and technical services. For remote diagnosis services conducted through Healthspot kiosks, patients pay $70–$80 per visit, from which Healthspot takes $18–$24.The $250,000 cost of self-building an in-store clinic can be divided into three parts: 1) site and renovation costs; 2) commonly used clinical diagnostic tools; and 3) labor costs for configuring a small number of medical staff. The first category is highly flexible, with significant differences between luxury and basic setups, and chain stores may have other cost-saving options. The second category can be replaced by Healthspot, but the relatively low cost of the tools themselves is not decisive. The key to reducing the third category lies in adopting telemedicine; even adding an internet-connected computer can facilitate this, although neither the new nor the old model can completely eliminate the need for medical personnel. Therefore, while Healthspot can reduce the self-construction costs of in-store clinics, its solution is not irreplaceable. Healthspot essentially integrates space and tools into a sleek kiosk, which appears more sophisticated. However, after adopting Healthspot, retailers must still pay monthly operation and maintenance service fees, and approximately 30% of each service revenue must be shared with Healthspot. This places greater pressure on achieving revenue balance for in-store clinics, causing current customers to hesitate.Moreover, Healthspot’s target customers are not ordinary clients but retail giants. Such orders typically involve not just one or two units, but installations across at least dozens of stores in an entire region. For a novel product, larger orders are often harder to secure. Although Healthspot’s potential customer base is clearly defined, it also means the number of customers is very limited, leading to slow business progress. After launching its product in early 2013, Healthspot did not secure a key client in any meaningful sense until November 2014, when Rite Aid installed its kiosks in the first batch of 25 stores in Ohio. This fell far short of Healthspot’s original plan to install 100–200 medical kiosks by the end of 2014.Furthermore, Healthspot has been rather unfortunate. Less than a year after signing a cooperation agreement with Rite Aid, the third-largest player, Rite Aid, was acquired by the second-largest, Walgreens. Walgreens implemented a new in-store clinic strategy, choosing to outsource services to local healthcare systems. Consequently, the orders promised to Healthspot by Rite Aid vanished. This illustrates the risks of relying heavily on a few major clients.Healthspot also hopes its equipment will be adopted by employee benefits departments of large corporations, long-term care facilities, and emergency departments. However, few of these target customers have been willing to bear the associated costs.As an internet company: excessively high marginal costs, failing to rapidly achieve economies of scaleHealthspot’s mindset leans more toward that of a traditional medical device company; as a telemedicine service platform, its development trajectory entirely lacks the thinking characteristic of internet companies.High hardware and maintenance costs.Selling equipment to retail stores contradicts the goal of rapidly achieving large-scale installation. From a revenue structure perspective, HealthSpot aims to earn a commission of approximately 30% per consultation. With over 300 million Americans visiting outpatient clinics an average of three times per year, capturing even a small slice of this market would be sufficient for HealthSpot. However, the most critical prerequisite for realizing this revenue is the number of HealthSpot medical kiosks installed. HealthSpot pinned its hopes on partnerships with chain pharmacies, expecting them to purchase the equipment and pay maintenance fees. This expectation created a significant barrier to securing cooperation from chain pharmacies. Without the ability to rapidly increase equipment installations, it was impossible to compete with other primary care providers for users. By the time of liquidation, HealthSpot had installed only 54 units over the past three years, generating total sales of $1.1 million.However, we cannot blame HealthSpot for being stingy; unlike other internet companies that operate with asset-light models, HealthSpot could not scale easily. Considerable effort was invested in the aesthetic and functional design of the HealthSpot medical kiosk. Many industry insiders praised its refined quality, though this was achieved through substantial financial investment. The device integrates multiple software and hardware systems, including various remote digital diagnostic tools, a remote video conferencing system, and a digital payment system, all housed within an enclosed booth designed to protect patient privacy. VCBeat Research Institute did not find specific data on manufacturing costs, but it is evident that both the upfront R&D investment and production costs were considerable. In HealthSpot’s view, an installation price of $15,000 per unit was already a rock-bottom figure. Furthermore, the equipment itself incurs significant repair and maintenance expenses, keeping the marginal cost of operating each HealthSpot kiosk persistently high.The use cases are too limited.Due to the relatively complex diagnostic functions configured in the Healthspot medical kiosk, its usage scenarios are subject to stricter conditions. The Healthspot kiosk is not fully self-service; a dedicated workstation for healthcare assistants was incorporated into the design. Before remote diagnosis begins, a healthcare assistant provides guidance to the user and facilitates the process. Afterward, the assistant disinfects and organizes the kiosk to ensure safe use by the next patient. In other words, Healthspot cannot operate without on-site medical personnel. Consequently, it cannot be installed arbitrarily in any location; it must be staffed with on-site healthcare assistants who are either employed through partnerships or directly by the operator.Core demands were not effectively highlighted.From the perspective of patient experience, compared with telemedicine services accessed directly via mobile apps or PCs, Healthspot requires patients to visit a nearby kiosk for consultations. Its limited installation base restricts its coverage. If convenience is the core demand, the Healthspot medical kiosk model clearly cannot compete with online consultation services that offer anytime, anywhere connectivity. Especially over the past three years, telemedicine services in the United States have grown rapidly, with a large number of consumers accepting this service model.Compared with traditional in-store clinics that allow face-to-face communication with doctors, Healthspot is at best an equivalent substitute, failing to deliver a breakthrough experience or other differentiated value propositions. For instance, Healthspot has not achieved lower pricing (Walmart’s in-store clinics charge only $40 per visit). As there are models superior to Healthspot in terms of both convenience and affordability, patients do not have a particular preference for visiting Healthspot medical kiosks. In other words, if Healthspot had significantly increased its installation volume to ensure accessibility within short distances and offered services at lower prices, its fate might have been different.It is particularly important to note that,The collapse of Healthspot does not signal the decline of in-store walk-in clinics.For instance, CVS Health, the retail pharmacy giant, continues to expand through its MinuteClinic brand, acquiring in-store clinics at other retailers to broaden its network while strengthening partnerships with internet platforms to deepen the integration of telehealth services with physical locations. Walgreens, the acquirer of Rite Aid, has not abandoned its in-store clinic business either; instead, it is seeking more cost-effective operational models.Overwhelmed by Debt, with Little Room for ManeuverJudging from Healthspot’s financing history, the company appears to have fallen victim to the so-called “Series B curse.” Healthspot raised a total of over $40 million, but approximately 50% of this amount consisted of loans, which were concentrated in the second half of 2014 and thereafter.From its founding in 2010 until the official product launch in early 2013, Healthspot secured more than $4 million in angel investment. In May 2014, it completed its Series A financing round with an $18.3 million investment from Xerox Corporate Venture Capital. However, following this round, Healthspot failed to achieve any breakthrough in product shipments, leaving it without a solid basis for further equity fundraising. In November 2014 and January 2015, the company was forced to raise capital through debt, accumulating over $20 million in liabilities. It had hoped that a strategic partnership with Rite Aid would lead to the installation of hundreds of units, helping it weather the crisis. Yet, due to significant upheaval at Rite Aid, these plans fell through and receivables could not be collected. At the time of liquidation, there were still 137 brand-new medical kiosks remaining in its warehouse. Burdened by substantial debt and with little room to maneuver, Healthspot ultimately filed for bankruptcy.PostscriptIn the very month Healthspot declared bankruptcy, news broke that higi, another startup founded in 2012 that also operates self-service medical kiosks, had secured a substantial $40 million in funding. Such is the harsh reality. Higi’s medical kiosks appear to involve relatively modest technology; they are capable of performing only a few of the most routine measurements, offering far fewer features than Healthspot’s comprehensive suite, and do not even provide remote connectivity to physicians.Prior to this financing round, Higi maintained a very low profile, receiving little coverage from mainstream media and not even publicly announcing its previous funding rounds. However, as we turn our attention to Higi in light of this latest financing news, the company has already installed nearly 10,000 units, accumulated 30 million registered users, and achieved 1 million weekly engagements, with one in ten Americans reporting having used Higi.Higi shares a key strategic partner, Rite Aid, with HealthSpot, yet their business models are vastly different. What lies behind this contrast? Stay tuned for our next installment: [Business Model Analysis] Low Technical Barrier Is No Obstacle: How to Build Data Competitiveness Through This Approach