Germany's Healthcare Chaos and Opportunity, Microsoft’s App Store Case

Germany is the largest EU economy and that is true for the healthcare market as well, where we spend the most among all the member states - around 12%, compared to the 10% EU average.

Healthcare regulation in Germany is especially complex, as there are both public and private insurance paths, both of which are decentralised (there are a total of 130 health funds which compete with each other), and then there are the 16 states, each with their own rules and price tiers. The in-patient and out-patient care have different reimbursement rules and codes, and a hybrid approach is going to be introduced soon as well. The software used is often 20+ years old and so are the computers. Different data is sent to the ePA (EHR) for in-patient and for out-patient care and new decisions require the approval of multiple committees. At the same time, there are multiple reforms in discussion/adoption (KHZG, KHVVG, GKV-Beitragssatzstabilisierungsgesetz, GeDIG) and no body really knows what tomorrow will look like.

This immense complexity and slow speed is what kept for a long time many innovations away. On one hand few startups had the funding to navigate that map, wait to close the deal or implement a highly custom integration. And on the other, the established HIS incumbents had no incentive to enable those integrations.

But now a paradigm shift is about to kick in, enabled by three separate forces.

Paradigm Shift

First, hospital staff and budgets were always under pressure, but reform cuts are threatening the viability of the system. Second, SAP I-SH is retiring next year, bringing down Oracle’s i.s.h.med with it, leaving an estimated 20% of the German HIS market without a replacement. And third is the arrival of LLMs with their high usefulness and low technical requirements, which led to their almost immediate adoption even when it was not allowed, based on the regulatory requirements.

Those three factors - two of which put pressure on the system, while the third one releases it - are the reason I think the market is changing in a meaningful way. Hospitals knew about the SAP retirement since 2022 but so far few have a change plan (2-3 years) or funding (200m EUR) in place. So that 20% of the market is now under acute pressure from two sides: budget cuts and no running system to easily/cheaply switch to, with time running out. The only viable release button: relatively cheap LLMs.

The Case for Microsoft’s Healthcare App Store

I pitched the idea about agentic interfaces becoming the main place where clinicians workflow and how that means that most of the clinical applications will disappear in the backend, losing some of their previous brand power and differentiation. This was the bear case. But there is also a bull case where the agentic interface not only connects with the rest of the stack, but also serves as a distribution channel for new apps to enter. 

And this is where Microsoft has a considerable advantage as the only major cloud provider that is both GDPR compliant and actually in wider use in German hospitals, and that also happens to offer all the leading LLMs within Azure. 

The same complexity that was serving as a moat against rivals to HIS incumbents like SAP, Oracle and Dedalus, can now be Microsoft's moat to do just the opposite - invite competition, give it distribution, make sure it is compliant and collect a fee for it. It is what Apple does with the App Store and it created the mobile app market as we take for granted today. Microsoft notably missed the mobile app era, but they might have just the right timing and position to take advantage of the LLM era, at least in healthcare.