---
description: Software makes healthcare scalable but atoms-to-bits conversion points are the defensible chokepoint because they generate irreplaceable data and compound patient trust through physical touchpoints
type: claim
domain: health
created: 2026-02-21
confidence: likely
source: "Zachary Werner conversation, Devoted Health Series G analysis, Function Health strategy (February 2026)"
tradition: "Teleological Investing, attractor state analysis"
---

# healthcares defensible layer is where atoms become bits because physical-to-digital conversion generates the data that powers AI care while building patient trust that software alone cannot create

The healthcare attractor state is proactive, preventative, consumer-centric, AI-enabled care. Within that attractor, software makes it scalable but atoms make it defensible. The defensible layer is the physical-to-digital conversion infrastructure where biological reality becomes structured data.

The atoms-to-bits conversion points in healthcare include:
- **Lab testing** (blood, urine, tissue → structured data). Function Health's play: 100+ tests for $499/year, relentlessly driving down conversion cost
- **Imaging** (body → data). Function Health's AI-powered 22-minute MRI scans
- **Wearables** (continuous physiology → data stream). Oura, WHOOP, CGMs as always-on conversion devices
- **Clinical encounters** (symptoms, exam findings → structured records). Devoted's Orinoco platform converts every interaction into training data
- **Genomics** (DNA → actionable data)

Each conversion point has different economics, but the strategic logic is identical: whoever drives down conversion cost and owns the customer experience at that point controls the data stream that feeds everything downstream. This is the Amazon playbook applied to healthcare. Bezos never framed it as "controlling logistics chokepoints." He framed it as relentless consumer focus, driving down costs, improving the customer experience. The infrastructure moat was a consequence of doing right by the consumer, not the other way around.

Software is getting easier. AI capabilities are commoditizing. You cannot build a durable moat on the software layer alone. But physical-to-digital conversion infrastructure requires labs, imaging centers, wearable hardware, clinical facilities, regulatory approvals, and most critically, patient trust. None of that can be cloned with a git repository. Since [[value in industry transitions accrues to bottleneck positions in the emerging architecture not to pioneers or to the largest incumbents]], atoms-to-bits conversion is the bottleneck position in healthcare's emerging architecture.

The trust dimension is as important as the data dimension. Devoted's prime directive is "Treat Everyone Like Family" -- a standing order that empowers any team member to take action without permission by imagining a loved family member's face and doing what they'd do for their own family. Function Health's brand has cultivated deep consumer trust. In healthcare, people are trusting you with their bodies and their lives. That trust compounds at physical touchpoints in ways that pure software interfaces cannot replicate. Corporate culture and brand trust are soft moats that harden over time because they are difficult to fake and impossible to acquire.

This framing explains Zachary Werner's investment strategy. Since [[Devoted Health proves that optimizing for member health outcomes is more profitable than extracting from them]], Devoted controls the clinical encounter conversion point. Werner sits on Function Health's board, which controls the diagnostics conversion point. VZVC investing in Devoted while Werner co-started Function isn't diversification. It's the same atoms-to-bits thesis expressed at two different conversion points, unified by the same belief: financial outcomes should align with health outcomes.

The three-layer model for the healthcare attractor state:
1. **Purpose layer** -- Consumer-centric care. Treat everyone like family. Build trust that compounds.
2. **Scale layer** -- Software makes it scalable. AI diagnostics, virtual care coordination, continuous optimization.
3. **Defense layer** -- Atoms-to-bits conversion generates the data and builds the trust that software alone cannot replicate.

Since [[continuous health monitoring is converging on a multi-layer sensor stack of ambient wearables periodic patches and environmental sensors processed through AI middleware]], the wearable sensor stack represents another tier of atoms-to-bits conversion infrastructure. Since [[Devoteds atoms-plus-bits moat combines physical care delivery with AI software creating defensibility that pure technology or pure healthcare companies cannot replicate]], Devoted is the fullest expression of this thesis at the care delivery level.

---

Relevant Notes:
- [[value in industry transitions accrues to bottleneck positions in the emerging architecture not to pioneers or to the largest incumbents]] -- atoms-to-bits conversion IS the bottleneck position in healthcare's emerging architecture
- [[Devoted Health proves that optimizing for member health outcomes is more profitable than extracting from them]] -- the alignment between health outcomes and financial outcomes is what makes the consumer-centric strategy self-reinforcing
- [[Devoteds atoms-plus-bits moat combines physical care delivery with AI software creating defensibility that pure technology or pure healthcare companies cannot replicate]] -- Devoted is the fullest expression of the atoms-to-bits thesis at the care delivery level
- [[continuous health monitoring is converging on a multi-layer sensor stack of ambient wearables periodic patches and environmental sensors processed through AI middleware]] -- the wearable sensor stack is another tier of atoms-to-bits conversion infrastructure
- [[competitive advantage must be actively deepened through isolating mechanisms because advantage that is not reinforced erodes]] -- trust and data flywheel are the isolating mechanisms that deepen the atoms-to-bits moat over time
- [[proxy inertia is the most reliable predictor of incumbent failure because current profitability rationally discourages pursuit of viable futures]] -- incumbents won't drive down diagnostic costs because current margins are profitable
- [[prescription digital therapeutics failed as a business model because FDA clearance creates regulatory cost without the pricing power that justifies it for near-zero marginal cost software]] -- pure software plays in healthcare fail precisely because the defensible layer is atoms, not bits

Topics:
- [[health and wellness]]
- [[attractor dynamics]]