In the investment world, trends are critical weathervanes. They help determine which way the winds are blowing. In the digital health market, new trends reveal future opportunities for innovators and shape healthcare investors’ strategies for venture capital companies.
In 2020, digital health ventures saw a year like no other. Driven by the COVID-19 pandemic, funding rose by a remarkable 72% from a record-high set in 2018, amounting to $14 billion invested across 440 deals. Telemedicine alone shattered funding records with $4.3 billion in 2020. Total funding for digital health hit an all-time high of $26.5 billion. 2021 may well achieve another all-time record.
It’s been a season in healthcare that will surely have long-lasting effects. With the dramatic acceleration of telehealth and its potential use beyond anything we’ve seen in the past, it is now estimated that up to $250 billion of current total U.S. healthcare spend could be virtualized. While this shift is not inevitable, it will require improvements in information exchange, and broader access and integration of technology.
With the dust still settling, healthcare investment market research and fund strategizing are in full force—with much of it focused on understanding and leveraging a market that is both evolutionary and revolutionary.
Industry trends are a two-edged sword, sometimes driving sustainable innovations but also capable of creating bubbles of hype that burst. Venture capital company Rock Health warns that a growing market and rush of interest can signal over eagerness and even a bubble, if accompanied by conditions like unjustifiably high valuations, a flood of new entrants and a poor exit market.
But after early signs of that in 2020, on the whole, Rock Health sees digital health as a maturing market with continued activity from repeat healthcare investors making up 60% of total investors. Nearly two out of three are veteran healthcare investors who understand the opportunities and risks. The significant growth in venture investment in 2020 was largely driven by these veterans rather than new entrants chasing a trend.
Healthcare investors like Aaron Martin, executive vice president and chief digital officer at Providence, believe COVID-19 may have upended the healthcare system and broader economy, but it didn’t create many new trends in healthcare—it mainly accelerated existing trends.
Lynne Chou O’Keefe of Define Ventures agrees. “For many people in this space, they invested in trend lines this year that were already a part of their strategy. It’s like we’ve seen five years of natural evolution turn into three quarters of revolution. Many people were already believers and investors in digital health, and to see fruits of the labor is really exciting.”
Healthcare has been historically slow to adopt change, but the disruption of 2020 challenged that stance as never before. “COVID-19 injected a strong sense of urgency across the healthcare ecosystem, leading to dramatic change in a short period of time,” according to Matty Francis, principal in strategic investing with Healthbox, a HIMSS Innovation Company. “It laid bare that healthcare organizations are slow to move, not because they lacked the capability to move quickly, but rather because there was never a sufficient incentive or catalyst to move quickly.”
Around the world, few could miss the wake-up call that healthcare intersects every part of life, including work, schools, leisure and entertainment. Companies that had only focused on employee wellness during open enrollment are realizing that the health of their employees is vital. In an environment where launching healthcare solutions is becoming easier, healthcare investors and innovators expect to see the number of deals and the total invested capital to set more new records.
“COVID-19 supercharged funding activity in digital health in 2020. Ten digital health categories had their best year with record funding amounts. It was also the biggest year for IPOs [initial public offering] with six digital health companies raising over $6 billion. We could see a lot more companies going public in 2021 if the current IPO and SPAC [special-purpose acquisition company] boom continues,” said Raj Prabhu, chief executive officer of Mercom Capital Group. “The pandemic mainstreamed the consumer side of digital health technologies in less than a year. Digital health products that were a novelty a year or two ago are now a necessity.”
We gathered insights from leaders in digital health innovation and venture capital to assess the most significant investing trends in healthcare and COVID-19’s lasting influence.
In a time when patients were not able to see physicians face-to-face due to the infectious nature of COVID-19, many people experienced their first-ever virtual visit. Telemedicine visits skyrocketed from only 1-2% of ambulatory care visits pre-pandemic to 30% of all visits. The sleeping giant awoke, with consumer willingness to use telehealth increasing to 66%. Health systems reported that as much as 40% of primary care visits could be handled virtually. Investment in telemedicine solutions nearly tripled between 2019 and 2020, growing from $1.1 billion to $3.1 billion.
“COVID-19 effectively funded the trial and adoption of digital health/telemedicine technology,” reflected Martin. “Tens of millions of patients were forced by circumstance and safety to sample this new digital approach to healthcare and they liked it. This advantages disruptors because they don’t need to spend the marketing dollars to get patients into the market. Health systems and plans need to quickly make investments in digital or be left behind.”
Beyond higher utilization, investments in telemedicine are being driven by changes in reimbursement policy from both government and private payers. It quickly became clear that telehealth can drive efficiency and improve cost, while allowing expanded access to care and reduced patient demand on facilities. Preventative care can also reduce avoidable readmissions to the emergency department—by engaging patients more frequently at a lower cost.
Looking to the future, industry experts say the next challenge is in figuring out truly blended care, including seamless triage and referrals between remote and in-person care to help improve the overall care journey. Indu Subaiya, MD, the co-founder and president of Catalyst at Health 2.0 and a senior advisor to HIMSS, sees the greatest opportunity in deepening our understanding of the different modalities of telemedicine—and in moving beyond isolated video visits by integrating telemedicine into a digital operating system that matches care to specific needs and optimizes access to care. “How are we extending telemedicine with add-on technologies that will enable an actual physical exam to be done virtually? I’m also interested in the continuum of telemedicine into the home, with pharmacy at home, testing at home and more.”
Digital health tools and wearables will become even more important components in monitoring patients, providing support and tracking behaviors—right from home. The emergence of digital biomarkers has the potential to support remote diagnostics and further expand remote patient monitoring (RPM) use cases.
Total funding for RPM solutions more than doubled in 2020—from $417 million to $941 million. Like telemedicine, this growth was supported by changes in reimbursement models. Healthcare investors believe RPM tools for chronic care management will ramp up in 2021. As value-based care continues to gather steam, these tools help expand physician access to patient data and enable preventative care models. Proven during COVID-19, access to longitudinal patient data can help with patient triage to downstream services and enable more proactive care.
In these unprecedented times, the investment has risen in tracking, reporting and accessing care for mental health. In the United States, 50 million people suffer from mental health issues and that number has grown due to the ongoing pandemic, with its anxiety, financial stress and isolation. The need for help has spiked among consumers and in the healthcare workforce, with burnout and post-traumatic stress disorder. Hope is seen in technology, with funding for mental health solutions increasing from $599 million to $1.4 billion in 2020, driven by investments from the financial community as well as governments, health systems and education.
Bob Kocher and Bryan Roberts of Venrock see the impact and the opportunity in greater access to behavioral healthcare and tech-enabled care for more complex mental health needs. They noted that an increase in access and the use of mental health resources can potentially result in lower employee turnover as well as overall lower medical care costs.
Patients expect the kind of access to healthcare products and services already common in the tech, retail and financial industries. They want a seamless digital experience for scheduling appointments, requesting medications and receiving follow-up communication.
To create that patient journey, the digital health industry is challenged to seamlessly integrate data between electronic medical records and technology platforms. Healthcare investors are watching for solutions that combine customer experience lessons from tech leaders with effective healthcare delivery.
Healthcare investors and innovators are excited about adding additional value to diagnostic technology. “That early knowledge of a disease or change in health status needs to automatically trigger the next appropriate action,” said Francis. “If I need a recent negative COVID-19 result or proof of vaccination to board a flight or send my child to school, how can I effectively get that information to the appropriate third parties?”
Testing and tracking technologies trended high in 2020, with the need to manage large-scale distribution and testing for COVID-19. This stimulated a burst of innovative solutions for triage and tracking large populations of patients and community members. These platforms can pivot or expand to other conditions and provide infrastructure for future population-level tracking.
The pandemic and the response in the United States exposed fault lines within the healthcare industry when it comes to underserved populations. Digital health companies are starting to address previously unmet needs for underserved populations as social consciousness shifts. Looking ahead, healthcare investors are interested in future solutions that add risk-sharing models to align outcomes, especially related to Medicare and Medicaid populations.
“Health systems will have to start to think differently about their areas of responsibility and jurisdiction… with more of this public health lens,” said Dr. Subaiya. “Now we have to think about the community at large, or the city at large, or the state at large. These shifting boundaries for how you define a market will make things interesting for health plans and health systems. In an era of communicable disease, it’s not just about the member or patient, it’s their whole household, where they live, where they work. So that’s a big implication for markets.”
After unprecedented growth in digital health funding, adoption, policymaking and national attention, healthcare investors like Rock Health anticipate the pendulum swing toward a new equilibrium where we’ll see more work across industries to make sure the best solutions stick.
Martin sees a new desire to improve the healthcare system given the flaws in a largely fee-for-service industry. “This is only the beginning of larger changes in the industry. Health systems, which the American Hospital Association predicts are facing catastrophic financial challenges in light of the COVID-19 pandemic, will likely accelerate their move into value-based care models to help diversify revenue streams.”
Dr. Subaiya sees a hopeful shift away from admissions volumes to triaging patients to the best modality of care and advocating for reimbursement for digital health tools. “We’re going to need a lot more creativity when it comes to public-private partnerships. The spectrum of competition and cooperation will blur in this new era because the government is not going to solve it alone. We’re going to need everybody working together.”
The views and opinions expressed in this content or by commenters are those of the author and do not necessarily reflect the official policy or position of HIMSS or its affiliates.
In the Future of Healthcare Report, HIMSS and its Trust partners—Accenture, The Chartis Group and ZS—share insights on the trends and challenges that have defined the past year and how they will impact the future.