It’s the first of the new year and of course that can mean only one thing: the avalanche of stories about how much was or wasn’t invested in digital health and whether the current environment favors/disfavors growth in this sector and all that jazz.
It used to be, once upon a time, that the advent of the new year meant all things biotech as JP Morgan’s Healthcare Conference rolled into town, but no longer. The “digital health” concept and all it sweeps in with it has become as popular as the biotech talk just like Kanye/Kim have swept JZ/Beyonce to the back of the ballroom.
Given this phenomenon, I have been asked multiple times in the last few weeks to give my predictions about digital health in 2017 and to weigh in on what will be hot, what should be hot and what we can expect, particularly in light of, you know, the change.
So I figured I’d collect my thoughts here and also the responses I have given to various inquiries on the digital health discourse. This way, when I am working the crowd at JP Morgan this week I can just say “have you read my blog?” instead of “well, you know, it’s all about VR and blockchain now” (hat tip to Matthew Holt). My thoughts in somewhat random order:
With the burgeoning convergence of all things digital with all things healthcare, the noise level at JPM, the Consumer Electronics Show (where I was last weekend) and a plethora of other geek-friendly events has reached record highs. It’s tough to find the shiny needles in the repetitive haystack sometimes. So I have to say I am most on the lookout for real success stories, and particularly those that demonstrate how the confluence of IT and pharma or IT and medtech have meaningfully improved clinical outcome and reduced cost while doing so. I’d also like to hear some evidence of how all of this big data/AI/machine learning work is resulting in actual activity to change physician and consumer behavior, particularly around improved diagnoses and avoidance of medical errors. So far most of the talk has been about technology and too little of the talk is about results. I hereby declare that the digital health theme for 2017 should be: you show me the evidence it works, I’ll show you the money!
As for the healthcare world generally I think we will see a lot of mergers and acquisitions this year; big companies will buy small ones and small ones will merge. Thus we will see more investment to support these efforts and perhaps fewer new companies than in the past five years. Rock Health put out a report last week that there were less dollars invested in digital health in 2016 than in 2017 but there were more actual companies. That is actually kind of scary to me. So many companies are formed and so few have actually delivered meaningful value so far, whether measured by improved cost/quality or even return for investors. If digital health companies keep multiplying, we may need a new company to invent numbers that go beyond infinity.
That’s not to say we have all the answers yet or that everything worth inventing has been invented. Clearly this isn’t the case. I would love to see a lot less of companies that are “me too” and a lot more of companies with unique solutions to underserved problems.
There is clearly a big trend towards the integration of pharma and digital as well as medtech and digital. These “beyond the product” offerings are finally beginning to show clinical and cost outcomes and those attributes will be key to finding investment. Any product that can demonstrate those results in less than 12-month timeframes will gain traction and thus investor interest. There is also a great deal of activity around infrastructure to support more personalized and precision medicine. Healthcare services has always been an also-ran in the VC world but I think we are going to see more and more of this. I frankly believe that we will soon run up against the limits of technology for technology’s sake in healthcare and have to recognize that technology is a means of better distributing, rationalizing and improving services, not a way to replace them all. Hey look – jobs.
Some think we will see digital health dollars dry up. I don’t think that, but I do I think they will stay flat or even decline slightly as compared to prior years; the are also going to start getting hard to distinguish from healthcare investment dollars generally – where do you draw the line between digital health and Health IT and IT enabled services, etc. Also, I can imagine a trending to bigger investment rounds into growth stage companies that have actually proven their value proposition. I can’t imagine an increase in funding for seed stage companies that are simply variations on an already overdone theme, as we have often seen the past few years.
We are seeing a lot of M&A that isn’t producing positive returns for investors. We will undoubtedly see more of this clearing of the underbrush of companies that are really just products or ideas (not really companies capable of being self-sustaining). We are at that part of the Gartner Hype Cycle they call the Trough of Disillusionment and heading for the Slope of Enlightenment. In other words, we are going to see some bad and ugly before we see some good. I think that companies seeking Series A financing are going to have it worst – they are often too early to show results in a world where customers and VC’s really want that evidence before committing. If you don’t own a bootstrap, here’s where you get one:
Some out there think that we are finally at the tipping point where consumers will start to actively adopt and use digital health technologies. I’m going to go with…not so much. In my view, consumer adoption of healthcare technologies is likely to be the same as consumer adoption of most other healthcare products and services – when physicians strongly endorse and prescribe them they will get used more often. Remember that even life-saving pharmaceuticals prescribed by physicians don’t get used by consumers about half the time. And further, nothing has changed about consumers feeling they should not have to pay for anything healthcare. As long as consumers do not like associating themselves with illness they will not be active buyers of healthcare technology. Just because someone has a phone doesn’t mean they want to use it as a medical device. We need to be careful to distinguish between real consumer products (fitness/wellness/beauty) and real healthcare technologies, which are really not driven by the normal push and pull of consumer behavior no matter how hard we wish. Give a consumer a choice between a supersized bag of Doritos and a digital health product and they are going to ask you for the guacamole, not a charger.
I have been asked what inspires me about digital health and that is this: I am particularly inspired by the digital health entrepreneurs who truly care about serving the entire spectrum of people, and especially those whose situations make healthcare access and use more difficult due to socioeconomic status, ethnicity and language differences, age, disability, etc. Using digital technologies to empathetically and effectively serve underserved communities is essential to the successful improvement of our healthcare system. There are a number of people and companies focused on this, finally, and as we incorporate social determinants of health into effective care delivery, we will all be better for it. I hope the nascent trend of funding these kinds of things blossoms into a full-blown movement where we can marry doing good with doing well financially.
While everyone wants to talk about it, I think it’s impossible to guess the impact of the new administration. There are simply too many variables and few answers yet (and I still refuse to watch the news). What we know is that no matter who runs the place, we need to find our way to better value in healthcare. I think that the convergence of IT and healthcare is here to stay and the trick is making it useful not cool. Trendiness does not equal value. Technology does not equal good. We will see advancement in this field as long as the technology can demonstrate it is an effective tool to advance the delivery of better results by clinicians on behalf of patients and by patients on behalf of themselves and the public good. Hopefully we will also start looking for ways to more effectively align our financial interests to advance products and services that focus as much on prevention as treating the sick. Hopefully. Doubtfully, but hopefully. The next few years will be about evidence of efficacy because the whole “Field of Dreams” approach to digital health has, unsurprisingly, proven to be entirely wrong.
I also think we will soon see an end to the term “digital health” and good riddance to it frankly (though I am as guilty as everyone else). In our US economy, pretty much everything is digitizing and yet we don’t call it digital banking or digital transportation or digital aviation, as I have been saying for ages. We healthcare people need to get comfortable that technology is just a part of our everyday lives and businesses now, just as are drugs, devices and services. Technology doesn’t make healthcare new or special – it makes it better or worse, depending on how we design it and use it and spread it and scale it. Technology is the means to a better (hopefully) end, but definitely not an end in itself. It’s an easy, lazy habit to keep using the “digital health” terminology, I keep telling myself, so I am going to try to divest myself of it. That’s a far easier New Year’s resolution to achieve than giving up Doritos. Or else I’m going to invent a company that puts sensors in Doritos. Please pass the guacamole. See you around JP Morgan!
ps-writing this from Las Vegas where I am for the Consumer Electronics Show and Digital Health Summit. Highlight of that so far is I got to play craps (my favorite game) with 2 Chainz. I am now officially hip, in case you didn’t know. What, you never heard of 2 Chainz? Look him up. Fyi, he was wearing way more than two chains.