I had the pleasure of keynoting the recent UCLA Medtech Partnering Conference, where they asked me to speak on digital health,* and particularly its current state and where I see the opportunities and challenges over the next few years. I was happy to speak at this conference in part because it creates a forum to facilitate the convergence of the medtech and digital worlds, which are too often separated. Plus, this topic is my jam, so off I went.
My talk seemed to resonate for people at the conference, so I figured I’d turn it into a post here. Gotta love that repurposing! Hope you enjoy it.
Digital Health Evolution: Zero to Hero to ??
As those of us who work n and around health tech, we know the story: for all of human history until 2004, no one cared.
In 2004, there was a glimmer of hope: President George Bush’s State of the Union speech included these words, “By computerizing health records, we can avoid dangerous medical mistakes, reduce costs, and improve care.” Alas, it took 5 more years after that for the HITECH Act to catalyze the adoption of electronic medical records (EMRs). But it wasn’t really until after the launch of the iPhone in 2007 that the conditions existed to enable the earliest stirrings in digital health and, of course, WIFI was required to make the whole thing go. In 2011, the year after digital health investment started getting tracked, about 75% of US homes had WIFI, which wasn’t bad. But it wasn’t until WIFI was relatively ubiquitous across health systems, that digital health had a fighting chance of adoption. Note that only 45% of hospitals had campus-wide WIFI in 2013.
So digital health meandered on from 2010 until 2020, barely denting that uphill climb on the Gartner Hype Cycle (at least from an adoption perspective) until – BAM! – COVID-19 hit our shores. Suddenly it was all digital all the time; those who previously doubted the value of telemedicine finally hit palm to forehead and decided it was the next best thing since sliced bread. Actually, in this age of Keto, let’s change that to the next best thing since dark chocolate (which is better anyway) and the 10-year overnight sensation really got rolling.
Notably, US investment in the space had climbed from a paltry $300 million in 2010 to somewhere between $6 billion and $8.2 billion in 2019, depending on whether you ask Silicon Valley Bank or Rock Health (an amount that was, incidentally, down from 2018’s $8.5 billion per Rock Health). That is real money and it is true that some venture investors (mostly those in healthcare) had already gotten somewhat on board the digital health train. But to give you some perspective, US venture investment in pharma/biotech/biotech tools was about $16 billion in 2019, so approximately twice as high (notably biotech investing was also down from nearly $19.5 billion in 2018). In 2020, startups flourished across every sub-sector of digital health, but especially in telehealth, virtual care/remote monitoring, and behavioral health.
During this same period, both pharma companies and medtech companies stopped dabbling and started pouring money and effort into the digital space. Yay! More customer segments! And the investors said hallelujah! Digital health is the hero of the market! Suddenly the IPO door was thrown open and positive exits were a reality. Livongo really opened that door in 2020, but the doors blew all the way off in the 12-15 months that followed as company after company hit the public market or got acquired for dizzying amounts, considering what they had sold.
And just like that whole internet investing kerfuffle back in the 2000 timeframe, digital health valuations went wildly up, investment rounds got bigger (there were 88 $100mm+ venture investments in 2021 alone), and everyone wanted into the party. Tech companies, hedge funds, consumer brands, you name it. All of a sudden, everybody needed a digital health property in their midst. SPACs took companies public that, in the old days, would have been considered early stage. And it was good.
Except for a few minor details:
- Revenue can still be elusive for many digital health companies; in fact, many of the companies we love have revenue we would hate if the details were fully transparent (trust me – I’ve seen some of them).
- Demand for proof/evidence became very, very real – customers are getting very discerning before paying for newfangled tools, especially at health systems. Payers, too, are proceeding with caution – many have declared they will not cover digital therapeutics, for instance, at least not for now. Buyers are expecting clinical trial – level evidence of efficacy in many cases, and why shouldn’t they?
- There are too many companies that look exactly the same, at least to customers, and all of them hit the market at once. The copycat syndrome was especially notable in behavioral health – more than $5B of venture investment went into dozens and dozens of virtual mental health companies in 2021 alone. To put that into perspective, the next two largest subspecialties were diabetes care and cardiovascular, which in combination raised $1.8 billion, or just 35% of what the mental health space took in. (Vator News/Rock Health). It is worth noting that cardiovascular disease and diabetes are the 1st and 7th leading causes of death in the U.S. I’m not downplaying the importance of behavioral health, just giving some perspective on market sizing.
And those issues are important to acknowledge. They don’t mean that digital health isn’t valuable, but it speaks to the complexity of adoption and the relevance of some major areas of investment at prices that have demonstrated that gravity isn’t really a thing. Yet.
What we know now, 2 ¼ years into the pandemic, is that digital health has a lot of potential across medtech, pharma, services, operations, every field of healthcare. Consumers and physicians even seem to sort of like it! Pharma and medtech giants are getting on board and building up large organizations and partnerships. So yay! Hero it is.
But hold up! With over $15 billion and $29 billion of digital health investment in 2020 and 2021 , respectively, we need to let the system digest and mature a bit. We know there are some big opportunities, but we also know that the whole distribution thing is still fraught with unknowns and disconnects. The field is still young and needs to do a better job of proving economic and clinical outcomes. Interesting, data is everywhere but so far is doing relatively little to impact results. In fact, we have to find convoluted ways of paying doctors to use data (aka add on costs to the system) or they don’t want to spend time on it. I would hazard to say that while there have been some notable wins, true ROI remains elusive in the majority of case. Yes, telemedicine has been a salve during the pandemic and thank goodness we had it. But usage is dropping as the pandemic takes a pause (I don’t want to say as it ends for fear of jinxing myself) and the hero is not reaching the like a bird, like a plane hero heights of last year.
As we crashed headlong into 2022, what I can definitively tell you is that it’s a great time to be an M&A banker. There were somewhere between 400-600 digital health M&A deals in 2021, up massively from 2020, and already this year there have been dozens of acquisitions of digital health companies. Interestingly, some of the recent big fish buyers are not the usual suspects: Best Buy, Walgreens, 23andMe have all made big purchases of digital health assets. And evolving from product to platform is this year’s little black dress. Thirty Madison, Amwell, Ginger all have their checkbooks out – no one wants to be the little fish.
Clearly, digital health investments are still being made, but the stock market has closed for now and people are starting to talk bubbles even more than they have the last few years. Virtually none of the 2020-21 class of digital health IPOs is doing well at present…
…and the public market is a leading indicator of the venture market.
By the end of January 2022, the 2021 class of digital health IPO companies had fallen off a cliff and lost $190 billion of market capitalization. I haven’t done the analysis since because I can’t even look. There isn’t enough tequila in the world.
As I see it, there are a number of big challenges where we are still in need of good solutions on the digital health front. Here are the ones that are at the top of my mind, in no particular order
- How do you get digital solutions into the normal flow of physician workflow?
- How do you seamlessly get patients in virtual care systems the hands-on services they need without losing patients to those systems?
- How do you manage around the anti-kickback laws in an acceptable and repeatable way to allow pharma/medtech to offer products to providers/patients?
- How do you truly ensure data privacy and security to build patient trust?
- How do we overcome health system’s monopolization of patient data?
- How do we make AI accurate and unbiased, and avoid algorithms built to fit the data?
- Now that we have more data than we know what to do with, how do we ensure data is clean, usable and diverse enough to be truly predictive?
- How do we ensure health equity with respect to access, affordability and engagement?
- How do we get medtech and pharma partners comfortable with a partnering world where IP is pretty irrelevant
- How do we make digital business models acceptable among clients who have only experienced unit-based pricing
- How do we create adoption in a fee for service world when most digital health products are designed for a value based one? AKA, who pays for prediction, personalization?
- Is anyone demonstrating that digital health products truly contribute to lower costs? Anyone? Bueller?
Digital health opportunities and challenges are both very real. Some thoughts:
Over the last 10-12 years, digital health has gone from zero to hero and has now reached the stage where the hard work begins. We must not rest on our COVID-19 laurels (who’d have thunk?), but rather get back to the hard work of proving that digitally-driven products and services are indispensable to the delivery of better, less costly, higher value care. There is still much work to do. Let’s go!
*yes, yes, I know…I said we shouldn’t use the term “digital health” anymore. Let’s go back to health technology, I said. Repeatedly. But no one will listen to me and thus I have caved. Fine, have it your way. Digital Health. Whatever.
Tom Klopack says
Enjoyed your article. As a fellow pioneer from back in the day with you I think you did a nice job of laying out the challenges. I personally think the System has to get worse to make the value vs pay for care transition before this takes off.
Enjoy following you. Hope you and your family are well.
Lisa Suennen says
Thanks Tom! Yes, you and I have seen the early and mid stages of this area. Let’s see what happens next! L
Mark Goldstein says
great piece (and go digital health!!)…perhaps a tad pessimistic…there are still many a niche to exploit—the biggest issue are the super-competitive areas that got overfunded with too many players/
Lisa Suennen says
Not pessimistic, Mark, realistic! There’s a fine line between skeptic and cynic 🙂 L
Dave Stevenson says
Dead on, Lisa! (as usual) Perhaps a gentler way to put it is that we see uneven valuations due to unrealistic expectations on how easy (or more accurately, not easy) is to scale in health care. It’s also interesting to note these same scaling issues exist in single payer countries too! But even so, the future is bright. There will be a settling out in the market – but what comes out the other side will be the meaningful transformation that we’ve been working towards (for a long time). Loved the talk!
Lisa Suennen says
Thanks Dave! You say it so much more politely 🙂 L
Cyndi Grossman says
Great summary of the state of digital health* ! The apect of building the evidence is so important as few companies do it well (or make it their focus).
Lisa Suennen says
Thanks Cyndi! L
Dr. Sherif Khattab says
Lisa, I have missed your special flavor of no BS healthcare story telling. Thanks for this
nice summation. Very real and but, unfortunately still, the noise to signal ratio remains deafening!
Lisa Suennen says
Thanks Sherif, I’m still hopeful, but it’s taking a hell of a long time to reach Nirvana. Lisa
Charles Gross says
“With all this s_ _ t in here, there is a donkey somewhere in the room!”- Wish there was a way to short-long the digital industry Like you (I think) I am a pessimist in the short run, and optimist in the long run (and this particularly applies to the BH space) Always enjoy your no BS perspective on a space that needs just that.
Lisa Suennen says
Thanks Charles! L
Stefanie Bishop says
Thank you for writing this great piece. I’ve wondered about the financial health of all these digital health companies that came onto the scene in the past 2 years. In my experience provider adoption of digital health tools remains low -Change management solutions is an area that needs focus and investing. EHRs are another road block to adoption because they are unable to leverage the value of Health IT.
Lisa Suennen says
Hi Stefanie, I think you are largely correct. There are a few exceptions, but it’s very hard to overcome the EHR and other adoption issues even with great products. L
Rob McCray says
Lisa, as usual you have captured what many observers are thinking in your informed, educational and engaging manner. You say that we should get back to the hard work of PROVING that digitally-driven products and services are indispensable. I suggest the task is to FIND those that are indispensable to achieve the mission. Many current offerings will not pass this test.
As to naming, I suggest that the term “digital health” will go away about the same time as these technologies and service innovations are fully embraced. Kitchen toasters don’t have to be labeled as “electric” anymore.
Lisa Suennen says
Rob, we are on the same page! Lisa