by Jeremy Cochran
The Rise of Digital Healthcare Technology
Prior to early 2020, start-up activity in healthcare was relatively steady, increasing only slightly each year.[i] Despite representing nearly a fifth of US gross domestic product,[ii] the US healthcare industry has historically been challenging for innovators due to high startup costs, strong competition, myriad regulations, and numerous market players.
However, many of the old paradigms and assumptions about healthcare suddenly became fluid at the onset of the COVID-19 pandemic. Patients started expecting more from their healthcare experiences – more convenience, more personalization, and more availability. The changing expectations helped accelerate existing innovations in an industry that has been traditionally resistant to change.
Common Barriers in Healthcare Innovation
Although innovation is strong in healthcare, several barriers exist. Many innovators are healthcare professionals themselves, often searching for a solution to a problem in their work. Along with individual time, effort and knowledge, more macro-level barriers include regulations, clinician buy-in, and reimbursement. Healthcare is one of the most regulated industries in the US; while it is important to ensure only quality health products are given to consumers, the stringent approval and testing requirements can deter many from developing their ideas.[iii] Equipping entrepreneurs with business training and pairing them with experienced mentors is essential to fostering successful innovation.
Key Innovation Areas
Three top areas of innovation in healthcare expanded rapidly over the last few years in part because of the pandemic: telehealth, digital health infrastructure, and behavioral health.
One of the most direct effects of the pandemic on healthcare delivery was the accelerated adoption of telehealth. Telehealth service and platform providers were relatively niche players prior to the pandemic. As the demand for telehealth grew because of the pandemic, so did the size of these companies: Teladoc, founded in 2002, saw an 85% increase in revenue, triple the number of visits, and double the number of paid U.S. memberships in Q2 of 2020 compared to the previous year.[iv] American Well (now Amwell), founded in 2006, saw a 1000% increase in visits during the early months of the pandemic and raised nearly $200 million within two months to keep up with demand.[v] Other companies that grew included Caregility, Doximity, Updox, Mend, and Vsee. Newer telehealth companies also emerged, such as Forward and Ro, with a focus on a direct-to-patient model rather than enhancing the existing model.[vi]
Digital Health Infrastructure and Interoperability
Another top innovation area accelerated by the pandemic is improving digital health infrastructure, or how healthcare facilities acquire, use, store, and transfer electronic medical records (EMRs). Entrepreneurs have stepped in to create interoperability solutions for patients, allowing health data to be shared across facilities. The value for digital health infrastructure and interoperability start-ups tripled between 2020 and 2021, moving from just under $750 million to over $2.2 billion.[vii] Some of the top startups raised substantial funds to improve this area: H1 raised $123 million to help connect biotech firms with providers for clinical trials,[viii] Abacus Insights raised $28 million to develop its cloud-based interoperability platform,[ix] and Moxe Health raised $30 million to improve secure health data exchanges.[x]
With a massive increase in need for behavioral health due to the pandemic and a lack of infrastructure to support it, entrepreneurs worked furiously to bolster mechanisms for behavioral health providers and patients to connect. Digital behavioral health startups raised $588 million in funding in just the first six months of 2020 – roughly the same amount they raised in the entirely of 2019. Some companies, such as BetterHelp (part of Teledoc) or Talkspace, focused on recruiting consumers directly onto their platform and, initially, working without health insurance coverage. Other companies focused on developing digital platforms and services for behavioral health providers to use or join, including Lyra Health, Eleanor Health, and Hurdle. Still others focused more on promoting general mental wellness, with apps such as Headspace and Calm providing easy-to-understand meditation and sleep assistance programs directly to consumers.[xi]
Impact of Recent Economic Downturn on Healthcare Innovation
While 2021 and early 2022 saw a whirlwind of new startups and record funding, the momentum stalled with the economic downturn starting in Q1-Q2 2022. Digital health startups raised $6 billion in the first quarter of 2022, an impressive amount when compared to historical numbers but below the $7.3 billion raised in the fourth quarter of 2021. This decline started speculation that 2021 was the high-water mark for digital innovation,[xii] which has largely proven to be true: through Q3 of 2022, digital health raised $12.6 billion, well under the $29.2 billion raised in all of 2021 (though close to the $14.7 billion raised in 2020). The decline mirrors the broader downward trend for the tech industry in 2022, as reduced demand and higher labor costs hampered progress from an incredibly profitable year in 2021.[xiii]
This downward turn, however, may have benefits. Many industry analysts and investors see the slowdown as a correction from the vast growth of 2021, and that startups with responsible oversight and solid foundations will thrive while others will be weeded out.[xiv]
Future Direction for Health Innovation: Back to Basics?
While tech solutions are the current focus of healthcare innovation, the reality is that consumers also need solutions to some more fundamental issues. When asked what element of healthcare they would most like to break down and rebuild, US consumers focused on the basics of receiving care: cost transparency, finding a new doctor, and making appointments. Consumers seem frustrated that, despite all the advances in medical technology, so many hoops remain to jump through when simply finding a new physician, making appointments, and understanding what a procedure is going to cost before it is conducted.[xv] While health tech provides many avenues for innovation, some tensions could require approaches outside of technology. The head-turning volumes of layoffs within technology organizations that started in 2022 and continue in 2023 reflect internal struggles that could distract from any of their innovation pipelines fueling the healthcare system.
In addition to the concerns of individual consumers, the healthcare industry faces broader challenges in 2023 that will require innovative solutions. Stubborn inflation and labor shortages will drive operating costs up, pressuring providers to find more cost-effective ways of delivering care. Treating endemic COVID-19 and long COVID will continue to be a burden, highlighting the need for more research and better prevention. Increasing cyberattacks on healthcare systems jeopardize patient data and require stronger defenses to prevent disruptions in care.
Perpetual Disruption Creates Continued Opportunities
While momentum for health innovation has slowed since its apex in late 2021/early 2022, the underlying issues driving innovation persist. Telehealth, behavioral health, and interoperability will likely remain top opportunity areas for innovators in 2023.[xvi][xvii]
Healthcare innovators will continue to find solutions and efficiencies in the coming years, despite the recent economic downturn. While there are many barriers, the US healthcare system remains fertile ground for new ideas and processes. Improvements in technology, especially the ever-increasing capabilities of machine learning and artificial intelligence, are likely to be at the forefront of innovations for years to come. As these innovations mature, ideally it will lead to a healthcare system that is more efficient, available, and equitable for all consumers.
Interested in reading more? Check out more from Jeremy:
[i] Krasniansky, A., Evens, B., & Zweig, M. (Jan 10, 2022). 2021 year-end digital health funding: Seismic shifts beneath the surface. RockHealth. Retrieved Jun 13, 2022, from https://rockhealth.com/insights/2021-year-end-digital-health-funding-seismic-shifts-beneath-the-surface/
[ii] National Health Expenditure Data. (Dec 14, 2022). NHE Fact Sheet. Centers for Medicare & Medicaid Services.
[iii] Davis, J. (March 25, 2022). Navigating the barriers to innovation in healthcare. TriMedika. Retrieved June 20, 2022, from https://trimedika.com/navigating-the-barriers-to-innovation-in-healthcare/
[iv] Pifer, R. (July 29, 2020). COVID-19 spurs tripling in Teledoc vsists to 2.8M, full-year outlook hiked again. HealthcareDive. Retrieved on June 22, 2022, from https://www.healthcaredive.com/news/covid-19-spurs-tripling-in-teladoc-visits-to-28m-full-year-outlook-hiked/582546/
[v] Farr, C. (May 20, 2020). American Well pulls in $194 million to keep up with the skyrocketing demand for telemedicine. CNBC. Retrieved June 22, 2022, from https://www.cnbc.com/2020/05/20/american-well-raises-194-million-as-telemedicine-demand-skyrockets.html
[vi] Melchionna, M. (July 8, 2022). KLAS: Caregility, Teladoc, Doximity Perform Well in Virtual Care. mHealth Intelligence. Retrieved Sept 15, 2022, from https://mhealthintelligence.com/news/klas-caregility-teladoc-doximity-perform-well-in-virtual-care
[vii] Rock Health. (January 10, 2022). Annual value of funding for digital health infrastructure and interoperability start-ups in the United States from 2017 to 2021 (in billion U.S. dollars) [Graph]. In Statista. Retrieved November 02, 2022, from https://www.statista.com/statistics/1291377/digital-health-interoperability-start-up-funding-in-the-us/
[viii] Bruce, G. (2022, June 2). Healthcare data startup H1 nets $123m in funding round. Becker’s Hospital Review. Retrieved November 2, 2022, from https://www.beckershospitalreview.com/innovation/healthcare-data-startup-h1-nets-123m-in-funding-round.html
[ix] Businesswire. (June 16, 2022). Abacus Insights, Leader in Health Plan Data Solutions, Raises $28 Million Series C Financing. Retrieved November 2, 2022, from https://www.businesswire.com/news/home/20220616005878/en/Abacus-Insights-Leader-in-Health-Plan-Data-Solutions-Raises-28-Million-Series-C-Financing
[x] Gliadkovskaya, A. (June 3, 2022). Health tech firm focused on interoperability lands $30M following record growth. FierceHealthcare. Retrieved November 2, 2022, from https://www.fiercehealthcare.com/finance/moxe-health-interoperability-provider-raises-30m
[xi] Landi, H. (July 6, 2020). Digital behavioral health startups scored $588M in funding amid COVID-19 pandemic. FierceHealthcare. Retrieved November 4, 2022, from https://www.fiercehealthcare.com/tech/funding-for-digital-behavioral-health-startups-surged-amid-covid-19-pandemic
[xii] Landi, H. (April 7, 2022). Digital health funding boom slows in Q1. Was 2021 the high watermark for investment? FierceHealthcare. Retrieved August 5th, 2022, from https://www.fiercehealthcare.com/digital-health/digital-health-funding-bonanza-slows-q1-was-2021-high-watermark-investment
[xiii] Somaiya, M. & Suresh, U. (October 3, 2022). Q3 2022 digital health funding: The market isn’t the same as it was. RockHealth. Retrieved October 23, 2022, from https://rockhealth.com/insights/q3-2022-digital-health-funding-the-market-isnt-the-same-as-it-was/
[xiv] Landi, H. (June 23, 2022). Here’s why some VC investors say an economic downturn can be good for digital health. FierceHealthcare. Retrieved August 5th, 2022, from https://www.fiercehealthcare.com/health-tech/vc-funding-has-slowed-and-valuations-are-down-heres-why-some-investors-are-excited
[xv] Burke, Inc. (June 2022). Omnibus Program Results.
[xvi] Arbanas, J., Silverglate, P., Hupfer, S., Loucks, J., & Steinhart, M. (2022). Mastering the new digital life: 2022 Connectivity and Mobile Trends, 3rd Edition. Deloitte Center for Technology, Media, & Telecommunications. Retrieved November 2, 2022, from https://www2.deloitte.com/content/dam/insights/articles/us175371_tmt_connectivity-and-mobile-trends-interactive-landing-page/DI_Connectivity-mobile-trends-2022.pdf
[xvii] Wolters Kluwer. (Nov 2, 2022). Three pillars of healthcare technology predictions in 2023. Retrieved Nov 11, 2022, from https://www.wolterskluwer.com/en/expert-insights/three-pillars-of-healthcare-technology-predictions-in-2023
Feature Image – ©greenbutterfly – stock.adobe.com