By: Sebastian Seiguer, Chief Executive Officer of emocha Health
Healthcare, more than any other area of the economy, is antiquated. For an industry that represents 18% of the U.S. GDP, the pandemic investment boom in digital health was a welcome relief to those seeking to bring healthcare into the digital age.
Before 2020, digital health companies had limited options to raise capital, but the pandemic changed that entirely, with many investor dollars chasing proportionally few targets. Private equity and growth capital have provided the funding for many new concepts and models of care. However, amid the rush to fund digital solutions, investors should be aware of the following market nuances. Without taking heed, they risk making precarious investments or missing out on the right opportunities.
Don’t confuse digital therapeutics with digital health
Digital health and digital therapeutics, while often conflated, are not the same.
“Digital therapeutics” refers to a narrow segment of app-based technologies that treat a human disease or condition to help a patient achieve an outcome–similar to a medication. While digital health technologies do offer wider help and resources to patients, digital therapeutics take a clinical approach with a desired outcome. As such, all digital therapeutics are FDA-regulated and are held to the same FDA standards of evidence and regulatory oversight as traditional medical treatments.
Digital health, on the other hand, is a broader category of digital and app-based technologies that either use technology to deliver accepted clinical interventions or offer supporting help and resources to patients and providers. While digital health technologies may provide a platform for delivering care, and while some market entrants offer a technology-enabled clinical care team on top, the technology itself is not considered clinical care in the same way as digital therapeutics. Not all health software is regulated by the FDA or other regulatory groups.
Both are hot markets for investors, but digital therapeutics are a very narrow class of technologies and it is not clear that there will be many use cases where a technology alone can achieve a major clinical effect anytime soon. Efficiency gains to be had through digital health are another matter: as risk is shifted to health plans and providers, digital health platforms can be used to deliver real clinical care to the patient’s home.
Funding a company is different from helping people
Investors, especially large private equity investors, have angled for early entry into seed, A and B rounds of healthcare companies at a massive scale. In fact, according to CB Insights’ State of Digital Health report, in 2021 global funding to the digital health sector grew 79% year-over-year to reach a record $57.2 billion.
For example, virtual care startup Hims & Hers went public in a $1.6 billion SPAC merger last year, while traditional and corporate venture funds from Softbank, Coatue, and Merck have backed digital health and digital therapeutics companies like Bioformis, Hinge Health, Altoida, and Click Therapeutics in the tens and hundreds of millions.
But investors need to know that for healthcare startups, the challenges of getting funded are different from the challenge of helping patients. For example, in the first wave of digital health IPOs were concepts that made payments more efficient (Phresia) and brought telehealth to employers as a benefit (Teladoc, American Well).
In addition, the biggest costs in the U.S. healthcare system are not consumer health issues like fertility, sexual performance, and optimizing nutrition for the well-to-do – but rather fatal and chronic diseases such as diabetes, substance use disorders, and heart disease among our lowest earners. Digital health companies creating solutions for these conditions are desperately needed to alleviate financial and logistical pressures on the U.S. healthcare system, especially in the growing Medicaid and Medicare programs, whose costs are borne by the taxpayer.
Patient engagement is the biggest challenge for future healthcare tech solutions because of the costs associated with keeping patients active in long-term and chronic care interventions. It’s important to keep patients engaged with their care solutions for these conditions, but it is very difficult to do this, whether the solutions are in-person or digital.
Companies that can successfully engage hard-to-reach, costly patients on a daily basis while addressing these costly chronic conditions have the greatest opportunity to scale and drive profitable ROIs.
Technology infrastructure is key as digital health expands
Many health investors are inspired by the visions and missions of health tech companies striving to do better for people. But the infrastructure of a tech-powered healthcare system is still in its nascent stages. We do not yet have an end-to-end healthcare system that is fully-powered by technology.
In the short term, healthcare programs that pair technology solutions with real human interactions will likely win and grow, with help from investors. These companies can harness data effectively, engage patients, and provide easy to access healthcare services across one digital ecosystem.
Ongoing healthcare challenges like patient engagement and solutions for the most vulnerable and cost-carrying healthcare populations will not be solved easily, even with increasing digitalization. Investors should do their diligence and place their bets on the companies with technologies that actually fulfill their promises and drive true change in the patients they serve.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.