Digital health technologies will transform healthcare. Mobile phones have given health care providers the ability to engage with patients 24-7 and patients are able to capture and share data that may be helpful in tracking and personalizing their health care. Genomics, analytics, artificial intelligence and deep learning technologies are all making inroads in this emerging sector. Although the amount of money invested in the sector slightly decreased from last year, according to Rock Health, venture capital interest in the digital health sector is still significant with $4.2 billion invested in 2016.
It’s a very diverse sector that spans from general wellness applications targeting consumers to highly clinical solutions that typically require FDA approval. At AMV, we focus more on clinically oriented digital solutions tackling healthcare problems and have invested in dozens of early-stage companies since we began looking at digital health in 2003.
The healthcare market is enormous with over $3.2 trillion of annual spend in the United States in 2015, and the sector has had significant regulatory changes over the past seven years largely driven by the Affordable Care and HITECH Acts. Most observers are expecting further significant changes as the new administration pursues legal and regulatory reforms.
We expect more regulatory changes but we believe the dramatic shift towards industry digitization and value-based care will continue unabated. We will begin to see the next wave of technology innovation, such as Internet of Things (IoT), Machine Learning and Artificial Intelligence (AI) move from consumer and commercial use into healthcare applications. As the digital health industry moves into the second wave of innovation, we see the following as exciting areas that entrepreneurs are focused on.
1. Digital Interventions
We’ve seen a wave of new apps that seek to improve patient health in ways that are clinically demonstrable. These digital interventions use health, behavioral and contextual data -- such as glucose levels, sleep, weight, food, activity, time of day and weather -- to improve patient treatment plans. Interesting companies in this sector target diabetes prevention (Omada Health), Type 2 diabetes (WellDoc), mental health (Pear Therapeutics) and respiratory illness (Propeller Health). In some cases such as WellDoc, these interventions are FDA-approved therapeutics. These apps have such compelling clinical efficacy that insurance companies are starting to pay for them due to improved patient outcomes at reduced cost.
Pharmaceutical companies are also interested in integrating digital interventions with their drugs to improve outcomes, differentiate their products, and engage directly with patients. For example, Proteus Digital Health, which manufactures an FDA-approved sensor that is embedded in pills and tracks medication adherence, is working with Otsuka on a bundled solution that treats bipolar disorder and schizophrenia.
2. Provider Workflow Solutions (or Healthcare Scalability Solutions)
In the United States we have a problem efficiently delivering care. It often takes weeks or months for patients to schedule an appointment. Physicians are often rushed when providing care and, according to a study by the AMA, spend twice the time entering patient data into electronic medical records that they do seeing patients. I believe digital technologies can help give our time-crunched healthcare professionals the ability to see more patients in less time, while delivering a better patient experience, by using data analytics for decision support, more efficient workflow and different forms of mobile communication.
Additionally, we can shift the cost curve to less expensive labor. Given decision support tools, artificial intelligence and data analytics, primary care physicians should be able to do some of the work specialists currently do. Nurses and case managers will be able to reduce a physician’s workload and, increasingly, patients will be able to administer self-care at home with mobile devices.
In this sector I’d keep my eyes on companies like HealthTap (enabling patient/physician interaction outside of the office), Augmedix (utilizing Google Glass to enable remote scribes to enter patient data into the EMR) and Welkin Health (tools to improve communication with patients.)
3. Data Integration and Analytics
In the past few years we’ve seen a dramatic increase in the amount of digitized health data stored in EMRs, health data captured from smartphones, and genomic data.
There are many uses for these new healthcare datasets. For example, insurance companies and companies that pay for employees’ health care directly, can use additional data to help refine actuarial models. Physicians can use analysis of this data for diagnosis and decision support. Lastly, patients may benefit from the mining of data for predictive prognosis. Consequently, real-time alerts to patients and healthcare professionals are becoming feasible.
Startup companies such as Human API and Validic are trying to help third parties aggregate and integrate these datasets into other applications. We are beginning to see the potential of data analytics in oncology with companies like Flatiron Health and Foundation Medicine. Evidation Health facilitates large, rapid clinical trials with their software and applications.
4. Behavioral Health
The insurance industry and self-insured employers now recognize that the costs of mental health, including depression, should be dealt with upfront and, although long-term efficacy has yet to be demonstrated for most digital solutions, insurers and employers are increasingly willing to pay for digital health pilots in this arena. Behavioral health issues also often go hand-in-hand with other diseases. I have always been skeptical of investing in this sector because it is traditionally services-oriented and diagnosis is difficult and subjective, making outcomes hard to measure. Still, today it is increasingly reimbursed by Medicare and venture capitalists are beginning to fund this sector with companies like Lyra Health, Pear Therapeutics and Lantern all raising very large rounds to tackle different problems in this sector. The idea is that more engagement and interaction, facilitated by digital technologies, may help patients with depression, anxiety, substance abuse, PTSD and other behavioral health issues.
5. New Model Insurance Companies
The most surprising area of investment for venture capital dollars in digital health is in novel insurance companies. Oscar ($720 million), Collective Health ($125 million) and Clover ($295 million) have all raised significant amounts of money. These startups often compete directly with industry heavyweights such as Aetna, United Health and Humana, which have also been investing in, and deploying, digital health solutions. The venture-backed insurance industry entrants have some advantages over the incumbents: for example, these entrants are unencumbered by existing infrastructure and relationships, and thus can establish tighter relationships with provider networks. These companies can also build their technology stack from the ground up which enables them to more effectively use digital health data and solutions to target specific, stratified, patient groups.
Conclusions
The digital health sector has moved from the first wave of simple wellness devices and applications to companies that are beginning to have a deep understanding of how technology can be used to make healthcare more effective and efficient. We see consumer companies such as Fitbit, Apple and Samsung beginning to partner with major payers, providers and pharmaceutical companies. Despite this shift, most venture capitalists I talk to who are investing in the sector agree that there are a lot of companies targeting the same, and rather niche, problems. A typical digital health founder comes from the tech industry and tries to solve a problem that they have personally encountered with our often-dysfunctional health system. I believe that the founders who deeply understand the complexities of this ecosystem, including who will pay (such as insurance and pharmaceutical companies), will be more successful. And no matter what the product or services startups offer, they will need to generate some clinical evidence that outcomes are improved and costs are reduced, or no one will pay for their solution.
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