Next-Generation IT

In a competitive digital health landscape, it’s hard to stand out

Gabriel Perna | June 16, 2021

The money is flowing in digital health like never before. 

Just this week, Lyra Health completed a $200 million funding round and is now valued at $4.6 billion. LifeStance Health, a virtual mental health provider, is valued at $7 billion after its initial public offering. And last week, Valo Health, a machine learning drug development company, went public via a Special Purpose Acquisition Company (SPAC) backed by famed venture capitalist Vinod Khosla.   

After wandering the desert for many years, digital health companies have reached the promise land. And deals are coming fast and furious. Valo Health was founded by venture capital firm Flagship Pioneering in 2019. Two years later, it’s going public.  

According to Rock Health, the first financial quarter of 2021 featured more $100 million-plus “mega deals” for digital health companies than all of 2018 and 2019 combined. About halfway through, 2021 is on track to be even more lucrative for digital health than 2020.  The same can be said for AI, which according to Accenture, will grow more than 10x in the next five years.  

Does that mean the “get rich quick” scheme of the day for potential investors and entrepreneurs is simply to start a digital health company, pitch it to a few health systems, payers and employers, and profit? Not quite. The market is quite crowded and it’s increasingly hard for potential digital health companies to get to the top of the pile or even a foot in the door.  

One study, published last year in Nature, found there were 1,200+ companies focused exclusively on digital health. There are many others who have digital health solutions as part of an overall offering, such as tech giants like Amazon. There are also likely many more companies that have emerged in the time since the Nature study was completed, with COVID rapidly increasing the adoption of digital health. 

“I was just speaking to one company that was wondering why it was so hard to get a reply even from folks within the hospital—not ours in this case—but really within any hospital to give them feedback on a demo,” says Garrett Vygantas, MD, managing director of OSF Ventures, the venture fund arm of OSF Healthcare in Peoria, Illinois.  

Our series on digital health funding: 

Part 1: What’s driving the surge in digital health funding? 

Part 2: Will digital health funding boom or bust? 5 experts weigh in 

In this third part of Health Evolution’s series on digital health funding, experts at payer, provider and digital health organizations discuss how emerging companies can stand out. While every organization takes a different approach, there were a few common themes among executives when assessing potential digital health solutions.  

Considerations in digital health assessment   

  1. Does it lineup with strategy?  

Sukanya Soderland, Chief Strategy Officer and Senior Vice President for Blue Cross Blue Shield of Massachusetts, says the number of pitches she has seen over the last years has been pretty high. Moreover, in the 16 months since COVID first emerged in the U.S., there are more companies who have preliminary results to show, she notes.

 Soderland shares her thought process when assessing companies, spanning strategic fit, operational fit, economics and risk.   “From a strategic standpoint, there are a host of considerations, starting with the question: does the offering materially help advance our mission and strategic goals? Does it address our members’ needs in a meaningful way to improve affordability, outcomes, experience and/or equity? Is there demonstrated customer demand and interest? Is the expected engagement level and adoption rate by providers and customers credible based on our experience?” 

In his role at OSF, Vygantas, who is based in the Bay Area, is responsible for sourcing investment opportunities and conducting due diligence in the digital health ecosystem. In other words, he sees a lot of pitches from digital health companies. Like Soderland, he says it’s critical that the digital health solution line up with the strategic needs of the organization and addressing an unmet need already recognized by the organization is critical.  

“That will bring the offering from the startup company to the top of our list,” Vygantas says. He acknowledges that the organization probably doesn’t do a good enough job of publicizing that list, mainly because priorities keep changing.  

  1. Has the data been validated? Is there ROI? 

Several organizations value if the tech vendor has the evidence to back up its claims. “Has the company validated, not just theoretically but in real-world terms, the ROI on what they’ve built? That’s a critical question that we look at early in our evaluation,” Vygantas says.

Soderland agrees that the economic considerations are critical.  The company asks certain questions in this regard, she says: “What is the expected ROI of the offering?  Is the expected value offered commensurate with the revenue model and investment required? Will our customers view the offering as worthwhile added value?  Would our customers support the price point given our need to deliver greater healthcare affordability?  Is the company willing to consider outcomes-based payment models as necessary?

Mark Ziemianski, Senior Vice President and Chief Data Officer, Children’s Health in Dallas, advises companies to make sure they have great validation of their results. In particular, this is crucial for organizations who are assessing and implementing AI and machine learning solutions, he says.  

“These things, when they start to learn, they can go off in a direction that you may have not planned on. Some of the times it’s because your data is up to snuff, and other times you just didn’t understand the data to the extent you needed to,” Ziemianski says.  

Often times, there's pressure for companies to just the sell product out of the box and do less customization. On the flip side, for large customers like us, we require some customization, which will be derived from learnings from a pilot. So it’s actually quite challenging in that regard from the start-up company’s standpoint.

Garrett Vygantas, MD, OSF Ventures

Omada Health, a digital health company that allows people to manage diabetes and other chronic conditions, has seen significant growth in collaborating with employers and health plans. As someone who has seen success in this field, CEO Sean Duffy tells fellow digital health companies that there will always be everlasting truths in this area. 

“What are the clinical fundamentals? What is the evidence-based data you can lean on to support your approach? How are you thinking about validating clinical and economic outcomes? How are you thinking about your path to maturity for your clients?” Duffy says.  

At Parkview Medical Center, a non-profit, independent community hospital based in Colorado, cost is always the first part of any discussion, says Sandeep Vijan, MD, Vice President of Medical Affairs and Quality and CMO. He says the way the organization can justify any tech investment is by proving that it increases revenue and improves outcomes. 

“When you attach a project to a tangible metric, justifying the cost of investment becomes easier. Early on, most health care executives have to evaluate the risks, the benefits, the cost components of any technology they are going to deploy. You have to be acutely aware of the ROI before you deploy any resources. There has to be a tangible payout with finances and an intangible benefit in improving clinical care,” Vijan says.  

  1. What’s the differentiation? What are theuse cases?  

Soderland at BCBSMA says the company looks to see if the solution  provides some level of competitive differentiation relative to what is available in the marketplace or in-house? This means taking a look at the entire landscape and determining whether the company’s offering is best of breed based on its track record of metrics such as proven clinical outcomes, improvements in cost of care and experience measures like net promoter scores.

Duffy at Omada Health says that the industry has so many competitors that payers, providers, and employers are looking for diamonds in the rough. 

One way to potentially stand out in this regard is to show use cases, says Ziemianski. He says this helps because digital health and AI are utilized in such a broad manner across the industry that use cases can narrow the focus into clinical and operational circumstances.  

“I see a lot of organizations and a lot of people, they go into this with a boil the ocean mentality. They try to do everything. Until you build up the discipline and prove and validate your models, you can really get to a bad result faster,” Ziemianski says. “Understand what it is you are trying to accomplish and build your technology around that. That’s what we did. We picked out a few business use cases and attacked it from that standpoint.”  

  1. How easy will it be to integrate?  

There are significant operational considerations that are just as important, Soderland says. How intensive of an effort (time, dollars, resource commitments) will be required to integrate the offering into the existing IT infrastructure and business processes? Will the end-to-end customer experience be seamless or choppy?  Are there strong references regarding the ease of working with the company and their implementation results to date?  How does the offering fit with our existing portfolio of solutions, platforms and underlying capability roadmap?  Will the company be a good collaboration partner for BCBSMA and our provider partners?

Vygantas at OSF says one of the critical elements when he is evaluating potential digital health partners is the ease of integration into his organization’s existing workflow. He doesn’t want to see an additive component that would have to be overcome in order for the technology to be used properly. Like Soderland at BCBS Massachusetts, he also is evaluating how easy the company will be to work with on an implementation.  

“Often times, there’s pressure for companies to just the sell product out of the box and do less customization. On the flip side, for large customers like us, we require some customization, which will be derived from learnings from a pilot. So it’s actually quite challenging in that regard from the start-up company’s standpoint. You have to go through a period of time where there is a proof point for the hospital to make that decision and along the way you still have to customize the product to meet your customer’s needs,” Vygantas says. “But I guess that’s no different from any other marketplace where you’re adding value for the customer.”  

About the Author

Gabriel Perna, Senior Manager, Digital Content

Gabriel Perna is the Senior Manager of Digital Content at Health Evolution. He brings 10+ years of experience in covering the intersection of health care and business. Previously, he was at Chief Executive, Physicians Practice and Healthcare Informatics. You can reach him via email at or on Twitter at @GabrielSPerna