The tidal wave of investments that’s propping up the digital health industry may not slow down in 2021, but what about next year and the years to come? In part one of our series on digital health funding, we spoke to five digital health experts from five different areas of the health care system impacted by this trend.
Payer executive: Sukanya Soderland, Chief Strategy Officer and Senior Vice President for Blue Cross Blue Shield of Massachusetts
Provider executive: Aaron Martin, Executive Vice President, Chief Digital Officer, Providence and Managing General Partner, Providence Ventures
Investor: Bill Evans, CEO, Rock Health
Digital health executive: Sean Duffy, CEO, Omada Health
Industry analyst: Raj Prabhu, CEO and Co-Founder of Mercom Capital Group
In part one, these experts shared insights on how the trend has developed over the last few years, the role provider and payer venture funds and accelerators have played in accelerating funding, and COVID’s impact on increased digital heath adoption. In part two of our series, we explore the essential question that many health care leaders are wondering: Will this trend continue along the same path, or will it be a bubble that bursts?
Here’s what our experts had to say when we asked them to take out the crystal ball and look at digital health funding in the next few years. Plus: What role have special purpose acquisition companies (SPAC) played in the funding surge?
How do you see this digital health funding boom shaping out: Is this going to be a bubble that will burst, or will it turn into something sustainable?
Aaron Martin: It’s hard to predict. I grew up in an economist’s household. My dad is a PhD economist. There is an old economist joke that economists have called five out of the last two recessions. I am always a public market bear. I’ve called bear markets the last three years. Even with a pandemic, I was wrong. When the stock market swooned last year, I was right for the exact wrong reasons.
To me, the question is how fast does it slow down or deflate? What’s the retrenchment look like? If you’ve seen this pattern before, there is going to be a pullback. It’s inevitable. Just two to three years ago, I had made 16-17 investments and I think there was one exit. Everyone was in the same space. These companies were growing, but no one was getting bought, no one was going public. The game changers were the IPOs that happened early last year. Finally, you had companies who could be acquirers with public stock. Teladoc. Livongo. OneMedical. You started to see liquidity in the market.
Sukanya Soderland: My sense is that over the next ten years we’re going to see a marked shift in the health care landscape where digital health—which is health care that leverages the power of advanced computing and analytics to improve experience, outcomes and affordability—will take on a central role in our health care system. It will likely be a hybrid role of digital health merging with, and/or powering and supporting in-person healthcare to make it more predictive, preventative, efficient and effective. So, the question then becomes, what’s the magnitude and the pace of change within that ten-year period? There will be certain inflection points or triggers that might help accelerate that change or in contrast, elongate it. Those factors range from whether we have transformational regulation take hold, to the role of Big Tech or extra-industry players, to how much employers may upend the status quo, to whether providers and payers are going to significantly shift their business model. There are disruptive players in the digital health space that are looking to radically transform how the traditional incumbent health care models work. If some of those scale successfully, we may see this new future emerge more quickly. If they only make headway in pockets, it may be a 10–12-year journey.
Sean Duffy: In the 5–10-year time frame, the funding surge of digital health is going to result in huge businesses that deliver extraordinary value. There is no question in my mind. The path there almost doesn’t matter. So, I can’t say I know what’s going to happen with the market. I’d be in another business if I could predict that. The long-term trends point us in the direction of disruption, so if the world has gotten a little overzealous right now, that’s probably okay.
Bill Evans: Health care is fundamentally so large as a sector of our economy and so underinvested in terms of technology compared to any other industry that the opportunities to transform it and create tremendous value are just fundamentally huge. If that changes then I’ll change my tune. But right now, we’re still in the early and middle innings on transforming health care as a society. For any given privately held company, every investor has to ask themselves is the offering for securities in some venture backed startup priced to reflect those fundamentals or not? That’s true at all times.
Today, there’s a likelihood that we’re going to see some of the evaluations that are being offered go down. There are typically down rounds after periods of excitement and run up in any venture market. I think that’s quite possible for a fair number of companies at some point in the future, but with the fundamentals of transforming health care, we still have a lot of work left to do. And I think that there’s going to be a lot of well capitalized businesses that come out of this period who will be well positioned to carry that innovation on. The savvy investors and entrepreneurs are going to find each other during this period.
Raj Prabhu: A difficult question to answer, but I’ll take a shot at it. Just looking back 10-11 years, it’s good to see the numbers and trends in digital health adoption. When I look at them, there were only a few years where the funding kind of flattened a little bit, but we’ve never seen a significant decline in digital health funding. That being said, we’ve also never seen a spike like last year’s 70-80 percent funding increase year over year. If there is any bubble, I would say that would be the COVID bubble, meaning the COVID premium we got last year with regards to telehealth. That could flatten out a little bit as consumers go back and revisit their doctors and hospitals in person. The usage of telehealth apps will drop and then the revenues of these companies will start to slow down and that’s going to trickle down to the venture capitalists. They may start moving the money to other spaces within digital health. That is one area I think where I could pretty much predict we will see some sort of a slowdown in these technologies that got a boost solely because of COVID.