By any reasonable standard, digital health technology has a lot of growing to do. From remote patient monitoring to medical apps for smartphones and tablets, wearable health monitors to Google Glass, the opportunities for digital health to impact care are enormous.
Not surprisingly, investors are aware of this and are funding digital health startups at a rapid clip. A couple of statistics paint the picture: A July report by Mercom Capital Group noted that VC funding and M&A in the healthcare IT sector both had record numbers in the second quarter of this year. VC funding saw $1.8 billion raised across 161 deals, a 104% increase from the first quarter of the year, Mercom reported. Another report published in July, this one by San Francisco-based digital health seed fund Rock Health, found that during the first six months of this year, 143 digital health companies raised $2.2 billion, with deal sizes climbing from an average of $10 million last year to $15.6 million this year.
According to Reuters, investors are particularly comfortable investing in firms that gather and analyze healthcare data, hoping to ride the industry-wide move toward electronic records, big data and consumer use of personal devices to collect that data. These investors feel that health IT firms have a predictable path to profit by selling both services and data to payers, hospitals and physicians.
But with all this money chasing digital health firms, many of which are offering interesting but untested approaches to the management of consumer health, it's obvious that there's going to be some that die off at some point soon. We've clearly got a market frenzy underway here; the only question is when the air will be let out of the bubble.
Finding the right model
Even a massive market like healthcare data can only sustain the hypergrowth VCs demand if the startup in question has picked just the right spot. And it's still very much in question which digital health approaches are going to win over both consumers and healthcare providers.
One bright spot in the digital health marketplace is an emerging group of companies delivering telehealth services to consumers. Firms like American Well, HealthTap and Doctor on Demand, which offer audio and video conferencing with doctors to consumers, are rapidly carving out a niche for themselves despite ongoing regulatory challenges.
Wearable data tracking devices are also becoming an established part of the digital health scene, with devices such as health tracker Fitbit at a comparatively mature stage and consumers eager for the latest in smart watches from vendors ranging from Apple to the out-of-the-gate phenom Pebble.
Outside of these categories, the picture is blurrier, with startups and consumer tech giants like Google competing to offer a unifying consumer data solution that will both help patients care for themselves and help doctors track patient behavior. There's countless ways get this job done, but it's likely only one or two will become the default mode.
The bottom line, here, is that while investor enthusiasm is understandable, they are throwing money at models which are promising but poorly-defined and don't have widespread support in the market as of yet. The excess of capital chasing such solutions is, to my mind, the definition of a bubble. Within a year or two, expect to see a lot of speculative digital health companies bite the dust.