Telemedicine, big data among those leading the race for health IT's billions
Venture capitalists are becoming more niche-specific in their investments and looking for networked opportunities.
Last year was a breakout year for digital health funding, with over $8 billion invested in more than 500 startups, according to the latest report by StartUp Health. The sector drew over 200 new investors during the year, with heavy support for early-stage startups. Investors looked for solutions that deliver care and content and tackle some of big-time challenges as the health system shifts to value-based care.
Despite uncertainty around repealing the Affordable Care Act (ACA) and other regulatory changes the President Donald Trump's administration could make, experts say venture capital funding in digital health and health IT is likely to remain strong in 2017.
Investors will continue to back innovations that attempt to reduce costs, improve access, or transform business models, says Unity Stoakes, cofounder and president of StartUp Health. “The genie’s out of the bottle and regardless of what happens with health reform, there’s a wave of activity and a wave of investment into companies that are focusing on those solutions.”
Categories that are hot right now include data analytics, telemedicine, connected devices, population health, patient engagement, and behavioral health.
“The biggest tragedy has been that payers have looked at behavioral health as 5% of [healthcare] costs, when it’s really influencing probably 40% of costs,” Annie Lamont, managing partner at Oak Investment Partners, told the National Health Policy Conference in Washington, D.C., last week. Her firm has invested in Quartet, a software and services platform that integrates behavioral health with primary care and lets patients schedule a telehealth visit or find someone in their network to treat anxiety or depression. “We’re one year into this company and we’ve already seen data about saving costs,” she said.
Between leveraging data analytics, machine learning and telemedicine, a lot of the excitement now is about delivering better care in either more data-centric or patient-centric ways, says Karen Griffith Gryga, chief investment officer for DreamIt Ventures.
Many of these innovations have direct implications for hospitals. Eko Devices, a noninvasive sensor that providers and patients can use to monitor cardiac condition, could help hospitals reduce the 25% of patients with chronic heart failure who are readmitted within 30 days and avoid costly Medicare penalties. “Eko enables the hospital to intelligently and remotely monitor these patients to look for any indications that they having problems,” says Gryga, adding the company hopes to become the Shazam of heart sounds.
Another, Oncora Medical, is using big data and machine learning to drive personalized approaches to radiation oncology treatments, while Redox is solving interoperability by bridging legacy health systems to newer cloud-based systems.
One trend Stoakes has seen over the last six months or so is what he calls “leap forward” innovations — solutions that dramatically change the business model, workflow or the way patients interact with the healthcare system and how providers spend their time. “These types of investors believe that 80% of what a physician’s doing can be either augmented or replaced by technology so that those providers can focus on what they do best, which is treating patients,” he tells Healthcare Dive.
Telemedicine and anything that allows people to access care from home or other sites outside the hospital will continue to attract funding, Stoakes says. He envisions a day when there are health solutions designed into self-driving cars where a person’s commute becomes a health visit.
“There are a lot of really exciting things going on that are bundling together a lot of technological innovations of the last decade, like mobile, smartphones, sensors and sensor-enabled devices,” he says.
Thousands of different solutions are being offered to fix today’s challenges in healthcare. “The next wave of innovation will be someone who ties all these things together,” Stoakes says — something akin to an Amazon store where you can find everything in one place. “You’re starting to see these platforms develop and I think health systems need to pay attention to this because it’s going to make a significant impact on how they treat patients and how they do business in the future … I’d say within the next five years,” he adds.
The other trend he sees is that venture capitalists are becoming more niche-specific in their investments. There were over 200 new investors in health IT and digital health last year, according to StartUp Health. Investors are focusing on specific areas within the sector like behavioral health or genomics rather than health IT more broadly.
They are also focusing on cost-saving medical technologies even before there is proof of improved outcomes, reflecting the shift in reimbursement to value-based payments, according to a recent Health Affairs blog.
“In the new environment, traditional cost-increasing physician preference items are being adopted by hospitals, and hence generating a financial return for investors, only if they have exceptionally strong evidence of improved patient outcomes,” the authors write, noting early-stage products lack clinical evidence on outcomes. “However, devices and diagnostics that reduce costs or improve safety are finding hospital buyers even if they don’t have evidence of improved outcomes.”
Investors are looking for more traction in the companies they back as well, according to Gryga, who’s seen a slowdown in Series A funding by companies that successfully raised seed funding. The percentage has dropped from 25% historically to 11% today, she says, a combined result of a dramatic increase in capital and the number of companies achieving Series Seed round and the fact that capital deployed in Series A financing has increased but the number of transactions has remained flat.
“People are more cautious,” Gryga tells Healthcare Dive. “There’s concern that we’ve been in this eight-year macroeconomic environment and there’s concern around the changes with the Trump administration.” That’s causes investors to set higher milestone requirements for continued investment, she adds.
Healthcare Dive's Jeff Byers contributed to the reporting of this article.