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Markets are teeming with the latest Rock Health Report on digital health funding in the first half of 2021. At about $15 billion, the funding exceeds the amount allocated for the entire year of 2020.
All is well: deal sizes, deal sizes, merger and acquisition activity, initial public offerings and SPACs. By all indications, the digital transformation of healthcare is fully underway, and it’s time to celebrate like 1999.
However, what the explosion in venture capital funding data isn’t telling us is how all these heavily funded startups operate in the market.
Health systems are rapidly changing their healthcare delivery models with online access tools, patient engagement, remote monitoring, and other virtual care modalities. Digital transformation leaders also grapple with fundamental questions: how much to invest in these efforts, who to partner with, and how to effectively implement on multiple fronts.
While COVID-19 has accelerated the shift towards digital health, it has also significantly increased workloads for CIOs and chief digital officers.
Vitality arrived Mike Restuccia, CIO at Penn Medicine in PhiladelphiaPost-COVID-19 normal appears to be very similar to pre-COVID-19 normal – plus a plethora of other responsibilities and activities.
In addition to traditional IT functions, such as managing infrastructure and improving electronic health records, it has added the post-COVID-19 era to workloads in the form of more “remote”, more digital patient engagement and more remote patient monitoring – all big lifts. From an information technology perspective.
The ‘abundance problem’ for healthcare organizations
There is an unprecedented opportunity for digital health solution providers, arising from the digitization of essential care delivery services. The opportunity is big enough to justify the proliferation of digital health startups (more than 5,000 deals funded since 2010, by one appreciation).
Some startups are really innovative. Others compete with other startups by offering similar services. Still others focus on ever smaller areas of differentiation and value creation. (Damo Consulting digital health intelligence The database identifies at least 15 companies that offer digital payment solutions.)
Startups spend massive amounts of venture capital money on advertising, marketing, product development, and customer acquisition.
Health Systems are reducing their technology footprint today and aggressively standardizing their information systems for flexibility and cost-efficiency, leveraging a range of enterprise technology vendors to meet the bulk of their needs.
They are reluctant to bring in digital health startups, raise entry thresholds for startups to mitigate risks, reduce vendor outreach and reduce administrative expenses.
Many health systems are going a step further by taking ownership stakes in promising start-ups, thus making a long-term commitment to a group of innovative solution providers, likely accompanied by phasing out other incumbent vendors with similar solutions.
For their part, digital health startups are struggling to stay relevant. Rapid consolidation of digital health startups seeking economies of scale and enhanced customer relevance is driving a boom in mergers and acquisitions. Consolidation is as much a consequence of the threat of marginalization as it is of demands from the organization’s clients.
From huge deals like Livongo Teladoc for the youngest like Major Doctor Tours On DemandThe pursuit of scale and continued relevance has been a driving factor for digital health companies.
The challenge for leaders in the digital transformation of the health system now is to choose among many potential solution providers for long-term relationships, especially among relatively young companies that have small founder-led teams and rely on venture capital funds to keep the lights on.
Trifecta for Digital Health Solution Providers
For digital health companies to succeed, they must have three factors right: low cost, operational scope and quality of service.
After announcing the launch of Amazon Care for virtual primary care and home care for all 50 states in May, Amazon revealed that it would need to hire “Thousands of employeesTo expand the scope of the service.
This was a challenge that Amazon did not anticipate or underestimate. On the promise of providing access to a doctor in 60 seconds or less, the problem of scaling becomes a critical obstacle to delivering the promised levels of service.
Apple, the other big tech company that has made a deep commitment to the healthcare sector, is too She mentioned that she is struggling, albeit for different reasons.
Apple’s consumer-focused healthcare apps like sleep monitoring, a heart rate indicator and the recently launched hand washing app (my favorite) are high-quality services that nonetheless lack in the overall healthcare experience.
Despite the integration with patient data in electronic health record systems, the applications function as stand-alone solutions. Importantly, doctors don’t necessarily refer to Apple Health app data in patient care, an additional factor that could slow services growth.
Where does that leave digital health startups? Despite the lack of scale and largely unproven product offering, giants like Amazon can offer services at low cost indefinitely until they get the trifecta right.
For many digital health startups, time and money are lacking, despite the latest venture capital funding data favoring more mature startups and subsequent funding rounds. These companies are left with limited options, offering low-priced services to gain market share and bypass the hour.
The biggest digital health companies are fighting this dreadful battle today, and they continue to take losses to pursue market share and growth. When tech giants cannot demonstrate a path to sustainable, profitable growth, startups must adopt different approaches to survive.
They rely on flexibility and consolidation to maintain existing clients while using venture capital funds to support new clients, in the hope that they will turn a profit or more likely find an exit for investors through a liquidity event.
The markets for digital health solutions are in an exciting state of hyper-growth – at least as measured by the amount of venture capital flowing into the sector. For many startup founders, cash flow and astrological reviews may be exactly what the doctor ordered, providing them with a platform to improve their product offerings and build lasting relationships.
For others, it may just be a delay to the inevitable. Today it is difficult to say which one. The challenge facing the clients of their health system has become more complex.
Paddy Padmanaban is the author of the book The digital transformation of healthcare – How consumerism, technology, and the pandemic are accelerating the future. He is the founder and CEO of Damo Consulting.
