Health IT

6 things that make digital health investors go hmmm

hmmmIn the past few weeks of attending digital health conferences, I’ve picked up on a few themes based on investment priorities identified by some venture capitalists and others offering startups advice. But even when investors are bullish, questions linger on the strength of their bets. I’ve outlined a few here but feel free to share your own observations in the comments section.

The rise of behavioral health startups

The Rock Health Summit, Stanford Medicine X and Health 2.0 each had strong representation by behavioral health technology companies and a steady stream are making funding announcements. As entrepreneurs like David Cohn noted earlier this month, mental health has always been separate from the rest of healthcare, making access more difficult, reimbursement limited and reigning in chronic conditions more challenging.

But with depression as a potential cause of some chronic conditions and barrier to managing them, some see technology from supplementing underserved areas through telemedicine to improving care coordination, and providing peer support as a way to begin to bridge that gap. Companies such as SilverCloud, Prevail Health, Lyra Health, and Big White Wall, represent a handful of them.


Ann Lamont, a managing partner with Oak Investment Partners who heads up a growth venture capital fund targeting healthcare IT and fintech called Oak HC/FT, noted that behavioral health startups are providing a way to address the challenge of improving care for dual eligibles.

“Dual eligibles are one area. They are the sickest of the sick, covered by Medicaid and Medicare. It’s a $300 billion market opportunity, but there are no tools to address these people. We have funded Quartet Health to connect silos of behavioral health and medical health.” She added: “The real issue is when you look at people with multiple co-morbidities that also have behavioral health issues. If you target the population underserved by behavioral health, the lightbulb finally goes on.”

The question that has proved vexing is how to successfully integrate mental health data with electronic medical records without creating another silo. Concerns about violating HIPAA are matched by concerns by therapists that making their clients’ records available in digital form or integrated with EMRs will make them vulnerable. Will any of these companies be able to make a difference in this debate? Will their success depend on state policies that make sharing this data easier?

What’s the future of the direct-to-consumer model in healthcare?

Admittedly this is one I have been thinking about a lot lately but it came out of a panel discussion of venture capitalists at Stanford Medicine X after a couple concluded that business to business or business to business to consumer were the only areas they viewed as viable models for investment. But there are plenty of digital health companies going the d2c route. Is that a viable, longterm  business model in healthcare too or is it just a means to an end to gather enough data from users to prove a technology’s worth?

I’ve seen more than a few take the d2c approach until they have enough users. I should point out that I am not talking about content-led apps and websites.

In a conversation with a venture capitalist at Health 2.0 who wished to remain nameless, he pointed out that even with a b2b2c model, entrepreneurs still have to get the “c” part right or it falls apart. He also was skeptical about clinical validation as being a major advantage. “Getting providers stamp of approval w clinical validation is like getting a hunting license. It’s useful, but it’s not an end all be all. You still need to win over consumers.”

What does Better’s fate say about digital health’s future?

On an equity analyst panel at Health 2.0, David Francis, RBC Capital Markets managing director and analyst covering health IT and distribution services, observed:  “There’s a lot of money sloshing around health IT. You will see a massive shakeout in the next two to three years of smaller companies that fall short.”

Few would disagree on this point, although they might dispute which companies will be among those that survive. Another question is how will it start? Will there be any one company that will be the poster child for the start of this trend or will it be more likely that companies simply fade from existence? It is likely to be the latter.

As much as pharma insiders and startup mentors say fail early and fail often, lest a product that isn’t good enough to succeed advance to a late stage, a failed healthcare startup continues to be viewed with embarrassment and something to be hidden from view. That makes the news of Better’s end at the Rock Health Summit even weirder.

Sovereign wealth funds investing in healthcare

A handful of companies I have spoken with lately told me about collaborations with governments outside the US and a couple are receiving some form of investment from them. What are the implications for risk management?

Do payers have confidence in population health analytics companies yet?

Population health analytics companies have been successful at attracting funding, getting support in the public market and big tech companies such as IBM. But they still need to prove they can save health systems money, at which point insurers will reimburse them and providers will adopt them in greater numbers.

Is price transparency still attracting investment?

I was struck by how little I heard about price transparency at Health 2.0 and the other conferences considering the time that has elapsed since Castlight Health’s IPO. But even Castlight has recognized that it takes more than price transparency to succeed and it’s diversified its services accordingly. There were plenty of panels I missed, so it’s possible these talks happened in my absence. One investor I spoke with said he was bearish on price transparency as large insurers are working to provide this information themselves, not to mention Medicare. Data transparency along the lines of doctor’s notes and patient EHR info, by contrast, was more frequently referenced.

Photos: C+C Music Factory video

No comments