The Accelerated Maturation Of Digital Health: Thoughts From HLTH 2021

 By Karl Hess, Senior Advisor

What a Difference a Few Years Makes

For attendees of this year’s HLTH conference in Boston, the location and climate were only some of the differences from 2019’s Las Vegas-based summit. Indeed, while consumerism, virtual reality, disintermediation of payers, fertility solutions and social determinants of health were leading themes in 2019, >$35B in venture funding coupled with a global pandemic and hundreds of M&A/partnership deals have dramatically changed the digital health landscape as we get ready to enter 2022. And, while many of the same players were in attendance (e.g., Wal-Mart, Microsoft, Google, Amazon, CVS Health), the current environment looks and feels much different than it did two years ago.

And what environment do we find ourselves squarely in the midst of? Well, judging from conversations I had, sessions attended, and general advertising throughout the exhibition center, all things “virtual” are poised for takeoff. As mentioned in Outcome Capital’s Digital Health Sector Report, the COVID-19 pandemic drove consumer/patient choice and optionality and whetted the appetites of many Americans to the benefits of virtual care. As a response, a plethora of both traditional healthcare stalwarts and digital health companies have pivoted to include virtual visits, voice-enabled services, chatbots, and remote patient/therapeutic monitoring solutions to satisfy the unique exigencies – and forcing function for all things “virtual” – of the last 18 months. Separately, niche-focused players are developing their own solutions to address women’s health, musculoskeletal conditions, mental/behavioral health and healthcare access/equity. Taken together, this year’s HLTH conference showcased a handful of traditional players, who have refined their value propositions and offerings over the last couple of years and are now laser-focused on product adoption, and other newcomers who have been quick to capture the opportunities of new reimbursement codes and societal COVID-19 headwinds and tailwinds.

It’s Going to Be a Hybrid Future

Far and away, the most resounding theme of HLTH 2021 was the “hybridization” of healthcare. Wherein, traditional healthcare stakeholders (payors, providers, employers) are scrambling to build/assemble solutions across the care continuum to create virtualized, end-to-end (Dx to Rx) solutions which are integrated with traditional in-person assets and options. For entrepreneurs in the space, this means strategic interest is shifting towards patient outreach and engagement, care navigation and coordination, and the automation of traditionally manual processes such as scheduling and intake. Downstream e-prescribing, follow-up, billing/claims and referral management are also undergoing virtualization, with the hope being to enhance patient care and reduce costs by minimizing patient attrition and maximizing patient engagement across the consumer-as-patient journey. A backdrop to this theme is a maturing and “digital native” millennial/Gen Z population who fully expect their healthcare experience to be tech-centric and on-demand.

The Waves of Consolidation Are Already Crashing

A more concerning theme of HLTH 2021 was the struggle to discern a company’s value proposition via its marketing and advertising. While global strategics are blurring the line between consumer and clinical health, it behooves start-up and middle market companies to be clear in their value proposition and messaging. Said differently, while consumer optionality is ramping up, so too is the overall “noise” surrounding digital health, particularly for those shopping for a defined solution type.

What is being witnessed now is a transition in digital health from an “emerging market opportunity” to a mature market with defined players and market share. Similar to any high-growth industry with too many participants, digital health is on the precipice of major consolidation. As proof, one need not look further than the recent $400M Lemonaid Health acquisition by 23andMe, who now offers a telehealth and pharmacy business to complement their market leading genetic testing franchise. Other relevant dynamics supporting consolidation include:

  • Unprecedented Funding: Between Q1-Q3, 2021, $21.3B poured into the segment with an average deal size of $39M.
  • More Offerings: Health-related mobile applications now surpass 350,000, with more than 90,000 digital apps added in 2020 alone; amounting to >250 apps per day. As a reference point, there were only 165,000 such apps in 2015.
  • Lack of Differentiation: Despite efforts to differentiate via messaging/marketing, many digital health start-ups are starting to resemble “me too” services and products. Undercapitalized and developmentally early, many recent start-ups in the space will find themselves struggling to raise capital and gain market share.
  • Hyper Growth + Labor Shortage = Bottleneck : A disheartening trend shared among many if not all digital health management teams is the struggle to attract and retain talent. Nearly every company showcased at HLTH seemed to be interested in two things: drawing attention to its offering(s), and looking for its next hire. As digital health companies find themselves flush with financing but unable to build organically, interest will in turn shift towards “talent acquisitions” via M&A.

The tag line for HLTH this year was, “Dear Future, We’re Coming for You!”, and while I enjoyed my time at HLTH, experience tells me the road to the future of healthcare will be quite bumpy, and indeed even perilous for some. That’s why Outcome Capital is excited to help management teams navigate these uncertain waters and bring the full value of their company to the consumer and their shareholders.

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