By Jeff Byers, Meg Bryant, Shannon Muchmore | JAN 4, 2018
It’s been a blockbuster year for digital health investment.
Total funding by mid-December hit $5.6 billion on about 326 deals with a couple weeks left to go — well ahead of 2016’s $4.4 billion, Rock Health shared with Healthcare Dive. The average deal was bigger, too, hovering around $17 million versus $14 million last year. By StartUp Health’s count, funding was even higher, topping $9 billion at the end of the third quarter. The two companies use different funding methodologies.
With providers focused on improving patient outcomes, reducing costs and population health, funding poured into categories like genomics and sequencing, telemedicine and artificial intelligence/machine learning. This year also saw FDA guidance on medical device interoperability and clinical decision support software.
Lingering uncertainty about the Affordable Care Act and the President Donald Trump administration’s pace on healthcare reforms could affect 2018 investment in digital solutions for things like bundled payments, but there will be plenty for investors to get excited about.
Here are some digital health trends to watch in the coming year.
AI and analytics
Artificial intelligence and cognitive computing will stay hot in 2018. But while much of the focus has been on retrospective data analysis and developing lists of patients to target, the year ahead will see a shift to solutions that offer more viable case use for predictive analytics, says Brian Eastwood, analyst at Chilmark Research. This is especially important for organizations that are entering more risk-bearing ACO-type reimbursement models.
“We think next year is when we’ll begin to see these solutions go beyond simply accounting for and noting social determinants of health and barriers to care and start to use that information to inform care plan decisions,” he told Healthcare Dive. Vendors able to adequately take this on will emerge as key players in the care management and population health markets as the year progresses, Eastwood adds.
Megan Zweig, director of research at Rock Health, agrees. While wearables and biosensors are still getting funded, investors are less interested in general fitness and wellness and more excited about specific clinical use cases these technologies can support, she says.
Expect a continued focus on machine learning to support diagnosis of disease as well. Tools that leverage image recognition techniques to enable physicians to quickly detect abnormalities in a CT scan or MRI to make a diagnosis generated much investor enthusiasm last year and will again this year.
Patient engagement and management
On the patient engagement side, the focus is on finding ways to bridge the gaps in episodes of care. There is a lot of interest in tools like those sold by Omada Health, Livongo Health and Canary Health, which offer more holistic chronic disease management, notes Eastwood, though lack of reimbursement has kept some providers from jumping on board.
A huge market is also emerging for tools meant for consumer use, but sold through the B2B2C model. For example, Chatbot-type products that assist with ongoing health maintenance could help relieve case managers of some of the repetitive aspects of the patient follow-up process.
Large EHR vendors are also pivoting toward the population health and care management markets with more interactive portals and multidimensional products.
As the digital health market matures, it will become harder to talk about patient engagement without talking about population health and AI. Similarly, population health, EHRs and care management are entangled, Eastwood believes.
As a result, products focused on siloed solutions will have trouble differentiating themselves in 2018 and beyond. Providers and payers will be looking for more integrated software — sort of an all-in-one product — that accomplishes multiple goals — from patient engagement to diabetes management to messaging and billing.
Tech giants will continue to carve out space in health IT
When it comes to mergers and acquisitions, watch the tech giants.
Google, Apple, Amazon and Facebook will keep chasing healthcare ”in noncompetitive ways driving a new wave of activity, M&A, investment and entrants to the space,” according to Unity Stoakes, co-founder and president of StartUp Health.
2018 could also be the year when Amazon reveals its plans for digital health. Last month, CNBC reported that Amazon Web Services (AWS), Amazon’s cloud services business, is in the final stages of discussion with Cerner on a deal involving the payer’s HealtheIntent population health management tool. The question, says Bill Evans, managing director and CEO of Rock Health, is whether Cerner simply wants to use AWS or whether collaboration would go well beyond that to leveraging the data in Cerner’s cloud. “We’re going to find out in 2018,” he adds.
With its strength in IT infrastructure, Eastwood also thinks Amazon deserves watching. Even if the agreement with Cerner doesn’t bear fruit, they could be hosting clinical trial data or helping some of those smaller startups and mid-size organizations improve data security and modernize aging infrastructures, he says. That could alter the way that healthcare is delivered.
Cloud computing will be more popular
With gathering and analyzing large volumes of data becoming an essential part of evaluating and improving care quality, more providers are turning to cloud computing. The trend is expected to ramp up quickly in the coming years. Recent reports predict the health cloud computing market will hit $10 billion by 2021 and nearly $15 billion by 2022.
Hospitals have been relatively slow to move toward using the cloud, not unusual for an industry notoriously resistant to change. Providers are finding, however, they often don’t have the capacity to handle the reams of real-time data used to evaluate safety and care quality.
A recent Frost & Sullivan report found cloud solutions for provider storage will increase to more than 50% this year, compared to 35% in 2015.
Natasha Gulati, a health industry analyst at Frost & Sullivan, said drivers in cloud usage beyond increased amounts of data include an increasing need for organizational agility in response to changing healthcare regulations, higher penetration of EHRs, and the digitization of other aspects of healthcare.
However, not everyone is ready to embrace the cloud, Gulati said. “At the same time, a number of providers with on-premise systems may want to try to sweat their assets as they do not want to ignore the sunk costs. These will be the laggards across the industry,” she said.
In the coming years, major areas of cloud adoption will include telemedicine, patient engagement and health analytics-as-a-service. Cloud platforms will also be used more for leveraging patient information gathered at multiple care points, Gulati said. “Population health management is a prime example of this,” she said. “Private cloud models have been the deployment choice so far but as industry regulations become clearer, adoption of hybrid models for de-identified health information will increase.”
Hospitals are of course still concerned with keeping patient data private, but Sid Shah, industry analyst at Frost & Sullivan, said cloud computing tech is making security a priority and has more resources to dedicate than most provider organizations.
“It will probably be more secure than it’s possible for hospitals to do themselves,” he said.
Gulati said cloud solutions will eventually need to go behind the provider. For data exchange to be meaningful it needs to be vertical as well. “Ultimately, everything is about the data. Money lies in creating innovative services, such as management, exchange, integration and analytics using cloud technologies,” she said.
The re-emergence of PHRs
In a strange turn of events, the concept of the much-maligned personal health record (PHR) arose as a talking point for a new wave of vendor solutions. Many believe PHRs are primed to reenter the healthcare vernacular.
The crazy thing is that it’s not impossible. As the distributed network of care services is created with payers pushing patients to low-acuity settings and telemedicine inching toward collective consciousness, patients want to have their data in one place.
In theory, a cost-conscious and engaged patient would manage a PHR to help share information across their caregivers.
Past efforts have not been kind to PHRs, but the fact that it’s in discussion again is a testament to how legacy health IT vendors may not be offering what providers and patients want: a way to share information across platforms.
Epic has picked up on this and announced it will allow patients to give their data to any provider with network access. While that act alone won’t solve all the issues surrounding the state of health IT’s problems, it’s a nice foot forward and part of a larger strategy to make the EHR more comprehensive.
The company’s competitors have also signaled more openness, leading to what could be the next stage of an EHR’s evolution. Of course, standards will have to be that — standards. If companies can’t agree on what those are, then true data sharing will still be a long way off.
One big question: Will we see ROI?
2018 could also be the year when investors start seeing ROI on their investments. One reason is that a number of products are starting to publish clinical results in conjunction with provider organizations that attest the value of their product. “There will be an effort to look more closely at the impact on health outcomes and cost savings and not just ‘is this a cool idea?’” Eastwood says.
The quick downward turn of some startups is also causing investors to demand more of firms before they give their money, he adds. They are checking whether a company has a chief medical officer on staff, whether it has results to show or beta customers lined up. And they are looking to invest where there will be clear connections to healthcare stakeholders.
“You see investors being a lot more scrutinizing with the companies that they’re looking at and looking for a quicker path to ROI,” Zweig says.
Next year could also see a slump in Seed and Series A funding rounds, according to Stoakes. While 2017 was the strongest year yet for both categories in terms of total dollars, there was a notable dip in total deal count, he told Healthcare Dive in an email.
According to Zweig, it takes about 10 years and $130 million to $134 million in venture funding for a company to go public. By that yardstick, a number of digital health companies are prime for IPOs, she says.
That said, the U.S. stock market overall is getting smaller and companies are delisting faster than new companies are filing IPOs, notes Evans. “There’s money piled up in private investment … that needs an outlet, and the pressure is growing. Unfortunately, there are other issues in public markets right now — a lot of consolidation, a lot of M&A taking place — so these companies are bigger than ever, but they are fewer than ever,” he told Healthcare Dive.
Digital health exists within that larger industry trend and faces the same problems.