Note To Reader – As some of you know I recently left Health 2.0 after a great three year run. Over the last few weeks I’ve spent time reflecting on my experiences and thinking about the future of digital health. This piece, which has been broken into three posts, is a distillation of my thought process and culminates in an idea for advancing digital health innovation. Today I’m publishing Part 1, and will be publishing the other parts over the next few days. I appreciate your thoughts and suggestions on how to move forward, so please feel free to comment. Thanks for your time. JL
Digital Health Is Taking Off – Believe The Hype
It’s a very exciting time in the world of digital health (or “e-health” or “health tech” or whatever term you’d like to use). Back in 2007 when my buddy Ed Shin (now CEO/founder of Quality Reviews) and I launched our online clinical trials matching company, Healogica, nobody seemed to care about technology-focused health companies. In “those days” everybody was obsessing about “Web 2.0” companies and the big ideas of the day: social networking, social media, user-generated content, etc. Digital health definitely wasn’t sexy.
Fast forward a few years, however, and it’s amazing how much the digital health industry has evolved. Until recently, I was the Director/GM of the Health 2.0 Developer Challenge program, where I worked with large health stakeholders and digital health innovators to solve interesting problems using technology. Over the course of three years, I watched interest in digital health EXPLODE with thousands of individuals and many-hundreds of companies creating new products and services to address a wide range of health care problems.
Major pieces of legislation like the ACA, ARRA-HITECH, and America Competes are creating many new opportunities in digital health that simply didn’t exist before. The excitement around the space is palpable and highly reminiscent of the mood in the early internet days (depends on your perspective, of course, but I’m talking circa mid-nineties).
You Want Evidence? I Got Your Evidence Right Here!
To understand how much has changed let’s take a look at investment in digital health companies. MobiHealth News analyzed 10 years of publicly disclosed funding data (see graph below) for “patient-facing digital health companies”. Their analysis showed that funding for digital health companies increased every year from 2002 to 2012 (except for a slight drop 2009), totalling $939 mm in 2012 (up from only $6mm in 2002).
While the Mobihealth data shows a funding dip in 2013, a report by RockHealth showed a 39% annual increase in venture funding for digital health companies in 2013 (totalling $1.97 B), and recently-released data from Q1 2014 show an 87% (!) year-over-year increase from Q1 2013. Health 2.0, in a report using a more precise methodology to determine funding levels (they include venture funding, angel funding, and other sources), showed that funding for the digital health sector increased from $1.61 B in 2012 to $2.31 B in 2013, a year-over-year increase of 43%. Bottom line – a lot of money is being invested in digital health now and that amount is growing steadily.
What’s even more encouraging is that investment in digital health is now being rewarded with meaningful exits. In the last month we had TWO digital health IPOs: Castlight Health (CSLT), the SF-based health transparency company, and Everyday Health (EVDY), the NYC-based digital media and content company. By going public, these companies have shown that it’s possible to build a significant digital health company AND achieve a significant exit, something that many investors have been dubious about for a long time. An increasing number of acquisitions of companies like MapMyFitness, Avado, and Bodymedia has also strengthened investor confidence.
There are a number of other really well-positioned companies out there like ZocDoc, PracticeFusion, and Vitals that could also IPO or be acquired soon, and it will be exciting to see where they end up. I believe that success begets success and predict that the strong financial performance of digital health companies will continue to drive investment and growth in the space.
Meanwhile, Back In the “Real World” Of Health Care
Despite all the money invested, all the new companies formed, all the talented people who have come into this industry, and all the hype, the truth is that very little of the innovation that we are collectively building is making its way into the “real world” of hospitals, clinics, pharmacies, nursing homes and other places where health care is delivered. Why does this matter? Well, if you want to innovate and slow the relentless upward climb in health care costs you have to go, as Willy Sutton (might) say, “where the money is”. Where the money is (see chart below) is in hospital care and professional services (almost 60% of total national health expenditures) – i.e. direct health delivery.
Ask yourself, however, what has changed at your local hospital or doctor’s office since the foundation of WebMD, the first big digital health company, back in 1996? What percentage of doctor visits are booked online? What percentage of prescriptions are filled online? What percentage of provider-patient interactions happen virtually? Ask yourself a similar set of questions about any other industry – banking, retail, entertainment – and you realize that the health system you and I experience every day is still phenomenally ANALOG.
I will admit that there has been some progress made in the use of technology to deliver health care, particularly in the area of electronic health records (EHRs). A recent study showed EHR adoption increasing year-over-year across all provider group sizes (small physician office, large physician office, and integrated health system), with the overall adoption rate in 2013 being 61% (vs. 50.3% in the prior year). I think everyone would agree that the adoption and use of electronic health records is a good thing.
The cynic in me, however, would like to point out that the increased adoption of EHRs has been fueled by big-time government incentive programs that won’t go on forever. The part of me that “keeps it real” would also like to point out that the incentives have driven the adoption of antiquated legacy EHR systems that primarily allow providers to bill more aggressively, and don’t really improve the quality of health or the health experience.
Aside from EHRs I’m sure that there has been some progress made in other places, but overall I think it’s safe to say that we’re not anywhere close to where we need to be.
Next Up: Thinking Out Loud About A New Approach To Digital Health Innovation – PART 2 (Coming Next Week). In the next post I’ll talk about the issues holding us back and how we addressed the innovation problem at Health 2.0.