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Tag: Digital health investing

The Reckoning: What Happens to Digital Health After COVID?

By JEFF GOLDSMITH and ERIC LARSEN

It has been a rough year so far for digital health. After an astonishing $45 billion poured into new digital health companies in 2020 and 2021, and an early 2021 peak in market valuations of publicly-traded digital health providers, valuations and multiples have collapsed. Once high-flying Teladoc, which traded at an eye-watering 42x revenues and commanded a $45 billion market capitalization, is now trading around 2.7X at about $5.7 billion. AmWell, the next largest telehealth player, has seen its stock drop more 90% from its high.

Nor is the evaporation in market value is confined to just a few highly visible incumbents. The 29 healthtech companies to go public (either via IPO or SPAC) in 2021 were collectively trading 45% lower than their opening day price by the end of the year, according to STAT. Among the privately held firms, re-valuation of digital health is getting underway. Bearish market signals portend a sharp correction in digital health, characterized by brutal price competition, widening (and less tolerated) operating losses, layoffs, and ultimately, widespread consolidation. 

However, there is also major pushback from the ‘demand side’ of the digital health equation. With the explosion of digital health players, potential customers are confused and frustrated. There is a fundamental disconnect between the exuberant (and as yet largely unsubstantiated) promises of digital health startups and the needs of the four ‘phenotypes’ of health care customers. How digital health firms respond to those customers’ needs will ultimately determine the shape and size of the digital health market.

Why is the Digital Health Market Correcting?

Let’s start with the supply side. It is not difficult to identify the source of the digital health boom: hyper liquidity in the market fueled by expansive COVID-related fiscal and monetary policy. In the heat of COVID, Congress enacted three enormous stimulus/relief packages in eighteen months. The Federal Reserve also turned deeply dovish, keeping interest rates near zero and embracing epic quantitative easing – pumping $120 billion a month into the economy and expanding its balance sheet by more than $6 trillion. Much of this newly printed cash found its way into the coffers of private investors. Private equity, growth equity, and venture capital collectively raised $733 billion in new capital across 2021.  Globally, private equity firms alone invested $151 billion in healthcare in 2021.

Telehealth Ignition

The spark to ignite the digital health explosion came from the surprise growth in telehealth visits in the spring of 2020. In the wake of the spring 2020 lockdown and freeze on elective hospital care that accompanied the COVID public health emergency, telehealth visits went from less than 1% of total Medicare Part B patient visits in 2019 to nearly 13% during the spring of 2020 (and nearly 38% of all behavioral health visits), according to an analysis by DHHS’s ASPE. Private insurers saw 50-70% of behavioral health visits turn virtual.

This surge was not caused by a spontaneous surge of consumer activism but rather by hospital systems desperate to remain in touch with existing patients during the spring COVID lockdown. These systems saw plummeting visit volumes not only due to service closures but to patient reluctance to visit hospital ERs and outpatient clinics crowded with contagious COVID patients. Larger systems with extensive IT infrastructure were able to stand up far more robust telehealth offerings than smaller systems. As Bob Wachter, Chair of Medicine at University of California at San Francisco said, “We made 20 years’ worth of progress in twenty days.”

The sudden multi-thousand percent rise in telehealth volumes led to breathless estimates of future growth in telehealth volumes and revenues. In July 2020, McKinsey estimated a total addressable market (TAM) of $250 billion for telehealth services — this from a business with a revenue base McKinsey itself estimated at $3 billion in 2019-2020, and $5.5 billion in 2020-2021. This risible TAM estimate assumed that 24% of all physician and outpatient visits (a 1.8 billion visit “universe”) and 25% of Emergency Department visits would be addressed through telehealth alternatives.

However, more than 90% of telehealth visits during the spring of 2020 were with physicians patients already knew, not random, anonymous physicians signed on to cover telehealth services by vendors. And 47% of those visits were one-time users, according to a recent Trilliant analysis. Visit volume growth was also materially aided by Congressional approval of temporary Medicare coverage for telehealth visits as part of the COVID Public Health Emergency declaration. 

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Those Digital Health IPOs—Flipping the Stack & Filling the Gap

By MATTHEW HOLT

I’ve been driven steadily nuts by a series of recent articles that are sort of describing what’s happening in health tech or (because the term won’t die) digital health, so I thought it was time for the definitive explanation. Yeah, yeah, humility ain’t my strong suit.

It won’t have escaped your attention that, after five years during which Castlight Health more or less single-handedly killed the IPO market for new health tech companies, suddenly in the middle of July 2019 we have three digital health companies going public. While Livongo, (FD-a THCB sponsor) Phreesia and Health Catalyst are all a little bit different, I’m going to use them to explain what the last decade of health tech evolution has meant.

Don’t get carried away by the precise details of the IPOs. Phressia is already out with a market cap of $845m. Yes, it’s true that none of the three are profitable yet, but they are all showing decent revenue growth at an annual run rate of $100m+ and Livongo in particular has been on a client acquisition and annual triple digit revenue growth tear. It’s also the newest of these companies, founded only in 2014, albeit by buying another company (EosHealth) founded in 2008 that had some of the tech they launched with. Going public doesn’t really mean that the health care market will swoon for them, nor that they are guaranteed to change the world. After all, as I pointed out in my recent somewhat (ok, very) cynical 12 rules for health tech startups, UnitedHealth Group has $250 Billion in revenue and doesn’t seem to be able to change the system. And anyone who remembers the eHealth bust of 2000-2002 knows that just because you get to the IPO, it’s no guarantee of success or even survival.

But just by virtue of making it this far and being around the 1/10th of 1% of health tech startups to make it to IPO, we can call all three a success. But what do they do?

They are all using new technologies to tackle longstanding health care problems.

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HealthTech Investing: Venrock’s Kocher & Roberts Bet on Platforms

“Healthcare is a journey for patients. Just helping them with one piece of it — it just doesn’t get the job done…”

That’s Brian Roberts of Venrock talking about how he and Bob Kocher have moved on from investing in one-trick-pony health tech point solutions. What are they favoring now? Well, they’re not alone in seeking out platforms…especially those that solve big work flow, patient journey, or systems issues.

The underlying motivator here is, of course, money. Or rather, as Roberts puts it, the fact that “no one in the healthcare system makes any real money.”

ROI is different in healthcare. And they encourage startups — and those health systems, health plans, and provider groups that buy their solutions — to really consider what that means.

Kocher explains that what’s often overlooked is how quickly relationships turn over in healthcare. Patients can change insurance plans every year, or they may switch doctors or hospitals based on when they can get an appointment. This thwarts development of any real customer loyalty, and worse for startups, creates a situation where they need to prove tangible cost savings or increased revenue in a short 1-2 years.

What’s an entrepreneur or investor to do? Listen in for more ROI talk and advice for pivoting a point solution startup.

Get a glimpse of the future of healthcare by meeting the people who are going to change it. Find more WTF Health interviews here or check out www.wtf.health. Filmed at Health Datapalooza in Washington DC, April 2018.

What’s Next in Health Tech Investment? 500 Startups VC Marvin Liao Weighs In

What do health tech investors think is ‘hot’ these days? Where is the money going? I ran into Marvin Liao, partner at 500 Startups (a VC fund/accelerator program that has made more than 2000 investments in early-stage tech startups over the past eight years) at ICEE Health in Bucharest, Romania, last month and had a chance to ask.

With refreshing candor, Marvin weighs in on whether or not digital therapeutics, mental health, and biotech have room to grow — and if Apple, Google, and Amazon really have the power to change the future of health.

Where is he most bullish? It’s no surprise I ran into him outside the US. He’s got his eyes on bleeding edge innovations coming out of foreign markets…especially Japan. Have a look!

Filmed at ICEE Health in Bucharest, Romania, June 2018. Find more interviews about health & technology at www.wtf.health

Don’t like CB Insights’ numbers? Just wait…

Last year I got in a modest Twitter spat with Anand Sanwal the CEO of investor analytics company CB Insights. Anand writes a very amusing newsletter, has built a wildly successful business tracking venture investing (at $20-50K a client) and has recently taken on $10m in VC himself to build out his business which was already profitable. The spat was because in August 2015 (5 months ago) CB insights said that “Digital Health” investments totalled $3.5 billion in 2014. You can go read the article Stephanie Baum concocted from the Tweetstream but my point was that when CB Insights, a generalist analyst company, said that the investment in digital SMAC health was $3.5bn in 2014 they were wrong because 4 specialists (Health 2.0, Mercom, Rock Health and Startup Health) all said it was over $4.5bn.

What’s a billion between friends? Not much, but what I left unsaid until now is that if they’re 25% off the average in one sector, where are they in the other sectors they cover? But other than a few amused readers of MedCity News no one much cared and the world moved on.

Then everyone stared putting out their Q4 2015 numbers. Amusingly, but probably only to me, both Rock Health & Startup Health put out their Q4 numbers 2 weeks before the quarter/year ended, and missed a bunch of late deals! But by the time the revised numbers came in everyone was again in that middle $4 billion range and there was general agreement that funding was about flat in 2015 compared to 2014–albeit at a high level compared to what the Cinderella sector had been recently.
Health 2.0’s numbers in our report were $4.8 billion for the year, as shown on the left. (You can see more on these and some other data in our Q4 report here. In case you don’t know I co-run Health 2.0 as my day job and yes I own THCB). OK. All so far so ho-hum.

Then as the other numbers started coming out I noticed something a little odd. CB insights came out with its numbers for 2015, but something was different.
You’ll recall that I had poo-poohed their 2014 number shown as $3.477 Bn in their blog post here and displayed in the chart below. These are 2014 numbers shown in a post about investment in 2015, published in August 2015. CB Insights chart with 2014 $$ in Aug 15 And that was the number I’d started the original spat about. But when I looked at the post they released in January 2016, not only was the number for 2015 at $5.7 billion (remember Rock Health, Mercom & Health 2.0 all put it in the mid-high $4s) but the 2014 number had somehow climbed from about $3.5 billion to $5.1 billion. CB Insights chart with 2014 $$ in jan 16 Again check the January post and check the chart I’ve lifted from it below. You’d think this was a curious jump and you’d be right. But nowhere in the post does it say why the total for 2014 in August 2015 was so different from the total for 2014 in January 2016.

Of course being the troublemaker I am, I asked about this on Twitter and got a classic no reply from Anand at CB insights. sanwal
So then I sent all this info off to Stephanie Baum at Medcity News thinking that she might like to write more about it.

And a funny thing happened. Instead of writing the article I wanted her to write (i.e. this one!) She found yet another number for 2015 from CB Insights, and wrote about how they were now back in the pack with everyone else.

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