Digital health technologies — those that apply information and communications technologies to improve outcomes, reduce per capita costs and improve the patient experience — continue to hit the market with breakneck speed. Investors like the space, putting $4.3 billion to work in the sector so far this year.
Digital health means different things to different people. Here's how I slice and dice the industry:
- Remote sensing and wearables
- Data analytics and intelligence, predictive modeling
- Health and wellness behavior modification tools
- Bioinformatics tools (-omics)
- Medical social media
- Digitized health record platforms
- Patient -physician patient portals
- DIY diagnostics, compliance and treatments
- Decision support systems
If you are thinking about investing in the digital health industry, keep a few things in mind:
1. There is a difference between an industry and a market. Those companies that provide products and services comprise the industry. The customers who use those products and are looking for ways to get a particular job done are the market.
2. Like all investors, digital health investors are looking for the highest rate of return with the least amount of risk. Given the foggy legal, regulatory and reimbursement atmosphere, it's too early to tell which dogs will eat the food.
3. Most digital health technologies have not been clinically validated.
4. The FDA continues to offer periodic guidance documents and regulations that contribute to a level of uncertainty. That makes the hair stand up on the back of investor's necks.
5. Given the multiple stakeholders in healthcare — payers, providers, patients, partners and others — it's hard to target any one customer. Several need to see the value for any given product or service.
6. The industry is too new and there is too little research to know which customers/ patients/ stakeholders will adopt a product and why.
7. Scale trumps innovation. The single most important characteristic of those companies that have received substantial follow-on investments are those that have scaled their customer rate rapidly by at least 70 percent a year.
8. Doctors don't have the information they need to know whether to prescribe or use a given digital health technology.
9. Most doctors don't get paid to use digital health technologies, they disrupt workflow, and there are nagging behavioral and emotional barriers to adoption by both patients and their families and their doctors.
10. There are significant confidentiality, security and data privacy issues still lurking.
Despite those risks, the industry continues to mature and there are several publically traded companies. Hot sectors are data analytics, telemedicine and remote sensing. Look for continuing consolidation, integration and and cross-sector mergers and acquisitions as the industry matures. A digital health investor index fund is inevitable.
Digital health is the new New Thing. Like all new things, it is surrounding by hype and hope. Whether digital health can bend the cost curve or is just another tech bubble remains to be seen. Digital health investors need to do their due diligence with both eyes open and their wallets closed until their risk hurdles are met. But, one thing is clear and that is that digical health will be be part of everyone's care.
Arlen Meyers, MD, MBA is the President and CEO of the Society of Physician Entrepreneurs at www.sopenet.org