Investors see promise in digital health — the challenge is adoption

Investors continue to pour record amounts of funding into digital health. In the first half of 2021, digital health companies brought in $14.7 billion, already more than they raised in all of 2020, according to Rock Health.

Venture capitalists and private equity investors at MedCity INVEST Digital Health noted the record valuations as more firms are setting their sights on healthcare, but didn’t necessarily see it as a concern. For them, the biggest challenge wasn’t finding innovative technologies — but rather getting them to the point where physicians and insurers will adopt them.

Christopher McFadden, a managing director at KKR Credit who leads its healthcare investments, said there are plenty of innovative technologies, with scientific backing. From his perspective, the challenge for these companies isn’t so much getting funding, or securing pilots to demonstrate their effectiveness.

“The challenge is crossing the classic chasm so payers, regulators and community providers want to and know how to use the technology that’s being made available to them,” he said in a virtual panel discussion. “We’ve invested in digital health and see lots of applications for it but I think it speaks to the larger truth to date, which is that all the energy at the early stages has not translated yet as linearly into clinical practice.”

This challenge is apparent in digital therapeutics, where technologies are applied to treat conditions including insomnia, ADHD and smoking cessation. The companies developing these therapeutics have taken a methodical approach, running large clinical trials to prove their efficacy, but figuring out how to pay for them remains a challenge.

“The reimbursement profile is kind of strange right now and unproven,” said Francisco Gimenez, a partner at 8VC.

In their current state, he sees digital therapeutics best used as a tool in combination with other treatments, such as telehealth visits or pharmaceuticals. In some cases, they could simply be used as biomarkers to track patient outcomes.

“I don’t think this ‘drug prices at app costs’ is going to bear out, which was always the hope,” he said. “But I do think that all of the stuff we’re seeing now is lending credence that we will have to use more app-based interventions as part of the whole suite of tools.”

For some VCs, the solution is to think about digital health a little more broadly. For example, it doesn’t strictly have to mean AI or digital therapeutics, but can also include using technology to better manage the complexities of delivering care.

Lux Capital Partner Deena Shakir pointed to CityBlock Health, which uses technology to help care for patients covered by Medicaid, as a good example of this.

“It’s not always the innovation itself that unlocks scale,” she said, noting that much of companies’ success comes down to timing, their team and go-to-market strategies.

“At the end of the day, you need to be meeting patients where they are, and that’s not necessarily always through innovation. We all know providers in particular don’t like adopting new technologies so we need to be able to work within the confines and constructs of existing platforms.”

Photo credit: Andrey Suslov, Getty Images

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