Investors have been pouring money into digital health for the past decade. At the close of every quarter, it seems we’re hit with a great Rock or Startup Health analysis describing how we’ve broken another set of records in dollars invested, deal sizes, quantities of deals, etc. But how has the pandemic changed this landscape? With the uncertainty afoot, you would expect investors to clinch up and see how this all plays out. But we’re actually seeing the exact opposite, with funds making bets on what the new normal will look like.
I recently interviewed two young investors, Nikita Singareddy and Nikhil Krishnan, on The Redox Podcast. I have to say, I have a bit of a content crush on these two as their enthusiasm and fresh view on the healthcare industry reminds me a bit of myself in my early days at Epic and, subsequently, Redox. I’m feeling like an old man as I realize that that was over 10 years ago now! (A notable exception in our approaches is that these two are far more witty and effectively employ the use of memes to make their points.) I was able to dig into the themes they’re focusing on at different stages of the investment lifecycle, Nikhil focusing on seed and Nikita on growth. Let’s take a look at some of the market shifts discussed.
Hospital to Home
The pandemic forced us all to stay home. Even as we peek outside again, we’re now much more used to doing things remotely and are ready to head back to our devices as we surf subsequent covid waves. Telehealth is the obvious example here. Pre-covid, most health systems saw telehealth as a nice-to-have feature, something their few digital native patients would vibe with. Nowadays, it’s the primary way providers see patients. Of course these levels of telehealth utilization will calm down as our agoraphobia subsides, but we’ve been broken out of our old school habits and are now willing to see our providers via a video screen.
This example is so obvious that many investors aren’t even excited about telehealth anymore. The ship has sailed, in a lot of ways. Sure, we don’t know how it’ll play out long term, but the space went from nascent to laggard in a span of a few months. Just as functionality like searching or messaging is a standard feature in most apps we use, the ability to pop into video has been similarly commoditized. (Heck, even Tinder now allows users to hop on a video call.)
Twilio seems well positioned in this commoditized world as they provide underlying communication infrastructure available over a modern API. Epic, who has famously avoided named partnerships, let Twilio announce that they’re powering their out-of-the-box telehealth solution in late April. That timing was too slow to capture the shock to demand that our first COVID-shutdown brought. However, as health systems pick their head up to evaluate their telehealth stack, I imagine many of them to transition to the Epic solution. This, along with the success of Zoom and Microsoft Teams for provider visits, give smaller telehealth vendors a gloomy outlook.
Telehealth vendors will need to provide significant, healthcare-specific differentiation in order to maintain growth. For example, I sat on a panel last week with Glen Tullman, CEO of Livongo, who said something to the effect of “As we looked at our strategic roadmap, it became clear that Livongo would begin to compete with Teladoc. And the same was true from their perspective. So rather than competing, we decided to merge.” Telehealth companies will need to become chronic care management companies, rent access to networks of physicians, and/or create a consumer-facing brand to differentiate beyond the simple functionality of providing a HIPAA-compliant video offering.
But telehealth is just the beginning of expanding the care setting and there are many more bets to be made on how traditional care settings will be displaced. We can see this telehealth jolt as the beginning of a trend to continue to bring more capabilities out of the hospital or clinic to the home. For instance, if we think of the things that patients still need to go into the clinic for we can find numerous examples.
- Phosphorus was one of the first to bring at-home COVID-19 testing.
- Rezilient has created robotics that can more thoroughly examine patients remotely.
- Babyscripts monitors pregnancy allowing expecting mothers to reduce the frequency of in-person prenatal check ups.
- Current monitors vitals and alerts a team of watchful nurses, allowing patients to be safely discharged sooner or avoid the inpatient setting altogether.
- Dispatch sends a mobile urgent care unit to patient’s homes, displacing many visits to a traditional in-person care setting.
With COVID-19 still looming, hospitals and clinics are the last place we want to be. And as cases begin to surge again, it’s also important to let capacity be saved for treating these patients. It’s gratifying to think about the immense amount of technology adoption that will be required to allow healthcare delivery organizations to continue to treat patients without requiring them to physically come into their traditional care settings.
Customization to Standardization
Each health system, each provider, and each patient is unique. Accordingly, the business processes, clinical workflows, and the technology used to support them have evolved to meet these unique needs with highly customizable solutions. For instance, back at Epic I used to support ambulatory go-lives and work at the elbow of providers using Epic for the first time in their clinics. I felt like I had to re-learn how to use the EHR at each organization I parachuted into, as the screens were so customized that I was able to carry little knowledge between sites.
Of course we all want solutions we can customize to meet each of our quirks. But all of this customization means inconsistency, and inconsistency is a costly way of doing business. This is rampant across all parts of healthcare. Imagine trying to implement a new workflow or technology. Each organization and each provider will have to adapt differently. This creates huge barriers to adoption with an ever-fortified status quo. Standardization is a core component of process improvement methodologies like Six Sigma in that it’s much easier to improve the quality of more homogenous distribution. Our industry currently suffers from a vastly heterogeneous approach to delivering healthcare and the businesses set up to support it.
So companies that focus on bringing more standardization seem to make sense. Of course, I’d bucket Redox here, as we standardize the way data is exchanged across technologies in the industry. But I also think of groups that work to identify new care delivery models and standardize on what works.
- Aledade standardizes the way physician practices take on more risk-based contracts and move towards value-based care.
- Cricket standardizes how patients make decisions related to kidney care.
- Flare standardizes how providers build relationships with other providers to refer patients to.
- Olive uses robotic process automation to reduce the need for humans to take part in standardized processes.
These are each very different companies at different stages of growth, but they’re all looking to standardize a fragmented market and make money off of the efficiencies created.
Patient to Consumer
The core problem with patient engagement is rational ignorance. When we’re feeling fine, it’s quite rational for us to be ignorant of, or not invest the time and effort in learning how our behavior might affect our health. It’s why we hire knowledgeable experts (doctors) to weigh in on the matter when occasion arises. But that’s precisely the challenge; oftentimes when we find ourselves in need of health care, our health has already taken a turn. This is the crux of the patient engagement problem.
However, the pandemic has been a huge boon to engagement. It gave us all a reason to be concerned and brought motivation beyond our own health, but the health of those in our community that we may unknowingly spread COVID-19 to. Our lives have fundamentally changed in support of this endeavor. This behaviour change can be capitalized upon with new care delivery models, consumer directed care, and products that bring transparency to the patient experience, allowing us to act more like consumers.
- Citiizen allows consumers to consolidate their medical data in once place, enabling patients to be the brokers of their own information.
- Youper is a direct to consumer platform that utilizes AI to improve access and frequency of mental health therapy.
- Hint creates software for direct primary care providers, taking advantage of the trend of providers and patients leaving traditional payer arrangements for DPC or other subscription healthcare delivery models.
- Dexcom makes a continuous glucose monitor and app that enables a patient and their families to better monitor glucose levels and change behavior to reduce complications with diabetes.
To add fuel to the fire (or FHIR? 😉 are new regulations that mandate that all healthcare delivery organizations make patient’s clinical data available over a similarly specified API. This, in theory, would allow an app developer to create a tool directly for patients and fill it with that patient’s past medical history. This is a bit of an “if we build it, they will come” bet that the government has made here there aren’t any massively popular health apps on the market today that would effectively utilize these data. However, there are many apps that currently sell to health systems that could shift to a B2C model given this new data infrastructure. As you might imagine, we’ve covered this quite extensively, including a podcast interview with Aneesh Chopra, the former CTO of the United States.
If consumers had the ability to harvest their medical data from every care provider they see, and utilize apps that turn that data into comprehensible information, we can envision a world where the effort required to understand how their behavior affects their health is drastically diminished. This attacks the rational ignorance problem head on. Can consumers actually direct our own health through the proverbial shopping mall of healthcare? Can we become true consumers, understanding how healthcare consumption translates into improved health? That’s the bet here. It might take a generation as the bodies of digital natives begin to break down and they become heavy users of healthcare. But I’m optimistic.
It’s clear that the fluidity of the investment landscape depends on how COVID forces us to rethink the best ways to distribute care. I’ve found it useful to think about this as BC, DC, AC (Before COVID, During COVID, and After COVID). There are many trends that were started in the BC period that have been accelerated or others that needed to pivot to stay relevant. As we start to deal with the realities of a third wave of this pandemic, the healthcare industry is tasked with figuring how to prolong the adaptation they put in place as DC abruptly started. Many healthcare delivery organizations will not be able to survive another 2020, from a financial standpoint. How can they adapt to break even in 2021? The DC period will not end abruptly, like it began. Instead it’ll be a long tail and slow transition into AC. Investors will be watching attentively, making bets from the sidelines on the entrepreneurs who will invent the means in which we make this transition.
In the episode Nikhil mentions that this is “the most exciting time to start a healthcare company.” While some might not conflate existential stress with excitement, what’s true is that with all the moving and adjustable parts in the markets right now, there might not be a better time to take that leap.
I started this post to summarize the great points that Nikita and Nikhil made around the future of investible initiatives in healthcare–pandemic and beyond. But as I got into it, I found myself on my own soap box, motivated by the points they made. So don’t take this as a summary; I’d encourage you to listen to that episode to get a full account as I’ve done a poor job reporting on what they had to say.