Analyzing Future Trends in the Healthcare Industry

My interest in identifying future trends in the healthcare industry stem from my entrepreneurial journey, which started more than 20 years ago just when the internet bubble was about the burst. The last company I founded with my wife (which was in the healthcare industry) was sold just a few months ago. Having spent much of the last decade thinking all things healthcare, I needed somewhere for my curiosity to go.

Like any sane quasi-retired entrepreneur, I decided to give myself some homework. Specifically, I decided to look at the start-up trends and investment activity in the healthcare industry. 

Over the last three years of building our diagnostics company, I saw first hand how the healthcare industry is on the verge of major paradigm shifts. I wanted to have a clearer understanding of the trends, the venture funding activity, how healthcare models are changing and who the major up and coming players are.

I looked at a non-exhaustive list of 47 institutionally funded companies in the healthcare space that were initially funded between 2014-2019 with the humble goal of understanding the trends, the types of solutions getting traction and the types of investment activities in the space.

I chose the companies based on:

• Their coverage in healthcare industry publications and by searching for keywords like “funding,” and  “investment.”
• Looking at the competitors of companies I already personally knew. 
• LinkedIn recommendations for other companies when visiting the profile pages of companies I was researching.

When I had my initial list of companies chosen, I looked at the LinkedIn profiles and funding history of these companies, and took out the smallest 10% and the largest 10% of companies from my analysis so I could focus on new players who were not too green and not too mature.

Here is a snapshot of the data about the companies I ended up including on my final list:

These companies raised an average of $130 million per company in four rounds of funding, with most of them raising between $40 to $200 million. More than a dozen companies on this list raised over $200 million each, and almost all of them had a recent major funding round in the last six months. To me, this indicates that there will be a lot more growth and innovation from these companies in the near future. 

Most of these companies (per LinkedIn) have between 60-250 employees. More than 70% of them are headquartered in one of three metropolitan centers: New York, Boston and San Francisco. (San Diego is a distant fourth on the list.) 

In terms of investors, there was a lot of diversity. More than 250 unique investors put money into these companies. Some notable frequent investors on the list (in order of their frequency) are: Optum Ventures, Deerfield, and HLM Venture Partners, followed by names like: Y-Combinator, Culture Robotics, 406 Ventures, Angeles Investment Advisors, Echo Health Ventures, Freenome and Sandbox Industries.

I divided the companies on my list into several categories. At most I put each company into two different categories. Here are the categories I used, and how I defined them.

Direct to Consumer

With or without medical insurance, these companies make their services available to consumers. They might have solutions focused on employers or health plans, but their common theme is to put the consumer in the driver’s seat of their own health care decisions (ex. Capsule )

New Retail Model

These are companies that follow a new retail solution model. They might follow a hybrid solution of telehealth or house calls by doctors. Or, they might be specialized health companies that offer a new form of treatment or service offering that do not follow existing models. (ex. Dispatch Health)

Telehealth

This one is straightforward; using virtual healthcare interactions for diagnosis, screening or treatment (ex. K Health)

Specialized Health

These are companies that have a single specialty focus like hearing aids, mental health or a group of specialities like diabetes, nutrition, vision. (ex. Lively)

Employer Wellness

These companies help employers improve their healthcare programs, or for self-insured companies, decrease their costs by focusing on early detection and treatment of high cost items like diabetes. (ex. Omada)

Consumer Engagement

These are solution providers that try to improve consumer engagement early like healthcare provider selection, to increase the engagement in health plans or employer based wellness programs (ex. mPulse Mobile)

Clinical AI

This category covers using Machine Learning and Artificial Intelligence to improve solution providers’ effectiveness in providing health care. (ex. Buoy Health)

Transformation Enabler

These companies help providers move their business into the new age of healthcare. They help with things such as moving from service based models to value based models, or moving their operations to direct to consumer models in an effective way. (ex. TruePill)

Data Analytics

These are companies that help providers more effectively deal with data and use their data for operational effectiveness or treatment improvements. (ex. Cedar)

Diagnostics

These new generation diagnostics companies focus on bringing diagnostics to the new age of healthcare by either making them available as a point of care solution or with new technologies that will support direct to consumer, telehealth models. (ex. CueHealth)

Therapeutics

These therapeutics companies support custom and personalized solutions and/or utilize data, but either way they empower a new generation of healthcare companies to transform themselves for the new landscape. (ex. Vineti)

When I tried to categorize the companies on my list into the above groupings, most of them fit into more than one grouping. In terms of frequency of the models, the top three categories were:

• Direct to Consumer 19%
• Specialized Health 17%
• New Retail Model 16%

These categories were followed by:

• Transformational Enabler 13%
• Telehealth 9%
• Data Analytics 8%

All other categories followed them at a similar rate of frequency.

The Trends

And now, the entire point of this self-imposed homework project. These are some of the trends and common traits I noticed reviewing my list of companies and their evolution.

Mobile and Connected Health is Finally Here 

It took 10 or 15 years longer than necessary, but remote medicine is finally mainstream. Digitization and the evolution in communication tools, helped along by government regulation and finally given a kick in the pants by the pandemic, has finally brought us closer to a healthcare system that can go beyond a brick and mortar framework. We are not going to be as tied to doctors’ offices, hospitals, clinics and pharmacies anymore. The solution providers, and the platforms that are going to support those providers to give us all kinds of general and specialized health care in a direct manner are coming ... to stay. 

This reminds me of the early days of ecommerce where the trend of online shopping was clear and you had two groups vying for relevance; the existing physical retailers that were trying to build ecommerce models and new digital startups that were not burdened with physical structures. 

In keeping with the ecommerce comparison, I’d say we’re at the equivalent point now where eBay has proven that ecommerce can work and is here to stay. Next will likely see an Amazon-type frontrunner emerge in the connected healthcare industry.

Digital Health 1.0 and 2.0 are Coming Hand-in-hand

New technologies from therapeutics, machine learning and blockchain to diagnostics are converging and creating an environment that will enable a super charged transformation of the healthcare industry. There are companies working on solutions that might be obsolete if other, newer companies are able to accomplish their goals of changing the way healthcare will work in the future. It is very hard to choose who the likely winners will be and that is probably why many of the top investors in this space are betting on a diverse group of companies. In some cases, investors are hedging their bets by putting money behind companies that have competing visions for the future of the industry. 

Going back to the ecommerce analogy, it’s as if Amazon, Facebook, Shopify, and Etsy are all being formed and growing simultaneously. There is no linear trend line. Instead, there are a bunch of parallel ones.

The Pandemic has Made Lasting Changes in the Environment

The Covid-19 pandemic has contributed to the changes in significant and lasting ways. Some of these ways are:

• Remote Working Shifts: Remote working is here to stay and it made the workforce as dispersed and virtually accessible as possible. That fact will change the landscape for corporate wellness programs, employer sponsored healthcare and self-insured company needs.
• Regulation:  Before the pandemic, there were already regulative changes in motion for healthcare that were changing the landscape. A quick look at how things changed from 2012 to 2020 in The Center for Connected Health Policy’s (CCHP) Spring 2020 release of the “State Telehealth Laws and Reimbursement Policies” report highlights the trends. Even though many of the Covid-19 related temporary waivers, exceptions and changes to telehealth policy across the nation were not meant to be permanent, the successful demonstration and adaptation of telehealth and videoconferencing visits during the pandemic will result in longer term supportive telehealth regulations.
• Retail Adaptation of Telehealth and Direct-to-Consumer Models: Just like Zoom became a commonly known entity for many in 2020 (who did not know it in 2019), consumers that would have normally not tried telehealth or other direct-to-consumer models, and point of care testing for many more years to come, decided to try it and liked it. This adaptation and change in mindset will have lasting effects.

These changes expedited what was meant to come eventually, and put into motion efforts that will have long term effects in the way we conduct our healthcare.

Data is key as the Risk, the Product and the Solution

Just like almost every other aspect of our lives, data is everywhere and everything in healthcare. New players in the healthcare industry have to pay special attention to data and figure out how best to use it as a tool and product, while managing the risk aspect of it. The new players in healthcare have the advantage of building their businesses around data, rather than the legacy ones that have to use data to enhance their models. 

What I mean by that is there is a trend for new companies that start with data and keep data in the core of what they do, rather than look at data as a by-product of their activity they have to use or maintain. From clinical data companies, to diagnostics companies, we can see this trend. We see addiction treatment companies using creation and mining of data by their users as a path to finding triggers to addiction and its treatment. Supplement companies are using data generated from their diagnostics tools as a starting point to provide  personalized recommendations to improve the lives of their users. 

Jury is Out for the Future Winning Business Models

My challenge of trying to figure out the categories of the new players entering the market is due to the fact that there are no defined solution types and no distinct borders between solution providers. Even when you look at somewhat defined parts of the market like Telehealth, Diagnostics or Electronic Health Record Management, it is hard to find more than two different companies that operate in a similar manner or with solutions that cover the same areas. 

Even though market pain points are somewhat clear, business models that solve those problems are not yet. These new companies in the space have to spend billions of investor funds to perfect their business models, establish their channels and communicate with their markets in order to mature the landscape in the space. Good news is that with the enormous market size, converging new technologies and regulations, and “finally developed” innovative nature of large players, we do not have to wait a decade to establish the core of the framework. I would not be surprised if by the end of 2023 we have a lot more clarity of the winning business models. 

I love hearing from others. Please leave any questions, feedback or comments here or message me directly.