Demystifying HealthTech

In 1969, we put a man on the moon. In 1991, the World Wide Web was launched. In 2016, we witnessed reusable rockets from SpaceX land with precision on unmanned drone ships.

However, in 2018, obtaining a complete copy of your health record (360 degree + historical view) that all your in-network and out-of-network providers can access is nothing short of a miracle.  

The convergence of health, digital, IoT, mobile and IT has created significant disruptive whitespace – HealthTech. Why? As Warren Buffet stated eloquently, “the ballooning costs of healthcare act as a hungry tapeworm on the American economy.”

• Tech startups are embracing healthcare’s biggest challenges at a rapid pace as the race to transform wellness, sickcare, chronic care and elderly homecare intensifies.
• Big Tech - Apple, Google, Microsoft, Amazon - are focusing on healthcare as the next big thing. New partnerships are emerging. Amazon, JP Morgan and Berkshire Hathaway are collaborating to set up an independent HealthTech company to "address healthcare for U.S. employees" with the goal of improving quality, satisfaction and costs.
• Life Sciences, MedTech and Biotech are racing to innovate. Firms like Johnson & Johnson are funding incubators like JLABS, to foster and harvest digital innovation.
• Forward thinking CIOs in payor, provider and pharma sectors are racing to transform traditional IT groups into HealthTech services teams. Spoiler alert: it’s not just a tech issue at big companies.

The common theme transforming healthcare - how to move from an industry focused on caring for the sick to one motivated by keeping people well. The levers driving change are digital disruption, M&A, and core modernization to “bend the cost curve”.   

The addressable market size is huge. According to Deloitte's research, global health care spend projected to reach $8.7 trillion by 2020. According to CMS, national health expenditure (NHE) grew 4.3% to $3.3 trillion in 2016, or $10,348 per person, and accounted for 17.9% of Gross Domestic Product (GDP). U.S Health spending is projected to grow at an average rate of 5.5% per year to reach $5.7 trillion by 2026.

First, let’s examine the HealthTech landscape outside-in.

What Problem are we solving? Making Sense of the HealthTech Market Hype

New players from within and outside the ecosystem have the potential to make a massive impact to the way the world approaches healthcare. However, sometimes the marketing hype overwhelms the signal-to-noise ratio.

So with all of the noise across the digital startup space, how do you decide which innovators are best and worth paying attention to? Who can best solve the business challenges? Who has the funding and substance to survive and become a viable partner?

It is important to keep in mind that each new player is attacking only a small subset of the big picture. The locus of activity tends to orbit around the following:

• Mobile Wellness Management (High-touch connectivity to consumers)
• Digital Disease Interception & Prevention
• Engagement with the Patient, Member or Consumer (e.g., by integrating medical and pharmacy benefits with consumer touchpoints)
• Intelligent Devices for Therapy Delivery (new care pathways for Cardiology, Oncology, Respiratory etc.)
• Care coordination and Management for post-acute care
• Disease identification from Imaging, Genomic and Precision Medicine (using ML/AI)

With a better understanding of some of the areas, let's look at HealthTech funding.

What HealthTech Areas are Getting Funded? Follow the Money

Sustained growth drivers and large profit pools are attracting money. For instance, serving the elderly is an increasingly important battleground for health-care companies as baby boomers age and people live longer. 

According to RockHealth, “Consumer Health Information—technology used to help patients navigate the healthcare system and their own health—continues to be a top-funded value proposition as well.” Digital health companies leveraging genomics and sequencing (e.g., 23andMe) are growing fast and beginning to impact consumer journeys. 

The convergence of retail pharmacy, clinics, hospitals and health insurance is a growing trend (CVS Health + Aetna; Walgreens + Humana) that changes the content, context at site of service. This vertical integration creates interesting opportunities for disrupters as we are asking the question - why can't certain procedures or services be done in a drug-store walk-in clinic with nurse practitioners and MedTech as opposed to expensive hospitals or emergency rooms. Raises a provocative question: What will the hospitals of 2030 look like?

Other areas that are getting funding include digital health startups tackling the clinical aspects of care (Diagnosis of Disease, Monitoring of Disease) and reducing friction between patients and the healthcare system (Health Benefits Administration, On-Demand Healthcare Services).

Almost every firm is using analytics and ML to make data actionable and deliver insights to when and where interventions can do the most good. AI/ML/Analytics are being applied across multiple areas of healthcare to improve claims adjudication, pre-authorization, clinical decision support, remote patient monitoring, and care coordination.

HealthTech Case Study - At Home Genetic Testing

Startups are disrupting US healthcare in four key areas: 
artificial intelligence (AI) for drug discovery and operational improvement,
digital therapeutics, health insurance, and genomics.  

At-home consumer Genetic testing services, an interesting segment of HealthTech, have become significant businesses in the past few years. 23andMe, which costs $99, has over five million customers; AncestryDNA ($69), over 10 million. Consumer DNA testing has gone mainstream. 

The companies are beginning to use their large databases to match willing participants with others who share their DNA. In short, a social network overlay on top of Facebook that allows DNA matched members to interact with each other.

The DNA databases are extremely useful for rare disease research studies and pharmacogenomics as a significant number of people have consented to the use of their information for research.

Talk about a new data driven model for Population Health Management. DNA testing provides information on the genetic predisposition that with additional science can shape health and lifestyle choices. We are just scratching the surface on the "art of the possible".

Offer some targeted incentives to the consumer (e.g., free Amazon Prime or free Netflix subscription for 3-6 months) and I predict that within a few years almost every millennial will be part of a Genetic database. If the Government makes this a compulsory part of getting Medicare, VA or Medicaid benefits then voila... we have a national database.

We are seeing the expansion of the data enabled healthtech market into Ageing, Sleep, Beauty Wellness, Workplace Wellness, Mental Health and Behavior Health. with AR/VR. Digital Health is many ways is just getting started. I expect the emergence of 5G to be another innovation booster in how healthcare is administered, customized and reimagined.

Summary - Bold Moves

Digital disruption is fundamentally changing the health & life sciences industries. The growth drivers include: (1) Population growth, ageing and rise in chronic diseases; (2) Care shifting to ambulatory and home care settings with consumers increasingly engaged in their health; and (3) Convergence of professional healthcare and consumer/personal health.

We will continue to see significant whitespace for the introduction and integration of digital/mobile/5G/IoT/Data/ML strategies in healthcare services delivery. The goal of improving quality, satisfaction, engagement and costs is never ending battle.

Notes:

1. U.S. Health Insurance Market is in a state of non-stop change. It originated in the late 1800s, where only a small insurance market for worker’s compensation & disability existed. Early 1900s a booming life insurance market & emergence of local prepaid medical group practice model for workers in OK, WA, CA & TX (BlueCross). WWII wage controls birthed the uniquely U.S. employer-sponsored health insurance coverage model (10% of employers offered health coverage in 1940, 70% by 1955). By the 1970s, the vast majority of coverage provided by indemnity insurance plans. The group “HMO” or “managed-care” model exploded nationally in the 1980s & ‘90s in an attempt to rein in runaway healthcare cost inflation, but consumer backlash and booming economy shifted enrollment back to open-network insurance models. 
2. According to RockHealth, 2017 was a big year for digital health funding, and investor appetite doesn’t appear to be diminishing. In Q1 2018, $1.62B was invested across 77 digital health deals. This supplants Q1 2016 venture funding ($1.41B) as the largest Q1 yet.