No Pain, No Gain: COVID-19’s Shot in the Arm for the Healthcare System

In a year that has been incredibly challenging, as a polarizing US election approaches rapidly and COVID-19 persists, there is one universal truth everyone seems to agree on: that we’re ready for 2020 to be in the rearview. But as healthcare consumers – and for NFP Ventures as an active digital health investor – COVID-19 has forced rapid innovation and ushered healthcare investments at unprecedented levels. The rapid pivot to digital healthcare in the wake of COVID-19 has underscored the limitations of the US healthcare systems historically. The challenging intersection of Payer, Provider and Patient/Healthcare Consumer dynamics historically have yielded a Bermuda triangle of sorts that has suppressed innovation and preserved cost excess. Today, digital technologies that have been in market for years are only now beginning to enjoy broad adoption, yielding a much more streamlined healthcare interface for consumers. Ironically, a global pandemic and the havoc it’s wreaked has presented the $3T healthcare ecosystem with a unique gift: fertile ground for rapid innovation and progress. Healthcare systems, investors and consumers alike have already voted on telehealth, remote monitoring and preventative care solutions. The next step is to identify the previous limitations to ensure that a swift digital and structural revolution occurs. 

"Healthcare is not proactive; it is reactive. Let's use this crisis to put a foundation in place and make healthcare more proactive."

 - Jeroen Tas, Royal Philips

Two macro factors are largely responsible for obstructing innovation pre-COVID-19: strict governmental regulations and inefficient payment structures in the medical industry. However, to keep healthcare systems operational during the pandemic, digital health regulatory and reimbursement barriers were immediately relaxed. According to a New England Journal of Medicine article, the HHS, CMS and the FDA have worked around regulations to encourage telehealth during the pandemic, including payment parity, location flexibility and visit type. In fact, the CMS issued a proposed rule that places innovative technology at the hands of Medicare beneficiaries and devoted over $5B to the cause. Consequently, the adoption and acceptance of telehealth expanded more in the past six months than it has in the past ten years. 

This goes to show that changes in regulations and payment structures can spur rapid and effective improvements in digital health. Unfortunately, technological adoption and innovation were not historically a point of importance within US health systems. The previously mentioned NEJM article reviews key stats from a 2019 PwC survey: over a third of US healthcare system CEOs reported having no digital component in their strategic plan; in regard to regulations, around 94% of surveyed respondents pointed to data protection and privacy regulations as reasons for the lack of implementation of the available innovative healthcare technologies, such as the Health Insurance Portability and Accountability Act (HIPAA, 1996) and the penalties attributed with the Health and Information Technology for Economic and Clinical Health (HITECH, 2009).

In the face of the crisis, capital markets have continued to demonstrate strong appetite to drive health innovation, with private and public market financings and valuations on the rise. More attention has come to the digital health industry through venture capital funding — the first quarter of 2020 marked the largest quarter of digital health funding to date and digital health valuations have increased sharply since the start of the pandemic. Mobi Health News reports that the first quarter of 2020 included 82 funding deals totaling $3.1B,almost twice as much as the first quarter of 2019, where 49 funding deals brought the total capital raised to $1.4B. Rock Health says average deal size also hit a record $25.1M in the first six months of 2020, and funding total reached $5.4B, beating the prior record of $4.2B set in the first half of 2019. As an example, MarketWatch reports that Teladoc’s $18.5B acquisition of Livongo was at a 364% increase to Livongo’s previous valuation of approximately $4B in a pre-pandemic world. Furthering this point, the companies’ combined valuations of $31.6 billion (as of the week of October 12) is an increase of nearly 300% relative to their joint enterprise value at the beginning of 2020. Additional healthcare IPOs including Accolade, Oak Street Health and GoHealth’s listings further underscore appetite for progressive approaches to the broad healthcare system. Other sectors with impressive growth forecasts include digital health systems, health analytics and telehealth, all exhibiting even more potential for growth since the pandemic. As evidenced by the last several months, the need for digital health innovations to be implemented in our healthcare systems and everyday lives continues to surge. 

It’s clear that our healthcare system has failed to adopt key innovations over the past decade. Over 5.4 million Americans have lost their health insurance during the pandemic and healthcare costs are continuing to rise, exhibiting the struggles the healthcare industry is facing as a result of being unprepared for a world where care is predominantly delivered virtually. We now have an opportunity to rapidly improve our healthcare system and lead organizations to a more digitized and consumer-oriented future. 

NFP Ventures believes the future of healthcare will be hyper-personalized, consumer driven and uninterrupted. We strongly advocate for technologies that have the capacity to continuously monitor consumer’s health and detect abnormalities specific to each user as a way to predict and prevent further health declines. The current relaxing of FDA approval due to the pandemic presents an opportunity to place more of these new products in user’s hands. As highlighted, new technologies are developing a human-centered approach for care, which will ultimately lend itself to the improved payment structures that consumers now expect. Our call to action is for healthcare systems and investors alike to act swiftly, and take advantage of the current uncertainty to propel the healthcare industry into the future and truly enact change.  

About NFP Ventures

NFP Venture, LLC (NFP Ventures) is a venture fund launched by NFP that combines capital investment and strategic collaboration to drive acceleration in emerging Insurtech, Fintech and Digital Health companies. Typically, NFP Ventures targets companies seeking Seed to Series B investment that can benefit from NFP's distribution, human capital and other unique assets to supercharge growth. The fund’s healthcare portfolio includes Vivante Health, Wellth, Wingspan, Kindbody, and Quip. 

See more in the articles mentioned: 

• COVID-19 and Health Care’s Digital Revolution, The New England Journal of Medicine
• 2020 Health Care Trends Revisited, Cerner 
• Digital Health Funding in Early 2020 Marks Strongest Q1 to Date, but Records Not Expected to Last, Mobi Health News
• 2020 Midyear Digital Health Market Update: Unprecedented Funding in an Unprecedented Time, Rock Health
• Update: Teladoc and Livongo Health to Merge in Deal Valued at $18.5 Billion, MarketWatch
• 5.4 Million Americans Have Lost Their Health Insurance. What to Do if You’re One of Them