Answers: Too much money in digital health?
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Here are some of my favorite answers from my question on whether there was too much money going into digital health too quickly. My thoughts + original post here.
Answers were split about 50-50 into good or bad with most people saying it’s complicated.
Running larger experiments + cash to survive long enough to provide evidence
“The oversupply of capital tends to be a good thing for innovation. As you mentioned Nikhil, money may flow into sales & marketing, but critically some should also flow into product & engineering aka research & development. Venture-backed companies that show evidence of 'product-market fit' and go on to raise big rounds will likely be encouraged to focus on growth. And, the graph you shared shows that the size of fundraising rounds are increasing faster than the total number of deals, reflecting the increase in growth rounds. But, there is no getting away from the fact that within each early-stage company, there will be extra money for teams to say "Hey, you know that product feature or special project we never had the money to spend time on? Well now we do."
More capital increases the number of experiments, but it also enables bigger, more ambitious experiments. I think having a longer runway is particularly relevant in digital health where capital is required to persevere through a) regulatory challenges and b) evidence generation for value-based care. For instance, you might not see those 'CMS regulatory tailwinds' you pitched be strong enough out the gate (think delays to Interoperability rule). Equally, you might not have foreseen FDA decision delays (think Covid-19 diverting attention). And, if your novel business model involves you hitting value-based milestones, you might not realise those revenue bumps for years, making cash an issue. (The flip side of that is we perpetuate unsustainable business models). A big experiment burning through its budget too early particularly sucks when we are talking about something that could really help patients. So, more capital could lead to us solving harder problems. Bigger wins further unlocks this category.”
Talent is getting spread
“It’s a net positive but complicated. I think more companies, more people, more experiments, more infrastructure, more ecosystem are all super positive overall, and eventually win out.
The main thing I worry about is lack of consolidation of talent. To solve really big and hard problems you need the best people. You need a bunch of people who could probably start their own companies, or be in first 5 employees, all working on the same problem. With this much money it is very easy for these great people to fund NewCos instead of joining another team and mission. This will dilute talent across companies until the next downturn, where consolidation happens. So it is now a race to get big enough to be predator instead of prey when that happens.”
The modern fee-for-service?
“I want to go in a slightly different angle than the business efficacy concerns you bring up in the newsletter. One side effect of the increased funding in the health-tech space is that it becomes an attractive space to create businesses in. As you pointed out, this leads to more startups being created, in all aspects of the healthcare “supply chain”. These startups all may be making some healthcare process more efficient, or at least trying to. However, I do not believe that this additional funding necessarily corresponds to better patient outcomes.
These various tech products may not necessarily solve the core issues driving our healthcare crisis in America, which are largely policy based. In addition, as private companies are wont to do in general, many digital healthcare interventions may exacerbate health inequities that already exist, particularly when there’s more money to be made by serving already wealthy/privileged people. In a Digital Health Equity course I’m taking, I have gotten a broad understanding on the digital healthcare research space, and the gap between this and what I read about the healthcare industry is astounding. There is nearly no consideration for intervention efficacy in private health companies. Metrics are only tracked in terms of consumption, rarely outcome, while research solely focuses on outcome. This gap is only bound to get worse as companies build faster (and break things), fueled by a funding bubble & capitalist incentive.
TLDR: I think that having too much money in digital health may be a bad thing, because it makes founders’ incentives more likely to be aligned to investor profit and less likely to be about improving healthcare for everyday people (under the veil of, “oh, we’re a healthcare company”).”
How are we going to lower the spend in healthcare if companies are trying to get reimbursed more?
“Here is a thought: Is digital health going to ever make a difference in reducing healthcare costs….and put that in the context of all of this investment.
Healthcare is 18% of GDP. Your average digital health venture hopes to vastly improve the triple aim of better outcomes, lower cost, and a better patient experience. I absolutely believe it can improve patient experience and improve outcomes. I am starting to get skeptical as to whether the adoption of digital health will actually result in lower costs. Part of my bias here is that I see digital health sharing or drawing payments from hospitals and clinicians.
For example, if a patient takes on a remote monitoring application to manage a disease, there is an RPM monitoring code (which btw is an increased cost, theoretically offset by better outcomes). The digital health company often charges a service fee to the Provider, with the idea that the Provider will recoup that and more from billing to RPM CPT codes and collecting savings from improved outcomes. Thus there is a movement of cash from providers to upstart digital health companies. So the concern is that with all of the extra hands out, how will the overall costs go down? When I was starting up a digital health service, the entire model was essentially based on the idea that we would do a better job than the provider and that payments would essentially transfer from them to us. But if we are trying to make healthcare go from 18% to say 12% of GDP (maybe it’s enough for it to just stop growing?), then we are in a declining market (not usually a good place to be and would send hospitals into a big freak-out).
Let’s take that 18% of GDP and assume we want to take it to 12% of GDP over 10 years (Perhaps that is not anyone’s goal but that would be my goal). Studies claim that 25% of that is waste or 4.5% of GDP. The promise is that digital health infrastructure projects will improve productivity and efficiency. Let’s imagine it is amazingly successful and cuts out 2% of GDP that is waste….that gets us from 18% to 16% of GDP. This means that the other 4% needs to come from actual reductions in the cost of care or a 4%/18% reduction = 22% decline, or $880B of a $4 Trillion US healthcare spend. Let’s further hypothesize that a goal would be that in a perfect world 1 dollar of Digital Health spend would result in 2 dollars of savings (so that each dollar of digital health spend pays for itself and additionally results in $1 of savings). Let’s further assume that the 1 dollar of digital health spend is split 50/50 between the digital health company and the provider (to give an incentive). Thus, you would spend $880B on digital health (not including billing and infrastructure dig health), and it would result in the needed $880B in savings (1 dollar of spend give 1 dollar of savings). Since the payment is split, the digital health companies collect $440B per year that they didn’t collect before. The provider ‘system’ had collected $880B but now only gets $440B (it essentially transfers half of its income to digital health companies).
Now you can test the numbers for sanity. Do you believe Digital Health can get revenue to $440B and produce $880B in savings? Can the billions in investment bring that change? Do you believe the traditional healthcare system will give up $440B in billing without a fight? I am not sure I know the answer…..And I know my numbers are a bit crude, but point out at least one scenario that would have to be true for cost reduction to be meaningful.”