Digital health: the new startup opportunity

A number of new trends are emerging against the backdrop of the Affordable Care Act (ACA)–mandated health insurance exchanges being rolled out. One is the creation of new businesses based on digital technologies that allow individuals to manage and improve their own health, and gives service providers the ability to deliver increased quality and efficiency at lower costs. These companies span from PracticeFusion (EHR), which addresses efficiency of operations, to Fitbit, which makes a wearable device that measures the wearer’s physical activity and health.

Digital health as an industry sector is not new; there has always been IT investment throughout the healthcare industry, and as in any business, healthcare’s administrative aspects have been serviced with increasing levels of technology. But digital health as an industry trend is just now receiving higher visibility, just outside the glaring spotlight of the ACA.

Statistics on the size of this industry are inevitably slanted depending on the perspective. But however you look at it, this new industry is large and growing quickly. Rock Health, a digital health incubator, estimates that the sector saw $1.4 billion in venture capital investment in 2012, up 46 percent over 2011. Investment at that level would represent about 5 percent of total venture capital investments in 2012—a significant number.

Growth areas in digital health include:

  • EHR, the digitization of health information
  • Access to information and remote monitoring of patients via smart phones and other mobile devices
  • Big Data: analytics and mining all that information
  • Efficiency and administration: improving operations, lowering the cost of delivery and increasing quality
  • Hardware sensors and wearable devices that enable wellness and improved monitoring and personal health. (Is Apple’s “one more thing” going to be a smart watch loaded with body sensors?)

From a practical point of view for finance professionals, digital health companies will often have a complex combination of hardware, software and services in their products—but that is not unusual for technology companies. Digital health companies will not pose the unique accounting challenges we experienced with the pharma and biotech life sciences companies. I believe the new digital health companies will operate with the B2C and B2B models we know and understand. The FDA recently issued final guidance on mobile medical apps that appears to support a hands-off approach to most apps. If you have an app on your phone that’s monitoring an insulin pump, rest assured the FDA is going to have a hand in it. But for many of the new digital health companies, financial operations will look familiar and the FDA will not be a gatekeeper.

We will wait and see how digital health as a sector unfolds. Undoubtedly, we will see failures as in any emerging sector opportunity, and we will see technology thrown at needs that don’t exist. But the macro trends are too large for digital health to not become an important part of the evolution of healthcare and the startup economy.

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