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This morning, Rock Health released its midyear report on the state of digital health, a sector that continues to demonstrate a growth in venture funding, in contrast to other areas of healthcare. It’s not just capital – Rock Health might have also highlighted venture’s increased deployment of dedicated personnel in this space; examples include Mo Kaushal at Aberdare, and Steven Yecies at Orbimed, who are both here in Silicon Valley (rapidly emerging as the Silicon Valley of digital health).
Although not covered in the Rock Health report, there’s also been increased academic activity in digital health – for example, UCSF’s Center for Digital Health Innovation, MGH/MIT’s Center for Assessment Technology and Continuous Health (CATCH) (disclosure: I am a co-founder), and Berkeley’s executive education course (offered jointly by Health 2.0) on digital technology in healthcare.
Federal efforts in this space are encouraging as well; I’d especially recommend signing up for the listserv coordinated by Wendy Nilsen of the NIH’s Office of Behavioral and Social Science Research (OBSSR) (instructions here).
Yet, even with all this upbeat news about digital health, key questions remain. For example:
Additional important emerging themes include:
Finding the right model: As much as VCs like consumer web – Steve Blank has suggested they may even be addicted to consumer web because of its unusual potential for explosive growth – this may not be the right model for most of healthcare.
More generally, digital health entrepreneurs need to find a way to leverage the disruptive power of tech innovation while also recognizing key differences. As Jae Won Joh pointed out in a brilliant recent post, Facebook’s legendary motto, “Move fast and break things” may not translate well to healthcare, where the dominant credo is “First, do no harm.” Providers view patient care as too important to entrust to a half-baked app, or an incompletely thought-through solution. This turns out to be true for most companies in the healthcare space, including biopharmas.
Finding the right customer: An important priority of digital health entrepreneurs is identifying the right customer for their healthcare innovation offering – especially given the intrinsically (and, perhaps, understandably) conservative stance of most stakeholders. Where do promising but early startups go to find traction?
The difficulty in finding a customer truly receptive to innovation within an established healthcare company represents a serious problem for the industry as well – it’s exactly why so many (most notably Eric Topol) are clamoring for creative destruction. The fact that incumbents do not seem to be under even greater pressure to be especially receptive to innovation may speak to how entrenched and dysfunctional the healthcare market is, but may also reflects a respectful caution around anything involving patient care. In a sense, the stakes are almost too high.
Consider, for example, pharma clinical trials. These tend to be remarkably rigorous – generally executed in a far stricter fashion than most academic studies. Consequently, if you are going to sell a solution to a pharma company for use in a clinical trial, it needs to be robustly validated, rock-solid. Companies would rather use a relatively inelegant solution they trust versus a sexy new approach that seems unvetted. (The tendency of large hospital systems to adopt Epic is arguably another example of the same phenomenon.)
This leaves the digital health entrepreneur interested in this space with three choices: validate through collaboration with academic investigators (challenges: limited resources and likely long timelines); find a small healthcare company for whom the digital health innovation might be transformative and provides a profound enough competitive advantage that they are willing to invest (challenge: small companies place huge emphasis on capital efficiency and tend to be hyperfocused in allocating resources); find receptive innovators within a large, well-resourced company – in pharma, for example, these might be departments of translational or experimental medicine (challenge: it can be hard to find the right mindset, especially among those who’ve been in large companies for many years). You can also appreciate why many technologist investors (such as Khosla) are keen to find solutions that circumvent incumbents entirely.
Coping with perverse incentives: Without meaningful changes in reimbursement and the structure of incentives, important disruptive innovation in healthcare will continue to face a brutal uphill battle against deeply entrenched interests who have little motivation to evolve – and perhaps a trillion reasons not to. Unfortunately, dysfunction is often rewarded like a feature, while care innovation can be received like a bug.
Consequently, as Sequoia Capital’s Todd Cozzens recently pointed out, healthcare innovators are forced to design offerings that work in both the poorly-aligned system of today as well as the largely hypothetical, value-oriented system of tomorrow.
Bottom line: There remains significant interest in the transformative potential of digital health; the challenge is on the implementation side, finding a way to realize and give expression to this enormous potential, and demonstrate the value so many of us believe is there. Perverse incentives within the existing system represent an uncomfortable reality that digital health entrepreneurs must recognize – then consciously leverage, adroitly avoid, or imaginatively overcome.
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