The COVID-19 pandemic kickstarted a rapid increase in adoption of healthcare technology, reshaping the bedrock of American medical operations and delivery. But as 2022 drew to a close, several factors suggested that technology adoption was slowing down, including a cooled landscape for digital health funding and a drop in virtual care utilization.
In addition, a flurry of cyberattacks and concerns over the privacy of sensitive medical data highlighted the hazards of new technology adoption.
Despite this, experts remain upbeat about the potential of technology to improve U.S. healthcare in 2023.
According to predictions from industry stakeholders, this year could represent an inflection point for real-world utilization of artificial intelligence, and standards could raise for health data privacy and cybersecurity. In addition, though investors are more cautious, funding will continue to be available for startups this year, and the telehealth industry will be held to higher clinical standards as it’s used more frequently in care delivery.
Digital health goes back to basics
After a volatile few years of record digital health funding followed by a painful market correction, health tech is going back to basics this year as investors prioritize safety over risk, experts predicted.
Digital health funding may still experience a slight drop compared to past years, but funding levels should stabilize in 2023, according to Credit Suisse analyst Jonathan Yong. Companies that have a pathway to profitability or are already operating in the black should attract the most interest as venture capitalists — with valuations down compared to the highs of the past two years — become more discerning.
“While growth is still important, there has to be a much stronger balance between growth and path to profitability,” Yong said. “VCs are going to be much more selective in their investment choices.”
That trend should benefit public companies with track records of stability, mature business models, steady growth trajectories and fair valuations, according to SVB Securities analyst Stephanie Davis. Such companies include data analytics company Health Catalyst, patient intake software provider Phreesia and revenue cycle management company R1 RCM, along with EHR companies like Veradigm, née Allscripts, and Nextgen, Davis said.
Mental and behavioral health should continue to be key areas for funding, Yong said. Despite the multitude of behavioral health companies in the space, employers and payers “are still looking for help here,” he added.
Family planning and femtech also are expected to draw in dollars amid a rising focus in women’s health accelerated by the Supreme Court’s decision to overturn Roe v. Wade in Dobbs v. Jackson Women’s Health Organization last summer.
Experts said they think healthcare companies will adopt tools more slowly than they did last year, as payers and providers are forced to be more selective in whom they work with given financial pressures and an abundance of point solution companies in the market.
Payers likely will allocate resources toward physician enablement and care coordination capabilities. Meanwhile, providers will invest in tools to reduce administrative burden on clinical staff and improve revenue cycle management, Yong said.
Digital health companies have the greatest near-term opportunity from the provider wallet, as hospitals and physician networks continue to adopt digital health technologies to streamline operations in a difficult macro environment, including data and analytics strategies and patient engagement products, Davis said.
Despite opportunities, this year still is expected to be tricky for digital health startups. Experts said persistent layoffs and consolidation is likely as it becomes harder for point solution companies to operate independently. In addition, companies that decide to raise funding in 2023 will likely have to make do with a down round, and may have a harder time getting funding as the year goes on and a higher rate environment pressures valuations.
“I’ve been hearing a lot of quiet down rounds lately,” Davis said. “And I do think the companies that are doing the down rounds are being very prudent to do so.”
