10 chief digital officers on what layoffs mean for digital health industry

After a busy 2021, in which digital health companies raised many billions of dollars and some even went public, the market for startups offering tech-heavy services like virtual care and data analytics has slowed, leading many of the firms to cut jobs in 2022.

Becker's reached out to hospital and health system chief digital officers to get their feedback on what this trend portends for that upstart business going forward. Note: Their responses have been lightly edited for clarity.

What do you think the rash of layoffs at digital health companies says about the future of that industry, and do you expect digital health company partnerships with hospitals and health systems to continue?

Aaron Miri. Senior Vice President and Chief Digital and Information Officer at Baptist Health (Jacksonville, Fla.): It's always sad to see layoffs as, at the end of the day, that's a person, a family and a human element that can never be taken for granted. That said, a business has to be a business first, so I understand why the layoffs are occurring, especially given how much money quickly flooded the market for telehealth and other solutions. 

On the partnerships, I don't think health systems will survive unless they smartly partner with the right digital health companies. We cannot afford to be afraid of our own shadow, so my advice is to be bold, take intelligent digital bets and help your health system successfully weather the economic environment.

April Giard, DNP. Senior Vice President and Chief Digital Officer of Northern Light Health (Brewer, Maine): There was a huge influx of these companies during COVID — it started prior to COVID but accelerated during then — and many companies trying to do the same things. It's been and still is a very competitive market. We would see people moving around, as well as mergers and acquisitions at a rapid rate, among these digital healthcare companies. Most of us could see this coming and planned for it.

Huge venture capital funding and investments eventually need to show a return on investment, be profitable, and be able to produce and scale in the market. This is the normal right-sizing we would expect. What many of these companies failed to foresee or wasn't in their business strategy was the support for the new solution. It's one thing to build a new shiny solution or digital tool, but if the ongoing support after it's implemented was not part of the plan it will not be successful.

Healthcare is a 24/7/365 service, so the support has to be there and match the need. Another key is the integration aspect for patients, consumers and the clinical staff. The companies that are able to truly integrate and even partner with core systems (EHR, enterprise resource planning, etc.) have a better chance of being successful.

This industry will not go anywhere, but it will go through natural selection of those that can produce and show a return. As a CDO, I have been very aggressive with our digital roadmap and partnerships, which are many, but we are very strategic. The viability of these companies and their entire infrastructure needs to be considered to drive the hospital and health system's goals and business, which is patient care, quality and affordability.

Edmondo Robinson, MD. Senior Vice President and Chief Digital Officer of Moffitt Cancer Center (Tampa, Fla.): Digital health startups (like startups in other industries) are always balancing the size and scope of their products and services with the size of the teams needed to execute on their vision. However, there did seem to be a recent mismatch between the outsized valuations of digital health startups and the fiscal realities of their potential customers as many healthcare providers continue to struggle with the effects of the pandemic. This is a time when startups that are truly adding value will rise above the others and leadership, vision and execution will be paramount. Although the pace and scale may adjust, startups partnering with health systems will continue.

Eric Smith. Senior Vice President and Chief Digital Officer at Memorial Hermann Health System (Houston): I think any economic shift forces companies, perhaps especially those in earlier stages, to look critically at their expense structure. But I still see growing numbers of partnerships between digital health companies and health systems. These companies are able to quickly produce a specific product or solution to address a challenge faced by health systems, which benefits both the system and its patients and community members. Close managing of these partnerships, and mitigating risk, will continue to be important, especially when times are challenging.

Jared Antczak. Chief Digital Officer of Sanford Health (Sioux Falls, S.D.): There are more than 11,000 digital health companies today. As long as there are underserved needs, there will be opportunities for innovation in healthcare.

On Aug. 23, Sanford Health convened the Summit on the Future of Rural Health Care, which brought together national experts, policymakers, technology companies and healthcare leaders who shared their expertise and insights about opportunities for health systems to collaborate with digital health companies to shape the future of care delivery. 

Partnering with digital health companies will continue to be critical to our success in serving our patients when, where and how they want to be cared for while also empowering our clinicians to operate at the top of their license. Digital health tools that assist, augment and automate clinical workflows will also be essential to helping to improve productivity and patient engagement.

At Sanford Health, our $350-million virtual care initiative will help us to leverage the best of technology to provide high-quality care close to home. We look forward to continuing to partner with digital health companies that share in our commitment to make care more accessible, affordable and equitable for patients living in rural, underserved communities.

John Lock. Chief Digital Transformation Officer of MedStar Health (Columbia, Md.): A large number of digital health companies were started and funded during the last decade and particularly during the last couple of years at significant valuations. Many of the companies were in similar niches and without any clear path to profitable revenue. Additionally, the growth many of these companies experienced during the pandemic was extraordinary, and that growth has materially slowed. In my experience, what we are seeing is a natural evolution toward fewer companies who are offering real value to the healthcare industry combined with a funding market that has come in a bit.

Digital health is here to stay, so I would expect to see deeper, more meaningful relationships develop in the near term between surviving companies and hospitals and health systems. I would also anticipate that there will be some consolidation among some of the stronger companies to better leverage more limited operating resources.

Michael Hasselberg, PhD, RN. Chief Digital Health Officer at University of Rochester (N.Y.) Medical Center: In 2021 we witnessed an unprecedented venture investment in digital health, leading to inflated valuations and a marketplace flooded by companies with questionable business metrics. These factors caused uncertainty among health systems seeking industry relationships. Now, we are seeing a reset in the funding of digital health companies, enabling health systems to seek stable industry partners to transform care.

At University of Rochester Medical Center, we believe that this is an excellent time to partner with digital health companies. Due to the investment market pullback in 2022, these companies must be more thoughtful about how to spend their capital and grow. Only those with the strongest value propositions with a clear return on investment will survive. This increased clarity around value gives health systems like ours even more confidence that the vendor solution will actually meet our needs. 

Patrick Woodard, MD. Vice President and Chief Digital Officer of Methodist Le Bonheur Healthcare (Memphis, Tenn.): Recent digital health layoffs certainly mark a turn in the rapid growth of digital health tools, but I believe this reflects current market conditions more than the future of the industry. That being said, a deep pocket is not enough to fix healthcare's problems; Amazon's discontinuation of Amazon Care demonstrates that challenges remain regardless of funding. I do think there is a silver lining. Being forced to be lean and nimble will help to focus digital health companies on finding true product-market fit, or fade away and leave a spot for another contender.

Part of this shift will be to drive digital health companies closer to health systems' needs. Health systems will continue to be a primary location where patients receive care, and digital health companies will need systems' expertise. But values will need to be aligned. In general, health systems have a low risk tolerance for failure and tend to value tools that specifically move toward the "quadruple aim." Digital health companies should ensure they can demonstrate success in moving one or more of these needles in an integrated, enterprise fashion. In this way, not only can partnerships continue, but they can thrive.

Tony Ambrozie. Senior Vice President and Chief Digital and Information Officer for Baptist Health South Florida (Coral Gables): I don't think what's currently happening with the digital health companies is either unexpected or bad in the long term for the market as a whole. 

The last 18 months of wishful investments have led to a bubble in the digital healthcare space. And bubbles are always rudely burst by slowdowns or recessions — it's not the first and not the last case and not unique to healthcare by any means. When too much money chases too few quality investments, it is inevitable that there is too much duplication and too little differentiation in the quality of offerings. We're seeing too many solutions not doing the hard work of sound technical and functional implementation and deep integration into EHR and other critical systems. All this frenzy may have created the illusion of short-term opportunity and potential for investors but not enough solving the hard problems for providers. Coming from outside healthcare, I've been distinctly underwhelmed by the low quality of digital solutions, both from a functional as well as architectural and engineering perspective.

But some economists have shown that bubbles and their aftermath actually lead to advancements in the long term that may not otherwise happen, except for the regrettable investor and painful job losses. After the bubble bursts, there is necessary consolidation that creates scale, where pieces of the assets are recovered at reasonable prices by stronger players and incorporated into better and more comprehensive products. There is a better focus and understanding of what the problems really are and how to robustly solve them, based on closer partnerships. And better returns on investments and newer jobs are created in the process. 

So, medium to long term I think there are positive implications to this readjustment, outside of temporary job and investor losses.

Zafar Chaudry, MD. Senior Vice President, Chief Digital Officer and CIO at Seattle Children's: Healthcare is already heavily into the digital transformation journey. There have been a multitude of new startups in the digital health space driven by the pandemic — many of them have similar capabilities such as digital front door apps, for example. For me, it is only logical that many of these digital health companies won't survive; consolidation is inevitable. I do not see this limiting organizations in solidifying and continuing partnerships with the digital health companies that survive and continuing the good work that has already begun.

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