'There are billions of dollars being wasted': What CIOs think of digital health startups

Digital health startups have raised billions of dollars over the last two years as telemedicine, virtual care and digital capabilities were thrust into the forefront of healthcare during the pandemic. But not every startup adds value.

Health system CIOs have watched companies raise millions of dollars to develop virtual care and data analytics platforms with the promise of making healthcare delivery better, more efficient and less expensive; an easy fix to the healthcare system. These companies then court hospital partners to test their products and realize just how complex healthcare organizations really are.

"There is a lot of over valuation," said J.D. Whitlock, CIO of Dayton Children's, during a panel for Becker's The Shift to Digital Virtual Event in June. "There are billions of dollars being wasted in innovation that people don't understand how a health system works, and they don't understand that you can come up with a cool thing, but if it doesn't integrate with clinical workflow then the providers won't use it. Maybe you should think of that ahead of time. Maybe you should think of what your strategy is for tying it to the EHR app store as one of the first things you're planning, not the last thing you're planning."

In the last six months, healthcare startups have lost steam. Rock Health reported in May that investors have high valuations for digital health startups, with the average funding round growing 82 percent from 2018 to 2021, when it hit $39.5 million. Sixty-four percent of startups raised funds twice in 2021, which is a 113 percent increase from 2018. Rock Health noted that the exit pathway for digital health startups is unclear, and macroeconomic challenges coupled with growing pains of any business have forced some companies to make tough decisions.

A few high profile startups are now going through layoffs:

  • Ro, a $7 billion digital health startup, raised $150 million in February but laid off 18 percent of its staff in June to increase efficiency and better manage resources.
  • Circulo Health, a startup using technology to manage Medicaid patients, raised $50 million last year but laid off 25 percent of its staff in June.
  • Carbon Health, a primary care model, has raised more than $500 million but laid off 250 employees in June due to market volatility and a decline in COVID-19-related business.

"The last two years were very different than this year," said Nassar Nizami, executive vice president and chief information and digital officer at Thomas Jefferson University and Jefferson Health, during the panel. "There was a lot more optimism and the feeling that the market was getting really high valuations. This year is going to be very different and the tone of the conversations has changed. There is a question mark about the pace of investment, valuations and so forth, which, when you think about the startup world, is really important."

Mr. Nizami does still see big opportunities in the right places for technology to become a revenue-generator for the health system, which most organizations desperately need. Jefferson is implementing remote patient monitoring technologies to meet care goals.

"A lot of technologies we talk about in terms of quality and efficiency are at a net cost," he said. "In RPM, we have an opportunity to leverage technology for the clinicians providing care. It's a piece where we're looking to improve health, improve efficiency, improve quality and generate revenue. That is something we're very excited about."

Ashis Barad, MD, chief digital officer at Allegheny Health Network in Pittsburgh, also said there has been a lot of optimism around consumer-focused technologies, despite the over-valuations. While the term "consumer" to describe patients makes some physicians uncomfortable, Dr. Barad has embraced it.

"Consumerism, as I see it, is me as a patient, but also me as a whole individual in the context of my whole life and my circle and everything that I am," he said. "I think the buzz is to really solve for the whole consumer and build around them, and the care team, and then we can really get to that great place where we can guide and navigate patients to go from sick care to healthcare."


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