There are more investors in digital health today than there have ever been, but the questions they are posing to company founders before writing a check are tougher than they were just a year ago.

Before backing a digital health startup, investors want to know precisely how a new technology will remove costs from the healthcare system or improve patient outcomes. Unwilling to back startups with a vague plan to “chase revenue,” investors want to see bold, tenable plans that will optimize providers’ workflow or ensure the delivery of higher quality care to more people at a lower cost.

But this trial-by-fire will ultimately benefit the sector, panelists at the 2022 Rock Health Summit said. Fenwick is proud to have been a co-sponsor of the event held last month in San Francisco, which brought together industry leaders, company founders, investors and thought leaders in a market segment that has seen meteoric growth over the past decade.

Bear markets can be painful, and digital health is feeling the same pain as most other industries. But tough times also cause businesses to focus on the essentials and cultivate the kind of discipline that will benefit them for years to come.

Or, as Headspace Health COO Karan Singh put it on a panel devoted to the current state of digital health: “The best operators love to operate in this environment.” If a business is sustainable, it will thrive, panelists agreed.

The downturn will continue to pressure startups that lack solid business plans or are uncertain where their revenue will come from, panelists agreed. But it will make strong companies stronger. And the timing is great to be a strong digital health company because the bear market is also bringing new opportunities.

Primary Care Outlook

Primary care is the central hub of healthcare, and it is in the midst of fundamental changes. These changes are opening up new opportunities for digital health companies.

During a discussion on the current state of primary care, panelists pointed out that exhaustion and burnout are at an alarming high among primary care providers, and a shortage of physicians is expected to worsen in the coming years. This means primary care departments need new technologies, especially those that streamline workflows for care teams and help extend care to the home. Providers are also looking to reduce the social gaps in healthcare delivery and improve access for underserved and marginalized communities.

American Medical Association (AMA) President Jack Resneck, Jr., MD said that doctors have not always been at the table when the healthcare industry outlines its strategic priorities, or when new digital health technologies have been created. But this is beginning to change.

The AMA recently surveyed physicians on which digital health tools would be most valuable to their practice and to patients, and they overwhelmingly responded that they want to see more telemedicine options, as well as better tools to monitor patients in their homes. Overall, the percentage of doctors who say digital health tools can improve patient care grew from 85% in 2016 to 93% in 2022. They are increasingly embracing artificial intelligence, and hoping new workplace tools can help reduce burnout and turnover.

Adam Glasofer, MD, global head of healthcare - public sector VC + startups at Amazon Web Services, pointed out there are opportunities to use virtual reality and augmented reality in training programs for primary care, which would reduce the burden on that department.

Meena Seshamani, MD, deputy administrator and director, Center for Medicare at Centers for Medicare & Medicaid Services, said her agency—which covers 63 million Americans—also has new imperatives and views digital health innovations as the means to reach goals that have been elusive in the past.

One of these imperatives is treating “the whole patient,” she said, meaning better understanding the way patients live, as opposed to simply treating their symptoms. There is a new, strong focus on mental health, she said, and a mandate to make healthcare more equitable and inclusive. New technologies are the way to make this possible, she said.

Primary care providers and government agencies have realized that the one-size-fits-all model of healthcare delivery is not working, the panelists agreed. And these entities are looking for new solutions to help them better tailor healthcare to each individual patient, and to extend care to patients who have been marginalized in the past.

Digital health startups are uniquely positioned to help the healthcare system reach its goals. But in a market facing so many challenges, startups will need to prove that they are far more than just a clever piece of software.

Company founders will need to show that their solutions lead to noticeable improvements over the status quo, and that their technologies will remove cost and burden from the healthcare system. They will need to show their innovations make people healthier, or reduce the gap between those who can afford the best care and those who cannot.

Rock Health’s summits always feature thought-provoking conversations, and this year’s was no exception.

One thing is abundantly clear: investors, acquirers and potential customers are challenging digital health startups to prove that their solutions will bring tangible benefits to the healthcare system. If history is any indication, many companies will rise to that challenge.