The public health crisis (the “Pandemic”) brought more attention, and more money, to the use of digital technologies to provide remote services to millions of individuals affected by the Pandemic. The use of digital technologies to provide medical services otherwise known as “telehealth”, exploded during the Pandemic but has since then made a steady growth across the healthcare industry, with many realizing the value of using digital technology to supplement, and in some cases, replace traditional methods of medical care. While many expected the value and investment in telehealth to decline with Pandemic restrictions being lifted, a recent report from venture firm Rock Health (the “Report”), shows that digital health funding continues to break records as venture-backed companies raised $14.7 billion in the first half of the year. Rock Health’s CEO Bill Evans notes that while even he was a bit surprised by the increase, the fundamentals checked out, “we saw pace increase and size per round increase,” noted Evans.
Spike in Telehealth Deals
As mentioned, the Pandemic played a huge role in propelling the use of telehealth services into the forefront of health funding. According to Bloomberg, the number of Americans using telehealth services tripled to 60% by March of 2020. A number of medical professionals turned to telehealth to help their failing practices as Pandemic restrictions limited patient access to medical services. The switch to digital technologies brought mainstream attention, and the mainstream attention brought “a flurry of big deals, high-profile exits and historic levels of funding flowing into the red-hot market” as reported in the Report. By the end of the second quarter of 2020, there were an estimated seven large deals totaling $285 million dollars, a small feet compared to the $14.7 billion raised at the first half of this year.
As reported by the Report, there were 48 megadeals so far this year, each totaling more than $100 million. According to the Report, the first two quarters of 2021 has already surpassed the annual record set in 2020, with the first half of 2021 comprising the two largest quarters of funding activity in the U.S. digital health market ever, which a decade ago was $1.1 billion, the same amount raised in two weeks of this year.
“The digital health investment climate in one word: Up” wrote researchers of the Report, noting that projections for the whole year are expected to “more than double 2020 in terms of both deals and companies funded”. Digital health mergers and acquisitions have also increased in the past year, each month of the current year has seen an average of 22 acquisitions of digital health companies, nearly double the amount we saw in 2020. More companies are looking to consolidate healthcare services under one umbrella, and digital health services provide an avenue to do so. Although tech giants have begun pursuing health-related acquisitions, the Report notes that digital health companies remain the biggest acquirers of other digital health companies.
Rock Health notes that the increase in public exits is a “signal of the sector’s maturity, highlighting founders’ sustained access to capital, investors’ faith that more companies’ revenue models are ‘public market ready,’ and rising consumer confidence in the long-term value of digital health solutions”. At $3.9 trillion dollars, healthcare spending represents around 19% of U.S. GDP, which means, as Evans notes, that there is still plenty of room for growth in the digital health space.
Post-Pandemic Slow Down in Telehealth Use
While digital health funding continues to explode, recent data from Fair Health, a consumer advocacy group focused on transparency in healthcare costs and coverage, suggests that the use of telehealth services has begun to slow down. As mentioned earlier, the Pandemic brought about an increase in the use of telehealth services, providing access to medical services for individuals, but also aiding failing medical practices by connecting them to those in need of medical services.
Yet, with many states lifting Pandemic restrictions, and Americans getting back to their day-to-day routine, telehealth services are shifting from a necessity to an option. Fair Health used its data base of 33 billion private claims records to analyze the monthly evolution of telehealth since May last year, the results of the data show that the use of telehealth services have fallen from 7% of all medical claims in January to 4.9% in April. Although the decrease in the use of telehealth services does not fall in line with the booming digital health market place, recent passage of telehealth legislation, as discussed in our “State” of Telehealth blog series, could serve to increase the use of telehealth services across the country.
What it All Means
As funding for digital health technologies continues to soar, it is expected that the industry will begin to consolidate its services, creating more streamlined access for patients looking to have access to healthcare; and although the use of telehealth services post-Pandemic has made a decline, the laws governing the use of telehealth have continued to expand. According to a study by the Commonwealth Fund, at least 22 states have changed their policies to increase and improve telehealth coverage, bringing the total number of states requiring telehealth coverage to 40. So, while the use of telehealth is down, at least compared to the record numbers set during the Pandemic, access to telehealth services has, and will, from our perspective, continue to increase. This rolling increase in access will require sophisticated digital platforms that are able to maintain the steady influx of new telehealth patients and providers looking to have more of a digital presence. The continued investment into digital health and telehealth ensures that these new users, both patients and providers, are well taken care of. Summed up perfectly by The Hill opinion writer, Sara Struwe, in her July 9, 2021 commentary, “Just as every disease and patient is different, so too are their needs.”
As policy makers continue to decide what Pandemic era flexibilities should be kept, one thing is for certain, the use of digital health and telehealth services is here to stay.