Consumers may be controlling more of their healthcare dollars, but those in the world of digital health know who's keeping their industry afloat: doctors, hospitals and insurers.
Providers and payers are still at the center of the flow of money through the healthcare industry, investors in the digital health space said Tuesday at the Health 2.0 conference in Silicon Valley's Santa Clara, Calif.
“We are a B2B (business-to-business) industry,” said Liz Rockett, principal at Kaiser Permanente Ventures. “We are accustomed to selling one massive business to another massive business.”
The average consumer isn't sophisticated enough to have true decisionmaking power when it comes to managing his or her healthcare, which means that doctors and insurers still hold the cards, said Dr. Abhas Gupta, a partner at Mohr Davidow Ventures, a Menlo Park, Calif.-based venture-capital firm.
Consumerism may be the current buzzword, but technology investors still have a healthy amount of skepticism about digital health platforms.
“Purely consumer-focused companies are going to have challenges,” Gupta said.
Consumers may be the end users of digital health platforms, but they're also less likely to be the source of revenue.
“The consumer has been trained not to pay for anything in healthcare,” said David Francis, managing director at RBC Capital Markets. “B2B2C is still the way to go. Someone needs to pay for it.”
On the investor side, the terms “health technology” and “digital health” spark different reactions. Technology is considered more serious, while digital health conveys more of a bubble, Rockett said. “For some of the more old guard investors, there is still skepticism about whether this is a real market.”
Digital health companies like Castlight Health, Everyday Health and Teladoc came out strong during their initial public offerings but more recently have been underperforming in the Standard & Poor's 500.
Yet in a market awash with liquidity, digital health companies are still finding financial backers.
In the first three quarters of the year, venture capital investing in digital health companies reached $3.3 billion, ahead of the same period last year, which was a high-water mark for digital investing, according to venture fund Rock Health.
And some of the primary beneficiaries have been companies that focus on consumer engagement, wearables and personal health tracking tools.
Providers also are being incentivized to track patient-generated health data; The Office of the National Coordinator for Health Information Technology this year developed a road map for providers on how to collect and use patient-generated data as part of Stage 3 of the meaningful-use rule.
That move also has expanded opportunities for companies that link digital health players to the providers and insurers they're trying to reach.
Validic, which earlier this year raised $12.5 million in a Series B round led by KP Ventures, connects its clients—including health systems, electronic health-record vendors and pharmaceutical companies—to about 180 different digital health platforms. It's free for digital health companies to be included, and clients pay a licensing fee to access the data.
“We're helping young companies, we're helping midsize companies and we're also helping enterprise,” said Drew Schiller, Validic's chief technology officer and co-founder. “We're the connector for this space. It's a position that we're excited to be in.”