Digital health startups draw record investments in the first half of 2017

Story​ updated​ July​ 14,​ 2017

During the first half of this year, digital health startups raised more money than ever, with 188 digital health deals and $3.5 billion invested, according to a new report.

If financing continues at this clip, 2017 will see $2.7 billion more in investments than last year, when there was $4.3 billion invested.

The second quarter of 2017 was a dramatic change from the first, when deals were on par with those of the prior year. But in the last few months, a couple of huge deals brought the funding up to an unprecedented level at the midpoint of the year, when funding in 2016 was around $2.5 billion, according to a report from Rock Health, which tracks healthcare venture funding.

Outcome Health, which delivers health information to practices, raised a record $500 million in its first round of funding, with investors that included Goldman Sachs Investment Partners and CapitalG. Rock Health reported that Peloton Interactive, which makes spin bikes and is not a traditional healthcare organization, had the second-largest round of funding, with a $325 million series E round.

However, this year lags behind 2016 in one major way: There have so far been no digital health IPOs. Rock Health expects that to change soon, with well-funded companies poised to make exits.

Overall, the digital health category with the most funding in the first half of 2017 was consumer health information, with eight deals totaling $757 million. That reflects the push to get consumers involved in their own care, given the shift to value-based models and the resulting demand for innovative, cost-cutting healthcare delivery solutions.

"As provider reimbursement is increasingly based on outcomes, providers are more likely to invest in solutions that promote healthy patient behaviors in and outside the hospital," said Megan Zweig, Rock Health's director of research and one of the report's authors.

Demand for patient-centric solutions has persisted despite the uncertainty caused by the debate over healthcare in Washington. With the prospect of consumers paying more of their own healthcare costs because of high deductible plans or loss of coverage, providers must find ways to make healthcare more affordable, according to Rock Health.

"Regardless of the outcome of the healthcare policy kerfluffle, we look forward to seeing how startups will continue to meet the urgent needs of patients and transform healthcare for the better," wrote Rock Health's Halle Tecco and Zweig in a blog post.

Some of those startups, such as Healthify—which announced $6.5 million in series A funding today—are addressing patients' needs by looking to issues not typically included in healthcare. Healthify's software helps connect patients with community organizations that address social determinants of health, including healthy food and affordable housing. The company will use the funding to broaden its customer base and expand its network of social-service partners.

"Our latest round of funding is another indicator of the leading role digital health companies can play in system transformation," said Eric Conner, co-founder and chief revenue officer of Healthify. "Good digital health companies take the risk out of the decisionmaking process."

An​ edited​ version​ of​ this​ story​ can​ also​ be​ found​ in​ Modern​ Healthcare's​ July​ 17​ print​ edition.