What’s ahead for digital health in 2021?

To kick off the new year, we are reflecting on the profound impact that the last twelve months will have on the next twelve for digital health. Although 2020’s tumultuous events—a global pandemic and social and political tension—have not resolved, we’re encouraged by the opportunity we see for digital health in 2021. This trajectory is shaped by three forces:

Starting point: what issues did the pandemic expose within US healthcare, and what changes did it catalyze?
Momentum: where is digital health’s breakthrough year leading us?
Macro forces: what new variables beyond healthcare will impact digital health this year?

We’ll explore these forces and conclude with four predictions for the year ahead.

Starting point: The healthcare industry demonstrated enormous capacity for innovation as the pandemic laid bare long-standing challenges

The pandemic illuminated the best and the worst of the healthcare industry. On the one hand 2020 exposed significant issues:

Infrastructure: The pandemic revealed inadequate public health infrastructure that hampered the national response. Testing lags have periodically plagued the public health system since the start of the pandemic, and there are now concerning delays during the first few weeks of vaccine distribution.
Information silos: Persistent challenges around interoperability continue to frustrate providers caring for COVID patients by making it difficult to access complete medical histories, avoid duplicate testings, and coordinate care across transfers and discharges. At a public health level, the case reporting infrastructure was strained by technical failures and shifting guidance from the federal government.
Inequity and mistrust: Disadvantaged groups have been among those hit hardest by the pandemic. Black and Hispanic communities have been disproportionately impacted, and health inequities breed mistrust in the healthcare system. Winning back trust among these communities will be a major challenge for the national vaccination effort.

On the other hand, the pandemic response has demonstrated resilience and the capacity for innovation:

Pace of innovation: The scientific and medical communities rapidly developed effective treatments and vaccines for COVID-19. Healthcare providers went digital en masse and telehealth visits made up 14% of baseline total outpatient visits at peak adoption in mid-April. Startups and enterprises rolled out new solutions to meet pandemic needs, and we witnessed the emergence of entirely new applications of digital health like the back to work market.
Regulatory change: The federal and state governments jumped into action to unlock digital health access for consumers during the early phases of the pandemic. Medicare covered video visits on an emergency basis and offered flexibility on use of different platforms such as FaceTime or WhatsApp. The FDA waived regulatory requirements for some behavioral health companies, clearing the way for companies like Pear and Akili to launch products early.
Citizen engagement: Over the past twelve months, consumers have engaged with healthcare on a grand scale. There is more awareness, and stronger interest in individual and public health issues than at any point in living memory. Beyond telehealth, digital health has enabled consumers to keep abreast of COVID cases data, check their COVID symptoms, access therapy, exercise at home, and regulate stress, among other things.

2020 made it clear that digital is not a nice-to-have—it’s an essential part of healthcare.

Momentum: Digital health is riding the tsunami of 2020 into the mainstream

As we wrote about in our year-end market insights report, 2020’s stress test to the US healthcare system created what felt like a fast forward button for digital health. The durability of the digital health investment sector and increasingly meaningful enterprise activity are signs of momentum towards a new equilibrium in which all healthcare will be digitally enabled.

Unprecedented funding: In 2020 startups raised a record-shattering total of $14.1B in venture funding—1.7X more than 2018’s previous high water mark.
A healthy exit market: There were six digital health IPOs and seven announced or completed SPAC (Special Purpose Acquisition Company) deals. Additionally, there were 145 acquisitions of digital health companies in 2020, up from 113 in 2019.
Strong enterprise commitment: Enterprise companies stepped up their digital health activity in 2020. Traditional healthcare players doubled down with significant moves such as Boehringer Ingelheim’s $500M deal with Click Therapeutics and Phillips’ $2.8B acquisition of BioTelemetry. Enterprise disruptors such as Best Buy, Walgreens, CVS, Salesforce, Amazon, and Walmart continued to maneuver their way towards capturing slices of the $3.5T healthcare market opportunity.

New variables: Major transformations beyond healthcare will alter digital health’s environment

As 2020 made clear, healthcare is no isolated industry—the global health crisis impacted all corners of the global economy and society. Those impacts will continue to reverberate in 2021, and industry leaders will have to navigate changes coming from four direction:

The economic recovery is in progress but still fragile. After several months of slowing job growth, the economy in December tallied its first net decline in payrolls since April’s astounding 20.5 million loss. Consequently, Medicaid enrollment has ticked up in a reversal of declining enrollment across 2017-2019, and enrollment in individual plans from federal marketplaces are up 6.6% compared to last year. Expect the growth of these markets, and the growing pressures on state Medicaid budgets, to create an imperative for innovation to expand access and reduce costs to traditionally underserved populations. The uneven nature of the recovery (for example, Black unemployment is 9.9% compared to 6.0% white unemployment) compounds the equity and trust issue discussed above, making the case for inclusive innovation all the more urgent.
Society’s new normal will look different as much of our daily lives will remain online and concerns of exposure to diseases will keep people out of hospital settings. In a post-pandemic world consumers’ virtual-first preferences will likely hold demand elevated above pre-pandemic levels, while some providers’ desire to partake in flexible and remote workstyles could boost the labor supply for new virtual care models.
Political shifts will mean an evolving regulatory landscape. With an incoming administration, expect leadership to press forward with a new healthcare agenda. Recent bipartisan support for issues such as Stark law reform and pricing transparency suggest there is political room to get things done.
The techlash of recent years will accelerate as pushback against tech giants, social media, and surveillance business models grows. The spillover effects for digital health may constrain completely free-flowing health data even if technical interoperability challenges are worked out.

The healthcare and broader economic landscape will be markedly different one year from now. Winning digital health leaders will have harnessed, not merely weathered, one or more of these external forces.

Where do we go from here?

If 2020 taught us anything it’s that making predictions amidst great uncertainty is challenging, but we will give it a try. We still believe the five themes we recently outlined on the future of healthcare: a new world order will emerge; platform wars are raging; the science of medicine is going digital; patient experience will become table stakes; digital will be the great equalizer. In addition, here are four more things we are watching in 2021 given the sector’s starting point, direction, and external environment:

1. Consumer trust will be king

Last year was hard. There’s a shared feeling that our health, work, and personal lives have been shaken and tested. In many areas, cracks emerged under the strain. Strong relationships built with providers over the coming months will carry a premium for patients in search of trusted providers in this raw emotional environment. At the same time, patients will be presented with a slew of new virtual, physical, and hybrid care options. Healthcare providers and organizations (disruptors or incumbents) that deliver high quality, convenient, integrated, and personalized care stand to form long-term trusted relationships with their patients.

2. Platform consolidation will march steadily forward

We recently outlined several types of platforms competing in digital health’s platform wars. The manifestation of various platforms differs among plays like unified virtual care platforms (e.g. Teladoc-Livongo), omnichannel retail health platforms (e.g. Best Buy, CVS Health), and care management platforms (e.g. Omada, Virta, Maven). The central logic of more integrated consumer experience and less complexity for B2B buyers holds true. We expect to see these platforms increasingly up the clinical depth of services offered and continue to drive towards platform consolidation.

3. Payers will take the lead in innovation rather than providers

Flush with cash due to decreased utilization during the pandemic, payers will invest in digital solutions to ease access and improve outcomes. For recent examples, consider Oscar’s new $0 virtual primary care offering or UnitedHealth Group’s digital diabetes management offering. For providers, COVID-19 and its resulting budget crunch may focus digital health efforts onto the immediate challenges of how to deliver care in the near term. That said, providers remain committed to the digital health long game—they have been the most active group of corporate investors for the past two years, making a total of 63 venture investments in 2020.

4. Health data will be unshackled

Interoperability has long been a thorn in the side for digital health, but in 2021 digital health leaders will make a step change in innovation toward increasingly robust data infrastructure. Momentum has been building on three fronts towards greater health data liquidity. On the regulatory side, CMS and OCN published final data blocking regulations last year, which will require providers and EHR vendors to make patient data available via APIs to share with developers of a patient’s choice. On the technical front, companies are building on FHIR standards for several years now, and we are increasingly seeing companies such as Redox and Moxe develop solutions to facilitate seamless health data exchange. And consumers are winning control over their own data with the help of companies such as Human API and Seqster.

2020 was a big year for digital health, but 2021 can get us even closer to delivering on the industry’s promise. We’re looking forward to helping the industry take a big step forward in making healthcare massively better for everyone.

Rock Health Consulting supports enterprise clients on digital health strategy. For more information, reach out to advisoryservices@rockhealth.com