Digital health funding: In like a lion, out like a lamb?

By Ben Leonard

Investors poured money into digital health amid the pandemic, but funding is starting to dip. | AP | AP Photo

DIGITAL HEALTH BUBBLE? Funding for digital health ballooned during the pandemic. Now, some experts warn the bubble might be about to burst — or, at least, the sector is headed toward a correction.

Covid-19 prompted millions of patients to seek virtual care, thrusting telehealth into the mainstream and attracting mountains of capital funding into virtual care and digital health. In total, investors dropped $29.1 billion into digital health in 2021 — more than tripling 2019’s total and roughly doubling 2020’s, according to research and venture firm Rock Health.

But as the U.S. enters the pandemic’s next phase, funding dropped to $6 billion in the first quarter of 2022, still close to double 2020’s first quarter but the lowest quarterly total since 2020, according to the firm. Publicly traded digital health securities in Rock Health’s digital health index nose-dived by 38 percent between July and March.

Digital health isn’t going anywhere, but several analysts told Future Pulse the sector’s stock losses and funding slide are a sign of a potential correction.

“It's been massive amounts of money going into young companies ill-equipped to swallow it,” said Lisa Suennen, managing partner at Venture Valkyrie and adviser to several venture funds. “There is a return to rationalism happening. Whether you call it bubble bursting or anything else, I don't know, but … instead of an arms race where you shoot first, ask questions later, it's turning the other way around where you ask questions and then shoot.”

The market is frothy — meaning valuations are unsustainably high — said Steve Tolle, general partner at HLM Venture Partners, who added that it’s still early to say whether the bubble has burst. 

“The frothiness will come down a little bit,” Tolle said. “We’re starting to see [that the] average deal size has come down.”

Fragmentation in the market is limiting companies’ ability to meet sky-high expectations, some experts said. Many have underperformed because they don’t serve a sufficiently broad function or don’t share data well, said Adam Gale, CEO of KLAS Research, a health IT research firm.

“We’ve just got a thousand point solutions that do one thing neatly but don’t interoperate or combine together to actually give the patient a good experience,” Gale said.

But digital health still has significant value going forward, analysts agreed, figuring to play a prominent role in health care. This dip is part of the normal cycle, Suennen argued, comparing digital health to the dot-com bubble when tech tanked just after the turn of the century before recovering.

“I don’t know if we’ll really crash like that,” Suennen said.

Chris Moniz, market manager for Silicon Valley Bank’s health tech and device division, expects growth compared to 2020 levels this year, saying digital health companies have stronger fundamentals than companies in the dot-com bubble.

Sari Kaganoff, general manager of consulting at Rock Health, said that current trends point to a course correction. “There may be things that look a little ugly, but the fundamentals of the value proposition of digital health are still there,” she said.

Welcome back to Future Pulse, where we explore the convergence of health care and technology. Share your news and feedback at bleonard@politico.com or @_BenLeonard_.

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Stuart Blitz @StuartBlitz “If you ever ask someone a question about operating in health tech, it’s 100% guaranteed they will sigh first, then answer.”

FDA CLEARS FITBIT AFIB ALGORITHM: The Food and Drug Administration cleared an algorithm for Fitbit to help detect atrial fibrillation, Google — Fitbit’s owner — said Monday.

The condition that causes irregular heartbeats is expected to affect more than 12 million people in the U.S. by 2030 and contributes to nearly 160,000 deaths annually, according to the CDC. AFib is difficult to detect and diagnose because it can be symptomless and appear sporadically, which makes it hard to spot during a doctor’s visit.

Fitbit hopes to make it easier to detect by tracking heart rate 24/7. In a study funded by Fitbit, data from hundreds of thousands of U.S. users showed the algorithm was 98 percent effective in detecting undiagnosed AFib. The findings were presented at a scientific meeting late last year and had not undergone peer review.

The company says the wearable technology works by picking up blood volume changes in the wrist and analyzing it for potential AFib signals.

It’s a trend: Collecting data passively from wearables to detect potential health conditions has been a focus of tech companies as of late. Apple has also rolled out an AFib-detecting feature on its Apple Watch.

ALZHEIMER’S DRUG DECISION RIPPLE EFFECTS? The Biden administration’s controversial move to limit coverage of a pricey Alzheimer’s drug, Aduhelm, could affect efforts to develop treatments for other devastating diseases, POLITICO’s Megan Wilson reports.

Last week, the Centers for Medicare and Medicaid Services finalized a decision to cover the $28,000-a-year drug only for people enrolled in clinical trials, sparking disagreement among experts and advocates on what it means for patients and future medicines. The agency wasn’t convinced of the drug’s effectiveness and is mandating further trials after the FDA OK’d it under the accelerated approval process.

The drug’s approval caused three members of the FDA’s external advisory panel on neurological drugs to resign, and Congress is investigating the FDA’s decision. But CMS’ coverage decision also requires Alzheimer’s treatments going through the traditional FDA approval process to produce more evidence of effectiveness, drawing outrage from advocates.

Some say the agency’s move could chill investments in promising Alzheimer’s drugs and treatments for other challenging diseases.

“If you were a drug manufacturer and you had choices among therapeutic areas to invest in, would you invest in an area where — even if you demonstrate a clinical benefit and a traditional review and approval by FDA — you still had to go through a CMS study to demonstrate that the same outcome was the case for real-world populations? Why would you do that?” said George Vradenburg, who leads UsAgainstAlzheimer’s, an advocacy group.

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VA TABLETS REDUCED SUICIDE RISK: The Department of Veterans Affairs’ move to send video-enabled tablets to rural patients was associated with a reduction in suicide risks and emergency room visits during the Covid-19 pandemic, according to a new study published in JAMA Network Open .

The VA sent tablets with data plans to veterans who didn’t have broadband or internet access and lived far from a VA clinic. Patients who received tablets had about two more therapy visits a year than patients not given tablets and were 36 percent less likely to have a suicide-related emergency room visit.

The researchers believe the study of more than 13,000 veterans is the largest look into a telehealth tablet intervention for patients needing mental health care and having access difficulties.

Private health care organizations have turned to tablets amid the pandemic to facilitate telehealth access to older patients, including those at WellMed, whose tablets are specially tailored with increased screen sensitivity for older patients who may have thin skin.

THE VOICE: Artificial intelligence could detect a vocal “biomarker” in patients’ voice recordings that had a significant association with coronary artery disease events in a new study published in Mayo Clinic Proceedings.

Patients with a high biomarker score were about twice as likely as those with a low score to be hospitalized with chest pain or have an acute coronary syndrome among 108 people studied. The authors argue the results show that this sort of remote screening could play a role in identifying at-risk patients.

Vocal biomarker technology generally works by detecting subtle signals in a patient’s voice that humans can’t discern and using AI to sort through the sound for potential signs of disease. So far, it’s been used largely in research settings to detect diseases like Covid-19 and Alzheimer’s, but insufficient data has held it back from being a standard feature in clinics.

‘ROOMING’ EASES DIGITAL DIVIDE: People who had telehealth visits with primary care doctors in fall 2020 had an increased likelihood of connecting to calls when medical assistants called patients 15 minutes before to aid with connecting, a new study published in JAMA Internal Medicine found.

The study of more than 135,000 video visits at Kaiser Permanente Northern California found that Black and Latino patients — and those needing interpreters and residing in lower-resourced areas — were less likely to be able to connect than white and Asian patients. But medical assistants helping patients connect via “virtual rooming” could reduce the disparity.

As telehealth has come into the mainstream, concerns about technology increasing the digital divide have arisen, but the research suggests helping patients can help reduce disparities.

Digital therapeutics are struggling to get insurance reimbursement, MedTech Dive reports.

STAT has this headline: “At small and rural hospitals, ransomware attacks are causing unprecedented crises.”

Most Americans don’t see Covid-19 as a crisis, according to a new Axios/Ipsos poll.

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