Digital Health Funding Defies Expectations
(A version of this Health Alert was published by Forbes.)
Investors have not had their fill of digital health deals, according to new fundraising reports from Rock Health and Startup Health, two outfits which have led the digital health revolution and produce complementary reports on how much capital is flowing into the sector. While other sectors have wobbled recently, digital health (which was only defined as a market five or six years ago) continues to attract venture capital.
Digital health refers to businesses that apply new information technology, especially the cloud, to health care. That being said, there is no agreement about where the boundary is. San Francisco’s Rock Health and New York’s Startup Health do not quite agree on which deals are digital health deals.
Startup Health estimates digital health ventures raised $1.8 billion last quarter, and notes the center of gravity has shifted from San Francisco to New York. However, Startup Health includes the $400 million round for NY-based Oscar, a health insurer which specializes in Obamacare exchanges, in its tally. Rock Health does not include Oscar’s financing in its total estimate of just under $1 billion raised. Perhaps Rock Health just does not categorize a health insurer as digital health, no matter how friendly its website is.
Oscar’s raise of $400 million in February increased the company’s valuation to $2.7 billion from $1.7 billion in September 2015. The latest round was led by Fidelity, which joins an extremely high quality group of venture funds which have decided to risk their capital on an insurer that focuses exclusively on Obamacare’s exchanges.
In a column written in the wake of last year’s capital raise, I expressed surprise that anyone would want to invest in an insurer that specializes in Obamacare’s exchanges – a sure way to lose money. If they expect to make it up on volume…..? Well, I just don’t get it. However, much smarter minds than mine have invested a lot of money in Oscar, so there may be a future in Obamacare’s exchanges that nobody else (including established health insurers that are running, not walking, to the exits) is seeing.
Rock Health excludes raises of less than $2 million, while Startup Health includes very small deals, which also explains why Startup Health’s estimate is almost twice as large as Rock Health’s is. Nevertheless, both agree digital health funding is not taking a breather. Rock Health figures investment has grown 13 percent over the trailing twelve months and almost 50 percent from Q1 2015. Startup Health’s Q1 2016 estimate is almost two thirds higher than its $1.1 billion estimate for Q1 2015.
Both sources agree Big Data attracted over $200 million in venture funding, of which Flatiron raised $175 million. Flatiron analyzes big oncology data in the cloud, promising to support the continuum of care. Rock Health’s category of “wearables and biosensing” also raised over $200 million. This likely overlaps Startup Health’s “medical devices” and “personalized health/quantified self” categories, which raised $360 million. These categories include the well-known sporty and wellness devices, but also very promising tools that collect vital statistics passively from patients and send them to the cloud for analysis and communication to care teams.
The diversity of investors is noteworthy. For example, Roche, a global pharmaceutical company with a significant oncology footprint, is an investor in Flatiron. Corporate venture arms like GE Ventures feature among leading investors, as does Blue Cross Blue Shield Venture Partners, and University of Pittsburgh Medical Center. The best pedigree of venture capital firms, such as Khosla Ventures, Founders Fund, and Tribeca Venture Partners, are well represented in last quarter’s deals.
Whether American health care can be transformed from a top-heavy, bureaucratic system dominated by government into a patient-centric, highly responsive, and energetic enterprise is still an open question. It is encouraging to see so many entrepreneurs continue to try to answer it.
Invariably, whenever a new startup begins to be successful attracting consumers willing to pay cash for its services, it uses that as leverage to convince insurers to reimburse its services as well.
I have seen new products that were quite innovative dropped when it became clear how additional money it would cost (after getting FDA approval) to conduct studies to convince Medicare and insurers to reimburse for it. The investors knew they would never get patients to pay the amounts they needed to be profitable. But if Medicare covered it, the firm could charge prices much higher than what consumers were willing to pay out of pocket.
The system is like Star Trek’s Borg. It devours everything.
I expressed surprise that anyone would want to invest in an insurer that specializes in Obamacare’s exchanges – a sure way to lose money. If they expect to make it up on volume…..?
I agree. TIME Insurance Company, America’s oldest health insurance company, went onto the Exchange on 1/1/2015 and in 15 days terminated agent commissions and decided to shut down their health insurance operation in 44 states. I’m sure TIME upper management had a better handle on the American health insurance marketplace than America’s newest health insurance company, Oscar, in ONE state.
Obamacare is a nightmare. Now we learn that Obamacare incentives are killing people from coast to coast. NEWSFLASH: —Time senior writer Sean Gregory says that ObamaCare’s patient satisfaction surveys are contributing to the growing problem of opioid abuse in the U.S. More than 60% of drug overdoses in 2014 were from a prescription opioid, and ERS treat more than 1,000 patients a day for misusing the drugs.
What’s the connection? The satisfaction survey asks questions about things like hospital cleanliness, noise levels and staff communication. But it also asks questions about pain management, including whether the hospital did “everything they could to help you with your pain.”—
Unintended consequences: —The problem has become big enough that Sen. Susan Collins, R-Maine, has called on the Health and Human Services Department to investigate any connection between the ObamaCare survey and overprescribing narcotics. And four senators have sponsored a bill to de-link that Medicare money from the pain management questions.
In the meantime, add this to the growing pile of problems that ObamaCare has caused to a health care system that it was meant to improve.—
SMART money is moving off the Exchange. High Obamacare Prices Push Americans Into Short-Term Plans
—The average monthly premium for a family of three on a short-term plan is about $283, or about $500 less per month than coverage through a major medical plan, CBS News reports, citing online marketplace eHealth.—
When Oscar is enrolling cancer patients the STM plans will be saying, “Sorry, YOU can’t enroll. I suggest Oscar!”