2021 was Huge for Health Tech…2022 May be Bigger | Deloitte US has been saved
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By Peter Micca, partner, National Health Tech Practice leader, and Neal Batra, principal, Deloitte & Touche LLP
2021 will likely go down as one of the biggest years ever for digital health-tech investments and revenue growth. Medly Pharmacy, which operates a full-service digital pharmacy, saw its revenue soar more than 11,000% from 2017 to 2020. Let that sink in…11,000%!
Medly was featured in our 27th annual Technology Fast 500, Deloitte’s annual ranking of the fastest-growing companies across a broad spectrum of industries. Company rankings are based on percentage fiscal year revenue growth from 2017 to 2020. The median growth rate among these 500 companies was 521%. By virtue of their growth, these companies are having a significant impact on the industries they serve. Over 20% of this year’s companies have (or are developing) innovation in the broader health care and life sciences industries, and 40 are specifically focused on health tech. That number is up sharply from what we saw just five or six years ago.
This year’s Fast 500 validates a trend we’ve been writing about for the past year…investors see enormous potential in digital health tech. Between 2019 and 2020, aggregate expansion-stage deal value in health care more than doubled—rising from $8.3 billion to $17.4 billion, according to our research. That trend continued to accelerate throughout 2021…and there are no signs that it’s slowing down as we head into the new year. In a February 2021 blog, Peter suggested that many investors see the post-pandemic era as the beginning of a multi-year opportunity. Last summer, he wrote that investors had already pumped nearly $15 billion into digital health tech deals during the first six months of 2021. Much of the investment growth we saw in 2021 was likely fueled by increasing demands for technology in the overall industry.
Technology to reduce costs/increase value
Investment trends will likely be a hot topic at J.P. Morgan’s upcoming annual Health Care Conference in San Francisco. More than 80% of companies that landed on our Fast 500 were backed by venture capital at some point in their history.
The overall health industry ecosystem represents $3.8 trillion—about 18% of the gross domestic product (GDP) in the US1—so it’s not too surprising that this is an area where many investors are placing their bets. If the current trajectory continues, health spending could triple to nearly $12 trillion by 2040, or 26% of the GDP. Such a percentage would likely be unsustainable. However, innovative companies (both incumbents and new entrants) could help reverse this trend by focusing on radical interoperability, consumerism, and the early detection or prevention of disease. According to our latest research, this could result in a $3.5 trillion “health dividend’ by 2040.
A growing number of health tech companies are focused on fitness, wellness, mental health, and even smart-foods. Some incumbent health tech companies—such as EHR vendors—are expanding their portfolios to take advantage of interoperability, virtual health2, cloud-based platforms3, artificial intelligence, and other emerging technologies. Moreover, technology is helping consumers address more health issues from their homes, which could keep them out of the hospital. This trend could drive further consolidation and create highly concentrated health care markets across the US. Large health care organizations are often slow to renew technology stacks—but they should, eventually. This could open the door to lucrative opportunities for health tech companies looking to tackle parts of that overall value chain.
COVID and consumerism are driving interest, investments
The COVID-19 pandemic shined a spotlight on health tech as consumers turned to virtual health and other technologies to help them manage their conditions and stay connected to their doctors and care teams. But the health care sector is still catching up to more consumer-focused industries—such as finance, entertainment, and retail—that have adopted technologies to empower their customers. From appointment logistics to virtual care to the development of at-home testing kits, many niche companies have seen significant upticks in funding as a result of the pandemic. Private equity firms, venture capitalists, and increasingly corporate venture capital investors appear to be very interested in virtual health, access, health equity, mental health, and consumer-driven platforms.
The Fast 500 is Deloitte’s annual metric-driven overview of the fastest growing innovation or technology companies across a broad range of industries. Some of these companies will likely continue to expand. Some might be acquired while others could form strategic alliances with others. Our list focuses primarily on year-over-year revenue growth rates. The results help investors identify the types of companies that are having an impact on the industries that they serve. The continued growth of these organizations will likely depend on their ability to offer differentiated solutions in the market. As we noted above, 2021 might have been the biggest year ever for digital health investments. The year ahead could be even more impressive if companies focus on integrated solutions that address health care costs, access, interoperability, health equity, and the drivers of health.
1. National Health Expenditure Data, CMS, December 1, 2021
2. Zoom adds Cerner EHR integration, Becker’s Health IT, November 30, 2021
3. How Cloud-based EHR implementations support primary care delivery, EHR Intelligence/xtelligent Healthcare Media, November 18, 2021