Health-tech investment trends: A view into the Future of Health

By Peter Micca, partner, National Health Tech Practice Leader, Deloitte & Touche LLP

The COVID-19 pandemic has created myriad challenges in the health care sector, but it also created enormous opportunities for innovators and investors. Overall, funding for health tech organizations have reached record levels, and there are no signs that the pace will slow. Many investors see the post-pandemic era as the beginning of a multi-year opportunity.

In 2020, investors poured $21.6 billion into digital health companies—more than double the investments made in the prior year, and almost four times the amount invested in 2016, according to the research firm Mercom Capital Group. At last month’s annual J.P. Morgan Healthcare conference, Deloitte led a panel of investors who offered their perspective on how investors and entrepreneurs are positioning themselves for the Future of Health^TM. The panel offered a sneak peek into an upcoming report from the Deloitte Center for Health Solutions that explores the innovations and investments we are likely to see in 2021 and beyond.

The Deloitte Center for Health Solutions recently analyzed the latest venture-funding data from Rock Health’s Digital Health Funding database and interviewed 15 health tech investors—venture capitalists, private equity investors, and corporate venture capitalists (CVCs)—to understand their focus and long-term priorities. We also wanted to learn more about the type of innovator that is most likely to succeed in the Future of Health. The report will be published on February 26.

The panelists agreed that the pandemic has changed long-held perceptions about the nature of care and care delivery. At the same time, it also revealed some of the archaic processes inherent to the US health care system. They agreed that 2021 could be an important transition year for the health sector and an opportunity for investors. 

All of the panelists suggested that entrepreneurs need to go beyond products that simply improve processes or solve existing problems. The most successful entrepreneurs, they said, tend to be those that establish new trends and are able to define and capture the value that they create. One of the panelists pointed to a portfolio company that had developed a platform to identify patients who have been misdiagnosed or under-diagnosed for mental health issues. The company developed a solution to educate clinicians and payers to treat such conditions before they become more severe and costly. This is an issue that payers and providers often don’t recognize early enough.

Five health care investment trends for 2021  

As the world recovers from a devastating pandemic, we expect to see an increased focus on health care consumerism, mobility, and digitization of health care. Investors are looking for entrepreneurs that can make health care more effective, affordable, and consumer-friendly.

Here are five health-tech trends our panel identified for the year and years ahead:

1. The potential of virtual health will continue to unfold: While patients used virtual health for primary care and behavioral health, its use was growing slowly until 2020, one panelist noted. He expects virtual health will become a “force multiplier” for traditional health care providers. It could improve chronic-care management and make it easier for primary and urgent care centers to expand into specialties. When virtual health is supported by complementary technologies, it can improve the overall care experience for patients. “We are just beginning to understand its role in improving health outcomes and influencing delivery and health economics,” he said.
   
   Another panelist noted that—prior to 2020—telemedicine was typically seen as a benefit that some employers made available to their workers. It has since become the de facto means through which clinicians connect with rural populations, Medicare and Medicaid beneficiaries, and people who can’t travel to a medical facility. People who might not have been able to access health care, can now meet with a clinician through their phone or computer. For 2021, investors will likely be looking closely at technology companies that are able to combine virtual care with a retail experience. Such a hybrid model might allow consumers to access primary care, behavioral health, or specialty care through a combination of virtual health and in-person visits at a retail location. “That is where we expect to see action this year,” he predicted. 
2.  Consumers will continue to take control of their own health: Another panelist said her organization will continue to invest in technologies that empower and connect health consumers to help them become better stewards of their own health. The pandemic was a catalyst for making health care more accessible to more people, particularly underserved populations, she noted. This is becoming particularly important as organizations across the health care sector look for ways to improve health equity. While the expansion of virtual health helped make care more accessible and convenient, the next step might be to further empower consumers by providing them with actionable data. How is health care going beyond just that visit? Some investors have said that capturing and integrating virtual health data into the medical record infrastructure will be a challenge to overcome in 2021.
3. More diagnostic tools will be developed for home use: Many companies that have been successful during the pandemic have been those that have developed diagnostic tools and communications platforms that are easy for consumers to use. Companies that already had an infrastructure in place were well positioned when the pandemic hit. As diagnostic tools become more accessible, we expect consumers will grow more accustomed to monitoring their health at home. Between 30% and 50% of consumers are comfortable using at-home diagnostics, according to results from the Deloitte Center for Health Solution’s latest consumer survey. Consumers overall say they are most comfortable using at-home tests for diagnosing infections.
4. Mergers and acquisitions will likely accelerate: We are a little more than a month into 2021, and we have already seen several key acquisitions and mergers. UnitedHealth Group’s Optum division, for example, recently said it would acquire Change Healthcare to help simplify clinical, administrative, and payment processes. Teladoc Health, a platform for online medical visits, recently completed a merger with Livongo, a company that specializes in the digital management of chronic conditions. Humana, Inc. recently partnered with private equity to build out a network of primary care providers. The panelists noted that the US market is unique, which makes it particularly challenging for foreign companies. 
5. New investors will target health care: Many investors have turned away from sectors that were hit hard by the pandemic (e.g., hospitality, restaurants, transportation) and are eyeing health care. While health care is a multi-trillion dollar industry, it is an exceptionally challenging space, particularly for investors that are accustomed to other sectors. Some hedge funds that hadn’t previously invested in health care are aggressively buying up as many assets as they can. While this can make it easy for entrepreneurs to access capital, it also can lead to valuations that are significantly higher than a company’s actual assets. Valuations in health care are likely to remain high, the investors noted.   

Entrepreneurs who define new markets, dominate them with a strategy people can understand, and extract value will likely be the most successful. Despite some of the challenges, the enormity of the US health care market means there is still plenty of runway left for entrepreneurs who have innovative ideas and the work ethic to turn those ideas into reality.  

Return to the Health Forward home page to discover more insights from our leaders.

Here are two links we recommend:

 2021 Health Tech Industry Accounting Guide

2021 Life Sciences Industry Accounting Guide