A digital health venture capital firm is uniquely positioned in the health industry. There is, however, not much known about the volume or quality of their investments and how they compare to other investors. According to some studies, from 2011 to 2019, health systems made 184 investments in 105 companies. Unlike other investors, health systems were more likely to invest in companies that focused on on-demand health services, workflow, and data infrastructure/ interoperability.
Disrupting the Healthcare System
Digital health advancements promise to disrupt or change the healthcare system by allowing greater patients and providers to connect better. As a result, the scope and utility of health data is expanded, patient experience is improved and waste is reduced. Growth in digital health has been encouraged by digital health venture capital firms, which have provided most of the financing for new companies. Over the last ten years, billions of dollars have been poured into the sector with a 400% increase in investment deals during this period. Investment capital firms, through their investment choices, have sought to change the landscape and future of digital healthcare innovation. There has been a lot written works evaluating how the private sector investments are shaping the healthcare landscape.
Health systems have recently joined the huge trend in digital health investment. Digital health venture capital firms are in a unique position to say the least. They promise both financial returns and strategic positioning for their institutions by supporting companies that provide solutions addressing clinical and operational challenges. Unlike other investors, health systems can give unique value to companies since they have expertise in the domain as well as direct access to patients and providers. Health systems also have live clinical environments that can be used for product testing and development. In this way a digital venture capital firm can significantly impact the companies they invest in as co-developers, simultaneous financers, and future customers.
However, there are several conflicts of interest that may arise. Health systems must be cautious in giving companies they have financial interest in access to patients and their data without taking ownership, data privacy, security and governance into consideration. They need to be wary of encouraging patients to use digital services in which they have vested financial interest in.
Even with its unique position, there is not much known about how a digital health venture capital firm compares with other digital health investors.
Financing of Digital Companies
The way digital health companies are financed represents a new way in which health systems are working on shaping the future of healthcare—one that involves complicated incentives and boundaries.
Health systems are considered a small, but important, group of investors in digital health companies. Over the last 8 years, health systems have committed to 184 investments in 105 early-stage digital health companies. More than one-third of health systems investing in these companies were academic and the rest were non-profit organizations.
Investors in health systems cite multiple reasons influencing their investment decisions, including funding solutions that align with their institutional concerns, commercializing internally developed intellectual property, generating clinical income, and acquiring insight into upcoming and unique investment decisions. Unlike other digital health investors, it is said that health systems make interesting investment decisions.
Health systems are more likely to invest in companies where healthcare providers are the end users and/or in companies that specialize in clinical and non-infrastructure/interoperability. In this way, health systems are able to focus their investments on things they have knowledge of—providing healthcare services. Investing in these areas is a reflection on how health systems perceive them as promising, sustainable, and scalable. On the other hand, health systems were less likely to invest on wellness products and fitness—two things which were considered top investment areas for other investors. This is most likely because they are not regarded as impactful, profitable, or in alignment with health systems’ missions.
Digital Health Investments by Digital Health Venture Capital Firms
Compared to the broader digital health investor landscape, there appears to be a decline in the total number of investments by digital health venture capital firms in 2017 and 2018. The reasons for this remain unclear and demand further investigation. In addition, the size and types of future investments in digital health by all types of investors may be significantly influenced by the 2019 coronavirus pandemic.
There is merit in the evaluation and further monitoring of investments made by a digital health venture capital firm because these choices can impact patients, providers, the industry, and health policy stakeholders. First, the products and services in which they invest may signify their prediction of what will produce value in healthcare and significantly affect patients and/or providers. Second, having better understanding of practices as well as the strategic and financial ROIs (return of investment) achieved by health systems provide better information on how health systems may use these activities to promote their core mission. Third, investments by health systems should be closely monitored for potential conflicts of interest that they represent for the institution. Public reporting standards and disclosure requirements help guarantee that potential conflicts are addressed and managed appropriately. However, the degree to which policies have been created within health systems in this recent influx of digital investments remain unclear.
Technology has significantly influenced healthcare drastically compared to other sectors. And as technology advanced even further, the more we will be able to witness its impact on healthcare as well. Investments in health systems can help leverage emerging technology and push improvements not only in effectiveness but on efficiency as well. The use of digital tools can help empower people in managing and monitoring their health and wellness and this begins in the investment on software to change how treatments are developed.
Studies on digital health venture capital firms and their contribution to the healthcare system come with several limitations. The growing trend among health systems to invest in digital health venture capital firms marks a new frontier in their power to shape and change the future of healthcare. There needs to be more research and monitoring of its motivations and outcomes in order to completely understand its impact.
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