Tag: digital health

a16z: Healthtech Business Model Magic

Posted on by Jason Barry

The news cycle took a bit of a breather ahead of the upcoming wave of HIMSS announcements, giving us a chance to highlight an excellent thinkpiece from the healthtech team at a16z.

After charting up a beautiful comparison of publicly traded healthcare companies versus other growth companies, a16z found that the healthcare outperformers leverage the same three types of “business model magic” as the world’s largest tech companies:

  • Increasing customer lifetime value (LTV Magic)
  • Expanding operating leverage (Operating Leverage Magic)
  • Declining customer acquisition costs (CAC Magic)

LTV Magic can be boiled down to creating “sticky” products with high retention. Healthtech companies that embed their platform into their customers’ core workflows can then build pricing power and widening revenue streams.

  • Outperformers can add new components to their platforms that increase LTV without a proportionate increase in costs. Ex. Flatiron Health’s provider network enabled it to efficiently build a pharma-facing, real-world evidence generation business on top.

Operating Leverage Magic revolves around reducing the marginal costs to serve customers as the business expands – mainly by leveraging software’s near-zero marginal cost dynamics.

  • Outperformers in a16z’s analysis also maintain modest operating expenditure growth at the central business level as they scale. Ex. Agilon and Oak Street command a valuation premium for impacting the cost of care without having to hire many central clinical staff.

CAC Magic involves finding ways to have declining marginal costs of customer acquisition. One of the most efficient ways to acquire new customers is by accessing groups of patients through partnerships with entities that already maintain those relationships, like MA plans.

  • Outperformers also have network effects that make their service more valuable as more people use it. Ex. Doximity gave more value to its 10,000th user than its 1,000th user, making it easier to acquire new users over time.

The Takeaway

a16z makes one thing very clear with its analysis: investors are ultimately underwriting a business’s ability to generate a lot of revenue over the long term. Every healthcare startup has to find its own way to reach that goal, but the three types of magic highlighted by a16z give a good sense of the ways that current outperformers are earning their premium valuations.

Rock Health Q1 2023 Funding Recap

Posted on by Jason Barry

Rock Health’s Q1 2023 digital health funding report is out and its title couldn’t have put it any better: we’re investing like it’s 2019 again.

Here are the numbers in a nutshell:

  • US digital health funding totaled $3.4B across 132 rounds ($25.9M average)
  • Trend: $2.2B (Q3 2022) -> $2.7B (Q4 2022) -> $3.4B (Q1 2023)
  • Q1 2023: 28 Series A rounds, 10 Series B, 3 Series C, 7 Series D+
  • 6 mega-rounds over $100M accounted for 40% total funding 

Looking at the past decade (Chart: Funding Trend), it’s clear that the pandemic funding environment was an outlier capped by absolute mania in 2021. The funding uptrend seen in the last few quarters is also a far cry from a true bull run.

  • If funding for the rest of the year matched the average funding of the past three quarters, 2023 would still see the lowest funding total since 2019.
  • Although January and February brought cooling inflation and some real signs of hope, March stepped on any blooming momentum with the collapse of Silicon Valley Bank.

Something that Rock Health gave a lot of attention to – and for good reason – is that 40% of last quarter’s funding was from six mega-rounds (Chart: Mega-Round Breakdown) : 

  • Monograph Health – $375M Series C (at-home dialysis)
  • ShiftKey – $300M PE Round (staffing marketplace)
  • Paradigm – $203M Series A (clinical trial platform – largest digital health Series A ever)
  • ShiftMed – $200M Venture Round (staffing and workforce solutions)
  • Gravie – $179M PE Round (insurtech)
  • Vytalize Health – $100M Series C (Medicare ACO)

The other 126 startups split the remaining $2B slice of pie, with an average round size of $16M (vs. $25.9M with the mega-rounds). It makes a big impact, but if you remember back to 2021, we’re currently looking more sane than 88 mega-rounds combining for 56% of total funding.

The Takeaway

Outside of a positive funding trend over the last few quarters, it’s hard to interpret Rock Health’s report as great news for digital health startups. We have a regional banking crisis that might be in its early innings, the IPO market’s been barren since the 2021 SPAC craze, and the end of PHE isn’t exactly a tailwind for many business models. 
That said, it isn’t all doom and gloom. Rock Health is optimistic about the permanent expansion of some telehealth flexibilities and the improving guardrails for data privacy. “Those that make it to daybreak (though we can’t predict exactly when that’ll be) will come out with patched up ships and resilient mindsets.”

Mindstrong Calls it Quits, Offloads Tech to SonderMind

Posted on by Jason Barry

Mindstrong might have flown a little too close to the sun with its promise of detecting early signs of mental illness through smartphone data, and it’s now shuttering operations after selling off its core technology to former competitor SonderMind.

Once a venture capital darling, Mindstrong wooed investors on the idea of an app that could serve as a “smoke alarm” for mental health issues by scanning smartphones for “digital biomarkers” such as erratic scrolling and typing errors.

That turned out to be a tall order. A recent investigation by STAT revealed that investors were leaning on Mindstrong to commercialize the technology too soon, and that the company lost momentum after the departure of key founders.

  • As Mindstrong’s core technology struggled to get up to speed, the company pivoted to providing virtual therapy with a focus on serious mental illness.
  • That road was equally rocky, causing Mindstrong to lay off a majority of its employees and stop treating patients earlier this year.

Enter SonderMind, a full-service virtual therapy platform that leverages machine learning to match patients with an ideal therapist for in-person or virtual appointments.

  • Mindstrong’s purpose-built EHR and digital biomarker tech will help SonderMind offer more specialized care journeys and improve its ability to treat patients with serious mental illness.
  • The move comes just months after SonderMind acquired Total Brain to enhance its user-guided wellness tools, and less than two years after it acquired Qntfy to unlock more value from its patient and provider data.

The Takeaway

Mental health remains one of the hottest corners of the digital health market, but outside of a few notable examples like the Headspace-Ginger merger, we haven’t seen a huge wave of M&A as valuations come back down to Earth. SonderMind now has a chance to be the next success story, assuming it can integrate its acquisitions into a cohesive offering for everything from wellness exercises to psychiatric care.

Nuance Unveils GPT-4 Enabled DAX Express

Posted on by Jason Barry

Generative AI is making its biggest healthcare splash yet after Microsoft-owned Nuance Communications unveiled DAX Express with GPT-4 integration.

Dragon Ambient eXperience (DAX) Express creates clinical note drafts from patient-provider conversations in a matter of seconds by eliminating the need for a human quality checker before clinicians can review and upload the notes to the EHR.

DAX Express is the first clinical documentation application to combine conversational and ambient AI with OpenAI’s GPT-4 model, but its main goal remains the same as its predecessor: reduce administrative burden so providers have more time to focus on patients.

  • Following a nearly $20B acquisition in 2022, Nuance’s latest solution is also fully backed by Microsoft’s enterprise resources and the scale of the Azure cloud.
  • That’s not to mention Microsoft’s recent $10B investment in OpenAI, which it’s clearly trying to monetize sooner rather than later. Starting this summer, DAX Express will be open for early access to all providers using DAX or Dragon Medical One.

When we spoke to Nuance Chief Strategy Officer Peter Durlach a few weeks ago about an older AI model that some readers might still remember – ChatGPT – he raised some good questions about AI’s future in healthcare.

  • How do these models fit into regulatory guidelines?
  • What’s the indication for use?
  • Can you explain the black box?
  • How will the FDA operate in the middle of this?

With how fast AI is moving, these questions are going to be front and center in discussions with everyone from patients to regulators. In the last month alone, we’ve seen Doximity leverage similar tech in its DocsGPT tool that lets providers quickly fax prior authorizations, and Google announced that its Med-PaLM 2 model is consistently passing medical exams at an expert level.

The Takeaway

It’s hard to believe that Nuance DAX Express is considered the “early stages” of generative AI given how transformative these models are right out of the gates. There’s already a tsunami of startups working on new AI-enabled healthcare products, but the fact that Nuance’s 550k physician user base is about to have access to DAX Express highlights how powerful platform and distribution advantages are going to be on a level playing field where everyone has access to similar magic on the backend.

Zus Health Lands $40M, Elation Partnership

Posted on by Jason Barry

Zus Health is the latest company to set off on a quest for the Holy Grail of healthcare – a universal patient record – and it just landed a $40M venture round to help it in its pursuit.

Founded in 2021 by healthcare veteran Jonathan Bush, Zus originally planned on creating a “Build-a-Bear for EMR, patient relationship management, and CRM” by offering a shared data record and software development kit that other companies could use to build their own tools.

That mission appears to be alive and well, but Zus is also looking to grow into a new role as “the common information ground” that brings comprehensive patient information to the point of care.

The Zus platform centers around the Zus Aggregated Profile (ZAP), a unified view of a patient’s healthcare info aggregated from EHRs, labs, claims networks, and other sources.

  • This network provides access to data across 70K+ provider sites and 270M+ patients, which Zus then distills into a user-friendly patient profile through FHIR-normalization, deduplication, and summarization.
  • The first time a provider uses Zus to “get up to speed” on a patient, Zus charges $4 to pull the data and plug it into the EHR. Zus then charges a monthly fee for providers to continue receiving updates on that patient.

Zus works with EHR companies that offer the ZAP as an upgrade to their provider customers in exchange for a share in the resulting revenue.

  • Alongside the funding news, Zus announced a partnership with Elation Health to bring the ZAP to its EHR that currently supports over 12M patients.
  • The Elation announcement follows similar partnerships with Healthie and Canvas, which both saw 95%+ of their providers included in the first rollout upgrade to Zus after a preview of the service.

The Takeaway
More than a few companies have been tempted by the prospect of bringing comprehensive patient information to the point of care, and it hasn’t exactly worked out optimally for any of them. That said, with the 21st Century Cures Act facilitating more health data sharing and a pandemic that’s pulled digital health innovation forward in a drastic way, there’s a case to be made that the timing’s never been better. It’s a long road to get from Build-a-Bear for Healthcare to Universal Patient Record, but the upside is massive if Zus can pull it off.

Medicare Advantage Plans Using AI to Deny Care

Posted on by Jason Barry

It’s a tough week to be working PR at Medicare Advantage plans after STAT put out an in-depth investigation revealing that payors are using  “unregulated predictive algorithms under the guise of scientific rigor” to cut off care for seniors.

Hit piece might be too aggressive of a label, but let’s just say it’s a strongly worded report that makes some MA players look very, very bad.

The booming popularity of Medicare Advantage has turned it into a cornerstone of many payor strategies. According to the report, these payors are now using AI to pinpoint when they can plausibly begin cutting off payments for treatment.

  • These algorithms have begun driving denials to new heights, delaying treatment of seriously ill seniors and setting off heated disputes between doctors and payors.
  • If patients or their physicians disagree with a denial, they’re funneled into an endurance race with payors through a lengthy appeal process.
  • As Calvary Hospital COO Chris Comfort described it, “We take patients who are going to die of their diseases within a 3 month period of time, and we force them into a denial and appeals process that lasts up to 2.5 years. So what happens is the appeal outlasts the beneficiary.”

An entirely new industry has sprung up to help payors predict everything from the providers patients might see to the minimum number of hours they’ll have to stay in a nursing home.

  • These AI-generated predictions have become so ingrained in MA that most payors have started bringing these capabilities in-house. Elevance, Cigna, and CVS Health have all made acquisitions in the space.
  • David Lipschutz at The Center for Medicare Advocacy told STAT that “while the firms say [the algorithm] is suggestive, it ends up being a hard-and-fast rule. There’s no deviation from it… no accounting for situations in which a person could use more care.”

One of the largest and most controversial companies supplying these predictions is NaviHealth, now owned by UnitedHealth Group, and STAT spent the second half of the report basically using them as a punching bag.

  • NaviHealth was founded by Tom Scully, the former head of CMS who played a pivotal role in creating the Medicare Advantage program under the Bush administration.
  • You’ll have to head over to the full report for the tear-jerking patient stories, but long story short Scully sold NaviHealth to Cardinal Health for $410M in 2015, then ownership bounced between different PE firms until it landed at United. Denials went up every step of the way, and now we have a STAT investigation.

The Takeaway

“The black box of the AI has become a blanket excuse for denials,” and nobody wants a canned response about a proprietary algorithm when they ask why they’re being kicked out of a nursing home. Federal officials have already proposed new rules that say MA payors can’t deny coverage “based on internal, proprietary, or external clinical criteria not found in traditional Medicare coverage policies,” and STAT just added more fuel to the industry’s push for change.

Transcarent Acquires 98point6 Care Delivery Assets

Posted on by Jason Barry

Employer-focused care platform Transcarent is acquiring 98point6’s entire care delivery division in a transaction that’s reportedly valued at the 2023 Digital Health Number of the Year: $100M.

If you’re unfamiliar with Transcarent, the company is helmed by Glen Tullman, a CEO who knows how to get a deal done. Tullman is the former founder of Livongo and guided it through Teladoc’s $18.5B acquisition in 2020.

Transcarent’s virtual platform lets patients book virtual visits, schedule in-home care, meet with therapists, and manage their prescriptions all within the same solution.

  • 98point6 technology will now power the front-end chat that Transcarent’s been using third-parties to handle. 98point6 also doubles Transcarent’s customer base to over 200 employers with a combined 4M employees. That’s a big jump from the 1M employees Transcarent currently supports.
  • Although Transcarent has historically depended on contracted clinicians, it will now gain 98point6’s ~150 physicians, as well as aforementioned employer clients such as Boeing, Costco, and Chipotle.

At its core, the acquisition is about obtaining 98point6’s head start on AI, and bringing Transcarent’s digital front door in-house. Tullman told MedCityNews he was looking for “full control of the front-end process, because how you start determines where you end up… You don’t get a second chance to make a first impression.”

  • What’s next for 98point6? First, a rebranding to 98point6 Technologies. Second, it will stop providing patient care and focus exclusively on licensing its software to health systems, and Washington-based MultiCare has already signed on as its first customer.
  • The pivot allows 98point6 to push toward pure play SaaS margins by licensing its chatbot and engagement suite while it lets hospitals use their own doctors and nurses to take over the actual appointments.

The Takeaway
Transcarent is aiming to simplify the process of finding and receiving care, and 98point6’s front-end chat and affiliated provider group will help it do just that. Simplicity is the value proposition, and it seems like a good one to bring to an employer healthcare market where complexity is the enemy.

Fertility Payvider Kindbody Raises $100M

Posted on by Jason Barry

Kindbody is looking to breathe new life into a fertility care market that’s in desperate need of a makeover, and it just secured $100M in Series D funding to help accomplish that mission.

Founded in 2018 by the femtech power duo of Joanne Schneider (now CEO of Oula) and Gina Bartasi (former CEO of Progyny), Kindbody is aiming to make fertility care more accessible in areas where a lack of competition is driving up costs.

How does Kindbody plan on achieving that? By functioning as both payer and provider to offer patients a top tier hybrid care experience while contracting directly with employers to keep costs under control.

  • The payvidor model also allows Kindbody to offer bundled rates for its services, which range from fertility consults to in-vitro fertilization and pretty much everything in between.
  • The company owns and operates a network of 31 clinics nationwide, placing a heavy emphasis on the patient experience that’s immediately recognizable in their design-forward “lobbies” – its term for waiting rooms where patients don’t have to wait. 
  • Now for the kicker: Kindbody’s on pace to be EBITDA positive by the end of this year.

The funds were earmarked for building 10 new clinics in underserved areas while continuing to expand employer partnerships. Last year Kindbody added 42 large employer clients, including the largest employer of them all: Walmart.

  • Kindbody is now the fertility benefits provider for 112 companies (covering 2.4M lives), which accounts for roughly half of its revenue. The other half is split between managed care services and D2C patients. 
  • Kindbody also made it clear that strategic acquisitions are on the table. It’s already acquired Vios Fertility Institute (clinic footprint expansion), Phosphorus Labs (genetic testing), and Alternative Reproductive Resources (surrogacy agency).

The Takeaway

Kindbody’s nine figure funding round propelled it to a $1.8B valuation, making it the second fertility startup to join the unicorn club and giving it a good amount of runway to sharpen its operations ahead of next year’s IPO season. It also reaffirmed what might end up being the digital health theme of the year: no market is a bad market for investing in profitable startups that are meeting a real need.

Consumer Adoption of Digital Health in 2022

Posted on by Jason Barry

The latest report from Rock Health and the Stanford Center for Digital Health showed that not even the end of the public health emergency or a looming recession could put a dent in the adoption of new health tech. All eyes are now on consumers’ wavering trust in the healthcare system to see if it’ll end the party early.

The headline stat from the 8,014 person survey was that 80% of consumers have now accessed care via telemedicine, with the largest surge in adoption coming from historically underserved groups. 

  • For the first time ever, telemedicine was also the preferred channel for prescription refills and minor illnesses, which could have major implications for virtual refill programs like Amazon’s new $5/mo RxPass. [Care Preferences]
  • On top of that, audio-only and asynchronous telemedicine beat out point-to-point video chats as the most used modalities, and Rock Health expects typical care journeys to start including multiple modalities to leverage the strengths of each.

The second pillar of the report was that 46% of consumers now own a wearable device, a steady continuation upward from 2021 (45%) and 2020 (43%). The vast majority of those owners purchased the device themselves (85%), signaling that there’s still a ton of work to be done integrating wearables into clinical pathways for chronic condition management.  

  • 74% of younger respondents with higher income and higher education reported owning a wearable (down from 80% in 2020), while only 21% of older, lower income, and lower education respondents owned one (up from 17% in 2020). [Wearable Ownership]
  • Those adoption stats are par for the course with any new tech and seem to be a healthy sign that wearables are continuing their shift along the technology adoption curve – from early adoption to majority acceptance. 

The final highlight was an overview of consumers’ trust – or lack thereof – in the healthcare system. “Health data sharing only moves at the speed of trust, and right now it’s slow-going.”

  • Consumers have grown far less willing to share health data since the start of the pandemic, with only a slim portion willing to share with research orgs (20%, 15pp decrease), tech companies (7%, 4pp decrease), and the government (8%, 4pp decrease). That’s a pretty steep drop off. [Willingness to Share Health Data]
  • Not a single one of the 10 healthcare stakeholders in the survey was spared from the decline in trust, although doctors’ 70% trust rating still led the pack by a wide margin (family ranked 2nd with 51%).

The “Prove It” Era of Digital Health

Posted on by Jason Barry

A few different articles have been published over the past month on the topic of employer priorities, and they all seem to be getting at a similar point: we’re entering the “prove it” era of health vendor partnerships.

Over the last decade, a hot labor market created an enthusiastic audience of employers looking to attract talent through new health benefits. Now, with premiums on the rise and a looming recession, these same employers are paring down their offerings with a heavy focus on integration and cost control.

Nearly 90% of employers are planning to make changes to their health vendor partnerships this year – only 46% did so in 2022 – and 55% intend to do the same with their wellbeing programs (per WTW survey results).

In a recent Modern Healthcare article, Andreessen Horowitz General Partner Julie Yoo said that “benefit managers are having a ‘come to Jesus’ moment around pricing.” If the last few years revolved around giving employees plenty of options, the next few will be “hyper-focused on return on investment.”

  • Yoo made the point that companies that take on risk-based contracts will be looked upon more favorably to employers going forward. 
  • By delegating more risk to providers, employers can lower costs and will be incentivized to keep patients out of high-cost settings.

The other major trend that’s coming up in these conversations is vendor fatigue, with the term “point solution” quickly becoming derisive among benefits managers and investors.

  • Even compelling one-off solutions are having their sustainability questioned if there isn’t an integration and navigation component backing them up. 
  • Business Group on Health CEO Ellen Kelsay said that “a lot of these companies come and talk about the merits of their own solution in a vacuum. They’re not paying attention to what success will look like for the patient and the employer.”

The Takeaway

There’s very little slack left in the system for nice-to-have offerings that aren’t driving quality or lowering costs. Point solutions in that bucket are going to have to start taking a close look at potential M&A partners or different distribution channels. The good news is that the flip side of that coin is also true. For companies that can demonstrate a healthy ROI with a comprehensive offering, this is shaping up to be a great time to get solutions in front of employers.

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