Providence CDO Sara Vaezy

Digital Health

Rock Health Q3 2023 Funding Recap

Another quarter’s gone in a blink, which means our friends over at Rock Health are already on deck with another recap of the biggest digital health funding trends of Q3.

Here’s Q3 by the numbers:

• US digital health funding totaled $2.5B across 119 rounds ($21M average)
• 4 of the past 5 quarters saw funding in the $2B range (establishing new normal)
• Capital shifting to digital support for disease treatment (notably kidney & heart) 

Although the $2.5B raised in Q3 was the second-lowest total since 2019, it was also the fourth of the past five quarters to log funding in the $2B range – a far cry from the volatility we’ve seen since the start of the pandemic. (Chart: Funding Trend)

• On top of that, every quarter for the last year has notched an investment count in the low hundreds, maxing out at 131 rounds in Q1 2023.

• New norms have been established, meaning we’re finally past the shakeout and onto a fresh investment cycle. 

The other major story from Q3 was that capital is shifting away from COVID-era favorites like life science R&D catalysts (a top investment in both 2021 and 2022) toward digital health solutions that support disease treatment. (Chart: Top Value Propositions)

• Disease treatment is now the most-funded value proposition of the year ($1.6B YTD), including recent raises from Vivante Health (virtual digestive care) and Healthmap Solutions (value-based kidney care).

Value-based care enablement was another obvious standout last quarter, and Rock Health predicts that VBC will become an increasingly important component of commercial roadmaps and enterprise partnerships.

• This will likely be particularly true in high-cost areas like mental health, cardiology, and oncology, not-so-coincidentally three of the top clinical indications in Q3 funding.

The Takeaway

The headline for the third quarter has a familiar ring to it – overall digital health funding is slowing, but bringing more stability along with it. That predictability is much needed after years of wild market swings, and the new investment cycle is also equipping founders with a clear playbook: find a high-cost area, focus on outcomes, and build a sustainable business.

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The Wire

• Providence Launches Praia: Providence launched a new startup, Praia Health, to help hospitals avoid the commoditized care caravan by building deeper relationships with their patients. Praia enables the creation of robust consumer profiles that extend beyond the medical record, allowing patients to use a single login across different health services while giving providers a way to deliver a “digital flywheel” of personalized engagement. Providence has a solid track record with its incubator (see: Xealth, DexCare, Circle), and all signs are pointing to Praia keeping that streak alive.

• Kaiser Permanente Strike: The largest healthcare labor strike in US history is underway after Kaiser Permanente and a coalition of eight unions failed to reach common ground on appropriate wages and staffing levels. Over 75,000 employees traded their scrubs for picket signs on Wednesday, kicking off a four-day strike for 40% of KP’s total staff and highlighting one of the industry’s most-pressing debates. Health system leaders argue there isn’t enough staff to fill needed positions, while unions insist that the reason there isn’t enough staff is because cutbacks are causing them to leave the field.

• CMMI Missing the Mark: A CBO report found that the Center for Medicare & Medicaid Innovation increased federal expenditures by $5.4B during its first decade, pretty much the exact opposite of its mandate and a figure that’s slated to continue increasing. While that scarily only represents 0.1% of total Medicare costs, the CBO originally forecast CMMI would decrease expenditures by $3B in its first 10 years and $78B by 2023, but lacking employer participation in ACOs and heavy industry opposition are weighing on the results.

• Elation Unified Solution Debut: Elation Health rolled out a unified EHR and billing solution for primary care providers, covering most of the bases needed at independent practices. Most EHRs were designed with FFS care in mind, which creates unnecessary headaches for the value-based care demographic that Elation is targeting. The tech behind the new solution was picked up through Elation’s acquisition of Lightning MD earlier this year.

• Inova Rebranding: Since we never miss a shot at some rebranding commentary, Virginia-based Inova is joining the ranks of Intermountain and Henry Ford as the latest health system to overhaul its look. The new logo depicts two figures coming together to represent how Inova is “always by your side,” although social media has been getting a kick out of the marked resemblance to Sonic the Hedgehog villain Dr. Eggman. Either way, it’s definitely a welcome refresh to the old logo, and another sign that providers are taking branding seriously as patients turn into consumers.

• Debunking Cost Shifting: Health policy researcher Paul Ginsburg penned a great article in Health Affairs refuting the popular “cost shifting” theory that says hospitals increase costs for commercial payors to make up for lower revenue Medicare and Medicaid patients. Ginsburg makes the case that hospitals actually reduce their costs to protect their margins for Medicare patients and often cut their rates to private payors so that they can be included in more networks and attract more patients.

• Viome Unveils Home Cancer Tests: Viome Life Sciences unveiled an at-at home oral and throat cancer detection test that achieved a 95% specificity and 90% sensitivity in a peer-reviewed validation study. The funding follows just weeks after Viome closed its $86.5M Series C round and inked a major distribution agreement to place its gut biome tests at CVS. Our top story coverage has the details.

• Hospital Performance Stabilizes: Kaufman Hall reports that year-to-date hospital operating margins stabilized at 1.1% in August, with rising revenue offsetting higher supply costs. While margins are still below historical levels, that marks six consecutive months of positive margins, and the variance in the overall trend is declining as patients resume more normal patterns of accessing care. One thing to keep an eye on: Medicaid redeterminations could cause a surge of patients who lost coverage just as hospitals are finding their footing.

• Multimorbidity on the Rise: A study of NHANES data highlighted the growing number of Americans with overlapping cardiac, renal, and metabolic conditions. Researchers compared data from 11,067 adults in two time periods (1999-2002 & 2017-2020), finding that the ratio of people with all three comorbidities increased from 5.3% to 8.0%. More than a quarter of participants had at least one cardiac, renal, and metabolic condition.

• Invenio Imaging AI: Invenio Imaging, one of the first medtech startups launched through NVIDIA’s AI accelerator, is quickly moving along the path toward clinical use for its NIO Lung Cancer Reveal tool. The NIO uses AI to allow clinicians to evaluate biopsies in a matter of minutes without leaving the operating room, bypassing the weeks-long pathology lab process. Invenio recently received its CE Mark for the system and is now initiating a clinical trial before seeking FDA approval.

• Telehealth Use Slides in July: Telehealth use slipped 5.6% nationwide in July, according to FAIR Health’s latest update. While the top five overall telehealth diagnoses remained stable with mental health leading by a mile (69% share), it was interesting to see how different that pie chart looked for asynchronous care. Acute respiratory diseases were the most common asynchronous telehealth diagnosis (16.2%), followed by hypertension (14%), and mental health conditions at just 6.4%.

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