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Rock Health Q3 | Scope Expansion Debate
October 10, 2024
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Together with
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“The digital health market is transforming from single-solution companies that want to ‘do it all’ solo to scalable, combined offerings that drive efficiency for both vendors and clients.”
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DarioHealth CEO Erez Raphael
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Rock Health’s Q3 Digital Health Market Update showed that investors have found comfort strolling down a path of “focused funding,” with last quarter’s innovation story shifting from transaction volume to market positioning.
The U.S. digital health sector logged $2.4B in venture funding across 110 rounds in Q3 2024, bringing year-to-date funding to $8.2B.
- While Q3’s 110 rounds marked a slowdown from 136 in Q1 and 133 in Q2, average investment size held steady at $22M quarter-over-quarter, indicating that investors are honing their focus while continuing to make sharp plays.
- The analysis also noted that investments are overlapping with partnerships, with companies keen to support startups they’ve already worked with in crowded spaces like healthcare AI – as seen with NVIDIA and Hippocratic AI.
The real narrative behind last quarter’s activity was what Rock Health referred to as “tapestry weaving,” or digital health players building up their offerings to compete with legacy leaders and market incumbents. The related graphic was easy on the eyes.
- While Q3 mergers and acquisitions were also low at just 21 moves – versus a quarterly average of 37 last year – companies like Dario and Fabric are using M&A to integrate new capabilities and expand their footprint.
- Like weaving a tapestry, both Dario’s addition of Twill and Fabric’s acquisition of TeamHealth VirtualCare stitched together different solutions to create a more robust platform and address a broader range of customer needs.
Tapestry weaving isn’t exactly an easy hobby. It involves integrating different products, teams, and go-to-market strategies that all have a chance of backfiring along the way.
- Big acquisitions help compete for big contracts, but they can also strain the acquirer’s balance sheet.
- CVS is an easy example. In the last six years, CVS used $88B to add a major payor, a clinic operator, and a home-care provider to its flagship pharmacies. The entire company is now valued at less than the cost of those three moves ($83B current market cap).
The Takeaway
Although the raw count of digital health investments continues to drop off, activity volume isn’t the same as activity quality. The tapestry weaving trend is a reminder that the “true impact of digital health innovation is shaped in the details,” through its investment structures, targeted partnerships, and post-M&A playbooks.
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Curate, Create, & Share at the Point of Care
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- The Scope Expansion Debate: An AANP survey found 73% of patients support legislation that would make it easier to choose a nurse practitioner as their primary care provider (up from 61% in 2021). As the dwindling number of PCPs makes accessing physician-led primary care more difficult, expanding the scope of practice for NPs and PAs is quickly gaining popularity. Over a quarter of Americans (27%) are now behind on immunizations and preventive screenings due to a lack of access, and 40% travel more than 10 miles for a primary care visit.
- Nym Growth Round: Nym raised $47M to automate medical coding by using machine learning to translate EHR data into “a comprehensive narrative of the patient encounter.” Over 200k medical coders manually handle this task across the U.S., leading to costly errors and delays. Nym’s platform reportedly stands out from other autonomous coding solutions due to its fully traceable audit trails for every encounter, high configurability, and multispecialty capabilities across six different service lines.
- Healthcare M&A Spikes: Kaufman Hall’s latest M&A report counted 27 hospital and health system transactions in Q3 2024, a big leap from 18 during Q3 2023. Steward Health Care’s bankruptcy and offloading of 11 hospitals drove M&A to the highest level seen since 2017, but the 16 remaining transactions still highlight a growing number of organizations that are struggling financially. “In most instances, approving a combination – even with a hospital or health system in the same market – is likely to be a better solution than closure.”
- Hospital Margins Hold Steady: Along with the M&A jump, Kaufman Hall also reported that hospital operating margins held flat at 4.2% in August, while climbing 14% year to date. Daily net operating revenue grew 7% in the same timeframe, while length of stay decreased by 1%. The margin stability arrived in the face of climbing expenses across the board, with labor up 5%, supplies up 7%, drugs up 5%, and services up 12%.
- Pager Debuts ReallyWell App: Pager Health debuted its new ReallyWell app that uses GenAI to examine a patient’s clinical, claims, and biometric data to create a custom “one-size-fits-one” wellness plan. The app’s trio of core features includes a WellBeing CoPilot (AI recommendations that evolve with the member’s health status), Health Risk Assessments (NCQA-accredited surveys), and Dynamic Wellness Scores (highlights progress to engage users). The one-size-fits-one approach is achieving 83% gap closure for wellness exams and 86% sustained member engagement.
- Payor Pushback: A short-and-sweet AHA report highlighted the increasingly burdensome policies hospitals are facing from commercial payors, causing major rev cycle and patient safety problems. The skyrocketing expenses associated with excessive payor requirements (prior auths, claim audits, level of care downgrades) have forced hospitals to spend $40B+ each year on collections processes alone, with denials also spiking for commercial (+20%) and Medicare Advantage claims (+56%) between 2022 and 2023.
- WellSpan Implements Hippocratic: WellSpan Health is improving access to cancer screenings by implementing Hippocratic’s GenAI agent to contact its patients by phone in both English and Spanish. These calls allow WellSpan to better care for its multi-lingual and underserved populations by facilitating data collection in the patient’s native language, with plans to extend to colorectal health and additional languages in the future.
- HHAeXchange Acquires Sandata: HHAeXchange announced its acquisition of home care solutions provider Sandata Technologies to meet the projected 43% increase in demand for personal care aids and community-based services by 2035. Sandata builds on HHAeXchange’s recent acquisitions of Cashé and Generations to bolster its home care enablement platform for providers, MCOs, and state Medicaid agencies.
- Patient Perspectives on AI: A Columbia University survey found that 49% of patients consider AI beneficial for mental healthcare, with views differing based on sociodemographic factors. Black respondents and those with lower self-reported health literacy were more likely to view AI as beneficial (ORs: 1.76, 2.16), whereas women were less likely to agree (OR: 0.68). The authors underscore the importance of effectively communicating healthcare AI’s accuracy and limitations to build public confidence in the technology.
- Resilience Acquires Options MD: Digital mental health startup Resilience Lab expanded its medication management and psychotherapy offerings by acquiring online psychiatry platform Options MD. The acquisition will allow Resilience to integrate Options’ clinical intake AI into its platform to expedite diagnoses and treatments for severe mental illnesses.
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RPM Designed to Streamline Your Workflow
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