Several digital health darlings that have raised tens of millions of dollars over the past few years are now scrambling to survive.
Those focused on home-based care — for the most part — tend to be the exception.
Economic uncertainty, regulatory pressure and other factors have contributed to a dip in digital health investment in 2022, at least compared to a record-setting 2021, when startups hauled in $29.1 billion in funding, according to Rock Health data. That cooldown, in turn, has triggered a wave of digital health layoffs, with Carbon Health and Ro being two recent examples.
Meanwhile, at least so far, home-based care startups such as MedArrive and Sprinter Health have been able to avoid massive layoffs or strategy overhauls.
“It seems like every other article you read or LinkedIn post is about a reduction in workforce and layoffs,” Dan Trigub, the co-founder and CEO of MedArrive, told Home Health Care News. “It’s something that’s inevitable in a market like this, and you have to question every single role on the team, and what is essential versus nonessential. That’s the reality of building a lean business in this type of environment.”
The New York-based MedArrive works with health plans and health systems to coordinate and enable at-home care.
Several companies in the space were fortunate enough to raise money throughout the COVID-19 pandemic due to the rising demand for at-home care. That was especially the case for digital health companies, as the industry made remote working shifts away from traditional offices, and digital capabilities became more important in general.
Even though mental health continues to top all digital health investment in 2022’s first half, the Rock Health report showed there could be a potential slowdown with increased inflation, global unrest and regulatory uncertainty.
Digital health investment reached $10.3 billion in the first half of 2022. The full year’s projected funding estimate is about $21 billion, which would be substantially below the $29.1 billion raised in 2021, though above 2020 and 2019 totals.
In terms of the at-home care provider types that have faced struggles, Papa is top of mind, as the in-home companionship services company laid off 15% of its workforce last week.
Still, executives in the at-home care startup space feel confident that their success is sustainable given the long-term demand.
Because of MedArrive’s unique staffing situation – it utilizes EMS workers to fill gaps in the workforce – and its focus on business-to-business partnerships, Trigub feels good about its position in the digital health industry.
“We’re very focused on B2B partnerships and on building deep relationships with these large health plans or health care provider groups,” he said. “From a regulatory standpoint, it’s a very favorable environment for a business model like MedArrive. I think we’re very well positioned in this environment.”
Sprinter Health – an on-demand mobile health startup – feels the same.
That’s because its growth strategy was never going to be a shortsighted one, co-founder and CEO Max Cohen told HHCN. That’s, in part, why he feels confident his company will survive now and in the future.
“Early on, we spoke to our investors about not building a company that was designed to capitalize on current conditions but rather to last in 2024, 2029, 2036,” Cohen said. “We spent a lot of time being deliberate. Health care is not something you take a Silicon Valley approach to.”
The future of telehealth
As federal and state regulations change and evolve, digital health companies must be able to adapt.
Sprinter Health has its eye on that evolution, Cohen said.
Being able to serve patients across state lines through telehealth is a key component to its business model. If that changes — as well as other procedures that were put in place during the PHE — it could have lasting effects.
“What happens with telehealth is really not settled, but we’re going to find out soon because things are changing rapidly,” Cohen said. “I hope [access to telehealth] continues to develop, but I worry that it won’t, just because laws are complicated, regulations are complicated and the government wants to make sure there’s compliance and no fraudulent activity going on.”
But there is still a need to digitize the space further, Cohen said.
“Telehealth, plus a provider like us, can capture data and get you [about] 80% of the value of an in-office visit,” Cohen said. “That’s much more convenient for the person at home and it saves money for whoever has to foot the bill. That’s the situation that I hope continues to develop.”
On his end, Trigub hopes for a continued investment in telehealth given his company’s own investment in it.
“Telehealth is a core component of what we do,” Trigub said. “We’re not rebuilding telehealth, we partner with many telehealth companies out there. Our EMTs and paramedics are in the home, but when they need physician oversight where they can’t prescribe, diagnose or do HCC coding, we can do all that with physician oversight through telemedicine.”
Keys to future success
At the end of the day, Trigub said putting together a solid staff with reasonable growth goals will be keys to short- and long-term success.
“Nothing’s guaranteed,” Trigub said. “We slowed down some of our hiring in nonessential roles. It’s something that we as a management team are always looking at and being very careful with on every new hire.”
Cohen agreed, and added that Sprinter Health even adjusted its growth plans due to the changes in the public market.
“We decided to grow a little bit more slowly,” Cohen said. “We were thinking about 100% growth — in terms of headcount — by the end of 2022. We’ve actually revised that to about 60%. We’re still going to be dramatically larger than where we were, but we did scale back in terms of how many people we want to hire.”
Even though there are some worrisome signs, providers are still generally optimistic about the digital health space.
There will still be plenty of money to go around for the good companies, and innovation won’t slow down, Cohen added. He does believe, though, that rising valuations will be slowed a bit more than they may have been six months ago.
In his words, “you’re still going to see the top quality companies get the oxygen they need to breathe.”
There’s also something to be said for the room to standout in an economic downturn. For instance, companies like Uber and Slack were started at or around the time of the 2008 recession.
“From an economic environment standpoint, I think there’s opportunity,” Trigub said. “Some of the best companies are built in down markets. If you have a model that ultimately saves cost for health plans or health care providers in this environment, that’s a win-win.”
Companies featured in this article:
