The downside of digital health's rapid rise: Overwhelmed customers
The explosion of interest has spawned a glut of startups pitching redundant or overpriced services, benefits execs say.
The large influx of digital-health startups during the pandemic is raising the question of whether there can be too much of a good thing.
“We are inundated,” Meredith Touchstone, director of benefits at CarMax Inc., told the Wall Street Journal. “We already have these very big portfolios of vendors. And with all this new stuff coming into the market, there’s no way to assess literally thousands” of digital-health services now available.
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Corporate-benefits executives, the main customers for these startups, say they are excited about technology that can lower costs and improve employees’ health. But the explosion of activity has spawned a glut of startups pitching redundant or overpriced services, they say. Benefits executives are pushing digital-health companies to add services, merge with complementary companies and cut deals on pricing, pressure that the companies are responding to in order to stand out in the crowded sector.
Numerous health apps promise to promote well-being, manage diabetes, improve sleep, monitor heart health, encourage weight loss and track whether patients are sticking to physical therapy regimens, among others. Mental health, a growing area due in part to pandemic burnout, has spawned more than 100 startups, according to research from 7Wire Ventures, a venture firm. There also are apps to help employees navigate their company’s other digital-health apps.
A record $7 billion of venture capital poured into health care services in the first quarter, according to research firm PitchBook, the highest quarterly total in at least a decade. Total venture-capital investment hit its own record in the first quarter, continuing a multiyear boom driven by surging growth and investor interest in technology companies, as well as a trend of startups waiting longer to raise capital in public markets.
Even by that yardstick, investment in health care-service startups is hot, rising to 10% of total venture investment, according to PitchBook, also a record and double the median of the previous 10 years.
“Everybody’s excited, because there’s so much damn money floating around,” said Stuart Piltch, chief executive of Cambridge Advisory Group, a health care consulting and data firm. “I get that Wall Street loves these things, but do they work? It’s not clear yet.”
Measuring results for digital health services is tricky, benefits executives say, in part because many services struggle to prove they can lower costs or improve care. Erik Sossa, who recently retired as head of benefits at PepsiCo Inc., said digital-health services work best when connected to a company’s existing health plan, so doctors can see patients’ health histories.
That was one reason Pepsi stopped using Teladoc for telemedicine services. “Telemedicine is a fantastic medium,” he said, “but if it’s just late-night urgent care, it’s kind of a commodity.”
Sossa, now a consultant after leaving Pepsi, expects more consolidation. “If you’re a one-trick pony, it’s easy to replace you,” he said.
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