We now have quantitative data that 2017 was an amazing year for digital health investments, by the headline, “$5 billion (USD) was invested by venture capital firms into digital health in 2017.” This was impressive, not just because of the size, but because it was DOUBLE the amount of what was invested in 2016. Though the majority of these investments were from the U.S., some were from international companies. These investments were only those made publicly; it excluded private investments, angel investors and those made by strategic relationships.
It was just a few years ago when some investment bankers told me that digital health investments had reached a peak with $1 billion (USD), and now that number is more than five times that. What those traditional thinkers were missing is that healthcare and digital health is unlike any investment trend we have seen in generations.
Healthcare is not only the largest segment of the U.S. economy – over $3.4 trillion in 2016 – it is the largest industry in the U.S., the world, and our developing world in aging. The only way we are going to get a handle on healthcare is at the crossroads of service and technology.
We are resolute, that only major investments in healthcare technology can begin to address the huge issue of cost, fragmented communications, and an ever-engaging consumer.
If you aggregate the total investments made in digital health by investors, venture capitalists, government at every level, and private industries over the last seven years, the number is in the $100s of billions of dollars. Further, that is NOT enough.
When you realize that over the same seven years, we have expended $20 trillion (USD) in the U.S. on healthcare, and as a percentage of Gross Domestic Product (GDP) healthcare increased from 17.4% to 17.9%, the real question is: Are we investing enough in digital health? I am confident the answer is NO!
Let’s assume that the total investments into digital health by all parties is $300 billion (USD) over the last seven years. This investment into digital health over the past 10 years, has averaged just 1.5% investment. Let’s first admit that healthcare has been underinvesting in provider and patient technology for decades, and is still using mostly legacy systems in hospitals, insurance companies, and many providers. Second, the industry is not ready for the trailing-edge baby boomers that grew up during the personal computer, cell phone, and smart devices revolution. At the same time, the healthcare industry is also dealing with the aging X- and Y-generations, that are obsessed with technology in every segment of their lives.
As we have noted in the last few blogs, even “Silicon Valley” is emerging as a player in digital health, and we for one not only welcome it, but also think it will help transform healthcare in the coming few years, if not decades.
We believed that the “cloud” was going to impact healthcare in a major way; we now see that the that transformation will be at the crossroads of electronic health records (EHRs), the Internet of Things (IoT) and a consumer demand for TeleHealth. Those three forces, driven by three tech-driven generations, will require that the digital health investment will need to increase materially over the next decade. Let’s assume all the investments were made in U.S. companies for discussion purposes, and because that’s the region we know best. We believe that rate of investment in digital health will have to increase the current rate of 1.5% to maybe 2.5%. Based on projections, that would represent approximately $30 trillion in healthcare expenditures though 2025, that’s $600 billion (USD) could, or maybe should be invested in the U.S. digital health space over the next seven or eight years.
Just as point of reference, I will end with this quote by the U.S. Department of Health and Human Services’ (HHS) Center for Medicare and Medicaid, who “projected that total health care spending for 2016 reached nearly $3.4 trillion, up 4.8 % from 2015.” According to CMS, “U.S. health care spending is projected to reach nearly $5.5 trillion by 2025. The agency attributed the increase in large part to the United States’ aging population and rising prices for health care services.”
– Noel J. Guillama, President