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Digital Health:
SELF-DISRUPT OR
self-destruct?

INNOVATION IMPERATIVE

For nearly a decade, healthcare organizations have been investing in innovative digital health companies to unlock value and spur growth. And funding is even higher now than forecasted two years ago. But investors today are more strategic about the scale and timing of investments and keen to prioritize affordability.

One market-differentiating strategy that first-mover organizations have explored is investing in digital health as a pipeline of innovation to self-disrupt their own businesses. Investor funding in digital health has gained momentum. With accelerated investments that eclipse earlier estimates of digital startup funding, the average investment has increased overall by 28 percent—representing new opportunities for healthcare organizations to pivot to the future. Payers and providers that do not make investing in innovation a key part of their business strategies could find themselves up against stiff competition in their current markets—and facing devaluation in the future.

Accenture analysis shows that four trends have emerged that illustrate the shifting nature of healthcare and highlight the current digital health investment opportunity.

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TREND 01: INVESTMENTS ARE ACCELERATING

Investment in digital health companies has accelerated—and more quickly than expected. Annual investments in digital health companies eclipsed the 2015 forecast and continue to grow at a steady rate. After investments spiked a year earlier than originally forecast (US$7 billion annually in 2015 versus the US$4.3 billion forecast), the market moderated to US$5.1 billion invested in 2016. Funding is still increasing rapidly, growing at around 22 percent in the last few years.

Accenture anticipates that the market is well on target to hit the original estimate of US$6.5 billion in annual startup funding by the end of 2017. International growth is a key driver—international digital health funding has grown five times since 2013, mainly in China, India and Israel.

Digital health funding is still rapidly increasing

The market is on target to hit the annual investment forecast by the end of 2017.

TREND 02: SCALE IS UNLOCKING VALUE

Companies are choosing to invest in digital health later in startups’ life cycles—and then continuing to invest more. The era of experimentation with digital health investments is over. Now, companies are creating minimally viable products, looking at market responses and then making their move. And, having “got their feet wet,” companies are investing to scale where they have seen success or where the market has signaled it is a solution that can create and unlock unique value.

While the average dollar amount invested per deal increased 28 percent since 2014, the actual number of deals invested in decreased by 25 percent in the same timeframe. This may be at least in part due to the natural evolution of a new market, which begins rife with startups seeking early-stage funding and grows to a market with more mature companies seeking later-stage funding.

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Early to mid-stage investments continue to make up the majority of digital health funding

The range of investments varies widely within each series.

TREND 03: AFFORDABILITY, ACCESS AND QUALITY

Accenture analysis showed that six areas related to affordability, access and quality in healthcare received 73 percent of investor funding in 2016: provider efficiency, virtual/care coordination, wearable devices, personalized medicine, enhanced diagnostics, big data and analytics.

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Six areas related to healthcare affordability, access and quality received the significant majority of funding in 2016.

TREND 04: TOP 10 MAKE UP ONE-THIRD OF OVERALL INVESTMENTS

Digital health innovation winners are emerging; a core group of 10 companies received 29 percent of the investment funding in 2016, many of which have been top funding winners in previous years. The startups receiving the largest amount of funding since 2010 include JawBone (US$737 million), Health Catalyst (US$446 million), Theranos (US$353 million), Schumacher Group (US$338 million), Flatiron Group (US$313 million), Welltok (US$239 million), 23andMe (US$235 million), ZocDoc (US$223 million). Others have undergone an initial public offering (IPO) and been acquired including Castlight, Teladoc, Fitbit, Veeva and Jiff.

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Top 10 funding deals in 2016

Investments in 10 companies made up 29 percent of funding in 2016.

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INNOVATING TO WIN


The biggest winners from digital health will be the patients who receive better care and enjoy an enhanced healthcare experience, which in turn enables them to stay healthier. Three steps payers and providers should take now to act innovatively to turn digital disruption to their advantage include:


  1. REIMAGINE YOUR INVESTMENT STRATEGY
    The healthcare organization of yesterday is not what it is today. Providers, payers, and pharma and medtech companies need to find new ways to approach their investments and spearhead innovation to expand their strategies and product lines.

  2. LEAD IN THE NEW
    The time for “old school” thinking is over. Expand your idea of what it means to be a payer or provider and partner with an ecosystem of startups; step beyond your four walls to help you grow product lines and be more competitive.

  3. FOCUS ON THE FUTURE
    The most successful organizations are immersing themselves in digital, adapting their culture and developing new offerings in a case of “if you can’t beat them, join them.”


Authors

Marc Warren

Marc Warren
Strategy Manager

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Hillary Wang

Hillary Wang
Business Strategy Consultant

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