How Digital Health Startups Can Help Revise The Healthcare System

How Digital Health Startups Can Help Revise The Healthcare System David Stein, Forbes Councils Member

David is the CEO and co-founder of Ash Wellness, an at-home diagnostics company providing accessible and inclusive healthcare for all.

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Healthtech funding, as with many technology sectors, has been strained in 2023 due to the collapse of Silicon Valley Bank and other post-pandemic economic issues. Although many healthtech companies would like to reinvent the way care is provided, funding constraints mean digital health startups cannot afford to rework massive healthcare systems and should not try to pass those costs onto patients, who are unlikely to pay a high premium for remote care services and should not have to. To position themselves to weather this economic storm, digital health companies in the U.S. should consider cutting overhead costs by finding ways to utilize existing care structures and systems such as private insurance, Medicare/Medicaid and public health.

What is the role of digital health startups in the healthcare ecosystem?

The healthcare ecosystem in the U.S. is massive. Between programs like Medicare, Medicaid, the Children'’ Health Insurance Program and veterans’ care, the federal government spent nearly $1.2 trillion in fiscal year 2019 on healthcare. Americans insured through the Affordable Care Act pay an average monthly premium of $928 for a bronze plan and up to $1,336 for a gold plan, although many are subsidized by tax credits.

With so much spent on healthcare already, digital health startups are unlikely to attract customers prepared to spend on additional out-of-pocket care costs, and startups that try to radically rework existing healthcare structures are likely to run out of runway before they become profitable. It is not the role of healthtech to radically shift healthcare beyond government assistance and oversight but rather streamline and improve it. Healthcare should work within existing systems instead of creating new ones.

How can digital health companies utilize systems that already work?

There are few ways digital health startups can utilize healthcare infrastructure to become profitable, or at least stable, in uncertain economic conditions.

1. Take private insurance. Patients are unlikely to pay high costs for healthcare when insurance allows them to access traditional services at a lower price point. Collaboration is in the best interests of insurance providers, too. Some experts predict that health plans will gain almost a quarter of net profits from digital health by 2030.

2. Connect patients to existing care structures. One way to help recession-proof a digital health startup is to make it useful for public health and other traditional healthcare systems that receive government funding, such as the Provider Relief Fund and American Rescue Plan rural funds. Digital health can enhance patient access to services that already exist and, in many cases, improve healthcare outcomes.

3. Work within Medicare/Medicaid. As of September 2022, over 65 million people were enrolled in Medicare, Medicare Advantage or other health plans. Digital health companies with services that are accessible to Medicare/Medicaid users maintain an additional revenue stream. Moreover, the Biden-Harris administration announced its intention to strengthen access to and quality of care across Medicaid and the Children’s Health Insurance Program.

4. Meet patients where they are. Digital health companies can take advantage of collaborations with big box retailers to access and support patients in places they already shop. This might take the form of medical wearables or remote diagnostics for at-home care flows beyond popular Covid-19 testing. In 2022, "the global home healthcare market size was valued at $362.1 billion."

Where have healthtech startups been successful?

Many digital health companies have struggled to keep afloat in recent years, and several resorted to layoffs in 2022 and 2023. However, others have succeeded by partnering with existing structures such as hospitals, universities and public health initiatives or have taken advantage of additional streams of government funding.

Our client Mistr, which offers digital pre-exposure prophylaxis (PrEP) services like physician consultations, prescriptions and lab testing through telemedicine, utilizes 340B government funding to provide patient care with or without insurance. OpenLoop, a provider of white-label telehealth support services and partner of Ash Wellness, teams up with e-pharmacies and traditional brick-and-mortar healthcare facilities and has exceeded 90% coverage by nationwide insurance payers. The software company Magnus Health works with universities and schools to help them securely manage student health information.

Another trend is for digital health companies to partner with big box retailers like Walgreens and CVS that offer healthcare as an extension of their existing services. In March 2023, CVS acquired Signify Health, a digital health company with a value-based care model seeking to improve healthcare outcomes. Meanwhile, Walgreens acquired CareCentrix to expand into the growing home-care sector.

During uncertain economic times, digital health startups should pivot away from rebuilding healthcare from the ground up and focus on ways they can utilize tools already in place to streamline and improve existing healthcare systems. Not only will this help enable them to preserve funding until profitability, but startups can better serve patients by meeting them in systems where they’re already integrated. Finally, foundational healthcare systems like hospitals and primary care clinics can also benefit by incorporating technology innovations that allow them to bill for more services.

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