Investing in the Future: 2021 Digital Health Trends for Private Equity Investors | McGuireWoods LLP
Technology is affecting the way health care is delivered every day – and health technology, focused on facilitating and enabling health care functions, is creating new opportunities for private equity investors.
Several trends are influencing investments in digital health and technology. These include the shift of health care delivery from traditional settings to mobile and home settings where the consumer makes health care decisions; an increasingly complex regulatory environment requiring digital solutions to monitor compliance; and extended data platforms to reduce costs and improve productivity.
Digital health products that were mere novelties before 2020 are now seen as necessary – this shift in perspective on what is important is changing rapidly and will continue to drive the market. Investments in digital and healthcare technologies are expected to increase by 14% per year until 2023 (Suman Ugalmugale, Ajay Devgire, “Healthcare Information Technology (IT) Market Size by Solution,” Global market overview, April 2019, gminsights.com). Investors are focusing on technology trends that will close the gap between current capabilities and the innovations that will deliver future healthcare solutions.
When evaluating upcoming trends for 2021, investors should consider opportunities that address the following issues:
- Improving access to care
- Improving care delivery
- Cost reduction
- Expanding Data Platform Capabilities
These areas of focus are not new, but strongly revitalized by regulations enacted throughout 2020 that have spurred interest in consumer-centric healthcare. The challenge is to find digital and health technology innovators who offer differentiated technology with a sustainable business model that takes into account the unique landscape of the health system, particularly as it relates to the value stream. Successful models will use technology focused on facilitating and enabling healthcare functions. Popular trends using differentiated technology include the following:
- Artificial Intelligence (AI)
- Internet of Things (IoT)
- machine learning
- Data analysis
Examples of emerging technology trends for AI include: robotic assistance in patient care; analyze patient health records to improve patient outcomes and quality of care; and AI-based platforms for health services, including pharmaceuticals and behavioral health.
IoT infrastructure connects medical devices, sensors, software applications, and healthcare IT systems to medical testing, monitoring, and diagnostics. In 2021, IoT-enabled medical devices will gain popularity due to the increase in telehealth models implemented during the COVID-19 pandemic. IoT medical devices use remote monitoring devices that measure body temperature, blood pressure, and heart rate, and include wearables such as smartwatches and smartphones with health-related apps. Wearable biosensors, used to analyze patient data for chronic disease diagnosis, are also gaining popularity with patients and providers.
Machine learning can benefit automated medical billing processes, clinical decision support, and the development of clinical care guidelines. The predictive power of machine learning is powerful and its impact on the industry is largely unknown.
One of the most important trends set to continue in 2021 is the increased use of data analytics to improve healthcare access and patient outcomes. Platform providers include entities that create and maintain the foundation for data exchange, analytics, and user engagement. Investors will likely focus on companies that can provide function-scale platforms and build data platforms that provide analytical services for the data they collect. The biggest trends in data platforms are:
- Electronic Assessment of Clinical Outcomes (eCOA)
- Patient Safety and Quality Reporting Systems
- Population Health Management Solutions
The COVID-19 pandemic and increased use of healthcare consumerism dominated digital health and technology in 2020, and increased patient demand for telehealth/telemedicine models will continue to drive 2021 trends for investors. The need for telehealth models will expand beyond primary care, to include behavioral health services, pharmaceutical services, and even specialty care.
According to a recent study by McKinsey, healthcare has traditionally lagged behind other industries in digitalization and technological innovation. Various factors affecting this mismatch include the wide range of healthcare players, the density of regulations, and patient privacy and cybersecurity concerns. Despite the “catch-up” environment for digital health investments, recent studies show that well-run health-tech companies outperform non-tech healthcare companies, with some exiting at 23-25x the ‘EBITDA (“Private Equity Opportunities In Healthcare Technology,” McKinsey, May 2019). Investors are finding that digital and health technology solutions are the best way to track and comply with an increasingly robust regulatory environment. An excellent example is the 21st Century Cures Act and the fast approaching deadline for data interoperability compliance to avoid information blocking regulations.
As digital health and technology solutions proliferate in 2021, investors will consider life sciences companies and healthcare providers as key stakeholders for investment. The main opportunities for health technologies in the life sciences include the following areas:
- Electronic Assessment of Clinical Outcomes (eCOA)
- Risk-based monitoring
- Medical Information Solutions
- Real-world evidence study design
- Regulatory reports
Healthcare providers are using digital technology and health technology to create opportunities in these areas:
- Patient Safety and Quality Reporting Systems
- Medical Device Tracking
- Contract and document management
- Financial report
- Revenue cycle management
Technology, by its very nature, is a cost-effective disruptor, and its impact on healthcare has been evident for years. Regardless of the time period, this hub is a sound investment, but with regulators’ unique focus in 2020 on expanding digital health applications amid the pandemic, it has become a golden target, ripe for innovation. and continued growth. Artificial intelligence, the Internet of Things, machine learning and data analytics are not passing trends in health; they are necessary vectors of action that will remain in the minds of legislators and regulators. Contact the authors of this article for more information on how digital health laws and regulations will continue to shape its growing importance.
