In the past five years, health insurers have sunk a total of $900 million into digital health startups. That includes 2016, which isn’t even over yet.
BlueCross BlueShield takes home the prize for being the most active investor (including mergers and acquisitions), followed by Kaiser Permanente Ventures with 27 and 14 deals respectively.
Startups Health Catalyst (Series E), Livongo Health (Series C), Omada Health (Series C), Proteus Digital Health (Series D), and ZeOmega (Growth Equity), have been the biggest beneficiaries, according to venture capital database CB Insights, which compiled the data. No other insurer had more than 10 deals, noted CB Insights tech analyst Nikhil Krishnan.
U.S. health insurers began exploring such investments to cope with the effects of the Affordable Care Act. Growing numbers of covered people, the introduction of health exchanges, the emphasis on preventive medicine, and the Medicare/Medicaid focus on bundled payments versus the fee-for-service model prompted payers’s desire to become more differentiated and focus more closely on their members’ ongoing health.
Their investment goals have evolved, although the main goal remains: to fund companies that can help their members’ health and wellness. For Tuoyo Louis, managing director at Zaffre Investments, it’s personal as well. Louis lost two aunts to diabetes.
“I’m sensitive to some of the complications that occur with chronic diseases—in particular, diabetes,” he explained. “Being an African American, we’re disproportionately affected by diabetes.”
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Zaffre, an arm of BCBS of Massachusetts, invested $4 million of the $44.5 million that Livongo Health raised this year by. Livongo is a consumer digital-health company focused on chronic conditions and its cellular, two-way interactive glucose meter transmits data and messaging in real time to the patient and their care team, including family and friends. The startup provides personalized analytics and insights, and certified diabetes educators to assist the patient and care team.
Livongo has helped BCBS of Massachusetts achieve some of its goals in reducing the health risks associated with diabetes, cutting costs, and improving members’ quality of life, Louis said. From an economic standpoint alone, care for a diabetic costs about $5,500 more per year than for someone without the disease.
“You add that up and that’s significant,” Louis said.
Meanwhile, Kaiser Permanente Ventures, Oakland, CA, has invested in a number of digital health and healthcare IT startup including Health Catalyst, an early investment. The startup created a data-housing architecture that uses a just-in-time approach to data binding, and applies analytics to improve care and cut costs.
“Healthcare is not effectively organizing and utilizing the data that’s being generated,” said Sam Brasch, KP Venture’s senior managing director. “We’re looking for companies and solutions that we believe understand the realities of clinical care and the workflow within healthcare, and create an opportunity to do things more effectively and more efficiently.”
KP Ventures recently invested in Big Health, a digital company that provides automated cognitive behavioral therapy for patients with insomnia and related anxiety and depression. An avatar guides patients through its Sleepio program whenever they choose, for care they might not normally seek or have time to obtain. It works, according to Brasch.
“This is a company that excited us,” he said. “It met a real need and is effectively addressing our members’ and the general population’s needs around sleep and other behavioral health issues, which is an area of healthcare that is often challenging in terms of targeting people who need help.”
Such investments also enable startups to reach their potential. If a company stumbles, Kaiser can help it figure out what’s wrong and brainstorm some solutions.
“We try to get very hands-on,” Brasch said.
Independence Blue Cross, Philadelphia, (IBX) looks for startups that help it manage data and provide analytics to improve patient care, supply different delivery methods, and focus on the end-to-end patient/customer experience, according to Terry Booker, vice president of corporate development and innovation.
IBX has invested about $25 million in these companies over the past three years, Booker noted. In the past, IBX might have invested in larger companies that were more important to its business and less innovative, such as a claims processor. Now it focuses on newer, smaller companies, and on technology.
IBX has invested in Accolade, Inc. a healthcare concierge that has a suite of information about patients to help direct them to the care they need. Relay Network, another recipient, offers a secure, HIPAA-compliant communication platform that enables text messaging among patients, care providers, and IBX. About 300,000 of the 700,000 members for whom the company has cell phone numbers have signed up for the service, which it has branded IBX Wire.
In addition, by sending text reminders about basic care, IBX Wire gives members the option to text the company and ask for a call-back when call volume is high.
“It’s improved our communication,” Booker said. “The jury’s still out as to whether it’s saved us money.”
