Despite the continued growth in the number of health IT companies, the consolidation in this area will continue to rise, largely because startups in health IT “are believed to be overvalued and the long-term viability for companies in this sector is hazy”. Those were some of the findings in a survey of 274 mostly healthcare investors and entrepreneurs, by technology and healthcare venture capital firm Venrock.
In a phone interview with Venrock Partner Dr. Bob Kocher, he said point solutions would be the greatest area of consolidation. There’s been a proliferation of selling point solutions to large employers. Consolidation in this space will continue in 2017. WellDoc has made several acquisitions, so has Sharecare, and Castlight acquired Jiff at the start of the year. In fact, the Castlight-Jiff deal was an interesting deal for Venrock as it had invested in both companies. But given that it was an all-stock deal, Kocher said he wouldn’t know how great a deal it was until a couple of years from now.
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Chart from Venrock’s 2017 Healthcare Prognosis survey
“Although more startups will be created, fewer will be funded and the rest will get weeded out. There will be a flight to quality.”
One group of questions the survey raised dealt with the impact of President Donald Trump’s administration on health IT. About 66 percent of respondents said they expected health IT companies serving accountable care organizations to face the most challenges under the Trump administration, closely followed by those startups focused on the insurance industry.
Health IT startups involved in big data and analytics are expected to be the fastest growing subsector of health IT in the next 12 months, according to 45 percent of participants. But Kocher was skeptical about how many startups will succeed in this area.
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“A bunch of people are doing loosely defined big data analytics. The problem with that is that it’s hard to prove that you are better than anyone else.”
Many companies with big data analytics also claim to have machine learning or some other form of artificial intelligence, another source of skepticism for Kocher, at least as far as being abe to predict who will be the winners in this race. He noted that AI seems to have replaced Uber as the most overused word or phrase in digital health.
“I get pitched at least two companies per day claiming to have AI. I always ask them, ‘tell me what AI is,’ and they have yet to say the same thing. I have not seen one [product] that is truly learning or is truly intelligent.”
Although medical image analysis has proved a popular area of investment for investors, Kocher doesn’t believe the technology from these companies has reached the point where it’s better at assessing these images than radiologists.
Source: Venrock Healthcare Prognosis survey
Healthcare startups improving the primary care experience such as One Medical telemedicine business Doctor on Demand (a Venrock portfolio company) and cancer treatment analytics business Flatiron Health got the most support among survey participants.
“People view healthcare as a process of consumer transformation,” said Kocher, noting the support for One Medical and Clover Health.
Asked about insurance startups, particularly Oscar and Bright Health, Kocher observed that anyone with insurance could recognize that the industry needs to improve the member experience, which he described as “really broken”.
But the challenge of trying to be an Oscar or Bright Health, according to Kocher, is commercial insurance is a super price sensitive market that’s not profitable. Oscar, in particular, has struggled in the process of trying to improve the member experience by enlisting digital health technology such as virtual care through partnerships with other companies.
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