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Are we experiencing a natural selection moment in health tech?

Health tech companies in the wellness industry might face a more difficult market than those in the clinical-grade domain. Benefits offered by wellness companies are those most likely to be viewed as nice-to-have perks that may not bring enough value. 

Every industry experiences natural selection moments. Moments in which only companies that can adapt and bring value survive and ultimately prosper to dominate the category until the next such moment arrives. 

For early internet companies, it was the dot-com bubble burst of 2000. For the retail industry, it was the 2008 financial crisis. And now, according to June figures, 17.8 million Americans are unemployed due to the Covid-19 pandemic. 

This raises the question: are we in the midst of a seminal natural selection moment for the health tech industry? 

Pre-pandemic, employers provided health insurance to roughly half of the U.S. population. Successful health tech companies have long relied on contracting to employers as their main business driver. This makes sense because of aligned interests and incentives. Employers that offered attractive health benefits could keep their employees happy and minimize turnover in an extremely competitive job market. Extra benefits like concierge medical services, coaching, and disease management tools were an essential part of a competitive offer. 

Additionally, some products offered by health tech companies could help alleviate the growing healthcare costs employers were paying, with the cost of employer-sponsored healthcare exceeding $20,000 per year for a family plan in 2019. 

This alignment of incentives afforded a fast go-to-market strategy for health tech companies, allowing them to target lucrative demographics (working people who tend to be younger, healthier, and more mindful of health and wellness) that contrast with Medicare’s older members. 

However, Covid-19 has ushered in a dramatic change to an employer’s hierarchy of needs when it comes to what they can afford, given top-line realities. Will employers continue to be a strong business channel for health tech companies? Yes. Fundamentally, interests will remain aligned. That said, health tech companies could now be facing their natural selection moment, as they’ve grown to depend on the employer channel. 

There are a few factors that will impact the vulnerability of health tech companies in this market. The first is dependency on a single employer. Health tech businesses relying on a single employer as their main source of business could be facing tough days as employers look to lower expenses for the foreseeable future. However, not every employer is experiencing the Covid-19 era in the same way, which leads to the second factor: the type of employer with which health tech companies contract. 

Unemployment is unevenly distributed in today’s market. The rate of unemployment for computer occupations in May was 2.5%, compared to 13.5% for all other occupations. Major tech companies like Google and Apple are faring better than companies in more traditional industries that have been directly impacted by travel bans and stay-at-home orders—like those in the leisure and hospitality industries. The five most popular and best-performing American technology stocks — Facebook, Amazon, Apple, Netflix, Alphabet — and similar companies seem to find themselves in a position to continue offering employees the same, extensive benefits for which they are known. However, companies forced to furlough employees or even let them go will likely not prioritize offering extra perks, even if they did so in the past. 

Another factor that will impact health tech companies is cash flow constraints of employers. While a health tech company may offer great ROI over time, many cash-strapped employers might find themselves without the cash flow necessary to pay now for future savings—especially as they downsize or furlough employees. Health tech companies might need to think creatively about financing and payment schemes, such as delaying payments or offering employers more flexible payment plans. In light of today’s uncertainty, cash flow—not future savings—is what counts.

Finally, health tech companies in the wellness industry might face a more difficult market than those in the clinical-grade domain. The benefits offered by wellness companies are those most likely to be viewed as “nice-to-have” perks that may not bring enough value. 

Despite these vulnerabilities, employers will remain a fundamental partner and a driving force for health tech companies, even if the workforce continues contracting and even if they won’t be the only partner. 

Companies with a clinical-grade offering, that offer products that are cash-flow positive from day one, and that are contracted with leading tech companies are likely to survive this natural selection moment.

Picture: uzenzen, Getty Images


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Yonatan Adiri

Yonatan Adiri is the founder and CEO of Healthy.io—the company that transforms the smartphone camera into a medical device, enabling at-home urinalysis and digital chronic wound management.

At the early age of 26, Yonatan was appointed by Israeli President Shimon Peres as the country’s first Chief Technology Officer. In the role, Adiri was responsible for the President’s long-term agenda on transformative technologies, such as Neuroscience, Immunotherapy, Stem Cells and Bioinformatics. As part of his service, Adiri participated in the inaugural class (2009) of Singularity University’s GSP program, where he co-founded car sharing business GetAround.

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