Funding companies make market predictions

BOSTON—Despite the rapidly burgeoning digital health market, the general healthcare industry isn’t aware of many of the products and companies in the space, said Malay Gandhi, chief strategy officer for Rock Health, speaking at the Digital Healthcare Innovation Summit.

Rock Health, which funds and supports startups focused on technologies transforming healthcare, tries to balance start-up companies with venture capitalists and pair them with individuals, he said. “It’s important to us to fund things that work,” Gandhi said, and proving that products and tools work is a long and hard process.

It has paid off, however, because funding for digital health has been on the rise. 2013 has been a record year with $1.55 billion by the end of September which is more than for all of 2012. Meanwhile, he said funding for traditional medicine is declining.

A review of the funding shows five themes that account for almost half of all of Rock Health’s funding: population health management, hospital administration, analytics and big data, EHRs and personal health tools. That EHRs made the list was surprising, Gandhi said because the level of dissatisfaction with the top-selling EHR systems is so high.

Despite this growth in funding, Gandhi said he is concerned about digital health’s future. “Angel investors in this space don’t exist. We’re patiently waiting for people to take their [digital health] companies public. Hundreds of millions have gone into these companies and it’s important for the sector to see some money come back out.” Without that, the growth in venture funding probably won’t keep increasing at about 30 percent a year.

Gandhi said he hopes several well-known companies in this space will go public soon and also predicted some “under the radar” IPOs in 2014.

Bryan Roberts, general partner of Venrock, another healthcare technology funding company, said he predicts "tons of data businesses but it's really early" in light of the changes the Affordable Care Act is bringing about. "We're wary of investing in companies that play off policy changes rather than the market." The legislation "woke up one of the fastest market changes I've ever seen."

Roberts said he's also excited about the "seeds of payment reform" coming with accountable care organizations (ACOs). "I would invest in physician ACOs. I think there will be information business opportunities to provide them with new and different information to help them deal with the changes."

One of the biggest challenges right now is the healthcare industry's position between pay-for-volume and pay-for-performance. Filling beds is how hospitals make money so, for the time-being, being just better than the worst hospitals at preventing readmissions is the best business, he said. Until incentives change, "we're not going to get anywhere."

But, Roberts said "what we can do with all these data is going to be stunning. We can fundamentally change the curve."