Technology is affecting the way healthcare is delivered daily — and health technology, focused on facilitating and enabling healthcare functions, is creating new opportunities for private equity investors.
Several trends are influencing investment in digital health and technology. These include the shift in healthcare delivery from traditional settings to mobile and home settings where the consumer drives healthcare decisions; an increasingly complex regulatory environment requiring digital solutions to monitor compliance; and expanded data platforms to reduce costs and improve productivity.
Digital health products that were mere novelties before 2020 are now considered necessary — this shift in perspective about what is important is rapidly evolving, and it will continue to drive the market. Investment in digital and health technology is projected to grow 14 percent per year through 2023 (Suman Ugalmugale, Ajay Devgire, “Healthcare Information Technology (IT) Market Size by Solution,” Global Market Insights, April 2019, gminsights.com). Investors are focused on technology trends that will shorten the gap between current capabilities and innovations that will provide future healthcare solutions.
In assessing coming trends for 2021, investors should look at opportunities that address the following issues:
- Improving access to care
- Improving care delivery
- Reducing costs
- Expanding data platform capabilities
These realms of focus are not new, but strongly revitalized by regulation promulgated throughout 2020 that supercharged an interest in consumer-centric healthcare. The challenge is to find digital and health technology innovators that offer differentiated technology with a sustainable business model that contemplates the unique landscape of the healthcare system, particularly with respect to value flow. Successful models will utilize technology that focuses on facilitating and enabling healthcare functions. Popular trends using differentiated technology include the following:
- Artificial intelligence (AI)
- Internet of Things (IoT)
- Machine learning
- Data analytics
Examples of emerging technology trends for AI include: robotics assistance in patient care; analyzing patient health records to improve patient outcomes and care quality; and AI-driven platforms for healthcare services, including pharmaceuticals and behavioral health.
IoT infrastructure connects medical devices, sensors, software applications and healthcare IT systems with medical testing, monitoring and diagnostics. In 2021, IoT-enabled medical devices will gain in popularity due to increased telehealth models implemented during the COVID-19 pandemic. IoT medical devices utilize remote monitoring devices that measure body temperature, blood pressure and heart rate, and include wearable devices like smartwatches and smartphones with health-related apps. Portable biosensors, used to analyze patient data for diagnosis of chronic health conditions, are also gaining popularity with both patients and providers.
Machine learning can benefit processes for automated medical billing, 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 mostly undiscovered.
One of the largest trends predicted to continue in 2021 is the expanded use of data analytics to improve healthcare access and patient outcomes. Platform providers include entities that create and maintain the basis for data exchange, analytics and user engagement. Investors are likely to focus on companies that can provide function-wide platforms and create data platforms that provide analytic services for the data they gather. The biggest trends in data platforms include the following:
- Electronic clinical outcomes assessment (eCOA)
- Patient safety and quality reporting systems
- Population health-management solutions
The COVID-19 pandemic and the increased use of healthcare consumerism dominated digital health and technology in 2020, and the 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 digitization and technology innovation. Various factors affecting this lag include the wide range of healthcare stakeholders, dense regulations, and patient privacy and cybersecurity concerns. Despite the “catch-up” environment in digital health investment, recent studies show that well-managed health technology companies perform better than non-technology-based healthcare companies, with some exits at 23 to 25 times EBITDA (“Private Equity Opportunities In Healthcare Technology,” McKinsey, May 2019). Investors are finding that digital and health technology solutions are the best way to ensure monitoring and compliance with an increasingly robust regulatory environment. A prime example is the 21stCentury 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 look at the life science companies and care providers as the largest stakeholders for investment. Key opportunities for health technology in life sciences include these areas:
- Electronic clinical outcomes assessment (eCOA)
- Risk-based monitoring
- Medical information solutions
- Real-world evidence study design
- Regulatory reporting
Care providers are using digital and health technology to create opportunities in these areas:
- Patient safety and quality reporting systems
- Medical device tracking
- Contract and document management
- Financial reporting
- Revenue-cycle management
Technology, by its nature, is a source for profitable disruption, and its impact in healthcare has been apparent for years. In any period, this crossroads serves as a sound investment, but with unique focus from regulators in 2020 in expanding digital health application amid the pandemic, it has burgeoned into a golden target, ripe for innovation and further growth. Artificial intelligence, the Internet of Things, machine learning and data analytics are not momentary healthcare trends; they are necessary vehicles for action that will remain in the minds of lawmakers and regulators. Contact the authors of this article for more information about how laws and regulations in digital health will continue to shape its evolving importance.
McGuireWoods has published additional thought leadership analyzing how companies across industries can address crucial business and legal issues related to COVID-19.