The COVID-19 pandemic has led to rapid adoption of health technology, reshaping the fabric of healthcare operations and delivery in the U.S. But as 2022 draws to a close, several factors, including cooling funding for digital health and declining utilization of virtual care, suggest that technology adoption may be slowing.
Additionally, a surge in cyber attacks and concerns about the privacy of sensitive medical data have highlighted the dangers of adopting new technologies.
Despite this, experts remain optimistic about the technology’s potential to improve healthcare in the U.S. in 2023.
Industry observers predict this year could be a turning point for real-world applications of artificial intelligence, raise standards for healthcare data privacy and cybersecurity, investors will be more cautious but startup funding will continue this year, and the telehealth industry will be held to higher clinical standards as it becomes more heavily used in healthcare delivery.
Digital health goes back to basics
After a turbulent few years that saw record fundraising in digital health followed by a painful market correction, experts predict health tech will return to basics this year as investors prioritize safety over risk.
Funding in digital health may still be slightly down compared to past years, but funding levels should stabilize in 2023, according to Credit Suisse analyst Jonathan Yong. With valuations down compared to the highs of the past two years, venture capitalists are becoming more discerning, and companies with a path to profitability or that are already profitable should attract the most attention.
“Growth remains important, but there needs to be a stronger balance between growth and the path to profitability,” Yong said. “Venture capitalists will become more cautious in their investment choices.”
This trend should benefit public companies with a track record of stability, mature business models, steady growth trajectories and fair valuations, according to SVB Securities analyst Stephanie Davis. Such companies include data analytics firm Health Catalyst, patient intake software provider Fresia, revenue cycle management company R1 RCM, and EHR companies Veradigm (formerly Allscripts) and NextGen, Davis said.
Yong said mental and behavioral health should remain a key area of funding. Despite the large number of behavioral health companies in the space, employers and payers “still need help,” he added.
Planned Parenthood and femtech are also expected to attract funding amid heightened attention to women’s health following the Supreme Court’s decision last summer to overturn Roe v. Wade in the Dobbs v. Jackson Women’s Health Organization case.
Experts said they believe healthcare companies will adopt the tools more slowly than last year because financial pressures and the number of point-solution companies in the market are forcing payers and providers to be more selective about who they partner with.
Payers will likely allocate resources to physician support and care coordination functions, while providers will invest in tools to reduce the administrative burden on clinical staff and improve revenue cycle management, Yeung said.
Davis said digital health companies hold the biggest near-term opportunity in terms of provider wallets as hospitals and physician networks continue to adopt digital health technologies, including data and analytics strategies and patient engagement products, to streamline operations in a challenging macro environment.
Despite the opportunities, this year is still expected to be a difficult one for digital health startups. Experts say continued layoffs and consolidation are likely as point solution companies find it harder to operate independently. Additionally, companies that have decided to raise capital in 2023 will likely have to make do with down rounds, making fundraising more difficult as the year progresses and a rising interest rate environment could put pressure on valuations.
“We’ve been hearing a lot about quiet down rounds lately,” Davis says, “and I think the companies that are doing down rounds are doing so very carefully.”
Telehealth is a Move Towards “Higher Value” Care
Surveys show that telehealth use has been declining since peaking in the spring of 2020. But some telehealth experts predict that digitally delivered care will continue to grow, with volume shifting from urgent care visits, which popularized the modality, to virtual care for chronic needs.
Roy Schonberg, CEO of Boston-based telehealth company Amwell, said the decline in consumer use of telehealth has been “very significantly offset by a significant increase in how clinicians are using it, including consulting with experts in other systems, providing care to patients undergoing chemotherapy and checking in on patients after surgery.”
Amwell is seeing an increase in clinicians using telehealth for this “higher value” chronic and long-term care every week, and expects that growth to continue in 2023, Schonberg said.
Telehealth is “going from being a small part of healthcare, the occasional flu, to being used for most of healthcare: chronic patient care, long-term patient care,” Schonberg said. “As we look out to 2023, I see a real bull market for telehealth coming out of a rethinking of how patients need to be cared for by clinicians.”
Teladoc Health CEO Jason Gorevic said virtual care is increasingly held to the same clinical standards as in-person care, and there will be an increased focus on quality and safety this year.Telehealth standards were a source of controversy last year, with some companies accused of operating as drug mills and leading to regulatory scrutiny.
Additionally, economic pressures and changing consumer expectations will result in fewer digital health point solutions on the market, experts said, and Gorevic noted he wouldn’t be surprised if half have been acquired or closed down altogether by this time next year.
2023 will also be a challenging year for care navigators, who educate patients about medical decisions and connect them to providers but don’t actually provide care.
“Employers are taking notice and we expect to see a shift in purchasing habits this year,” Gorevic said in emailed comments, adding that employers are looking for vendors that “solve their needs rather than pointing their problems elsewhere.”
AI Tipping Point
The healthcare industry has long been interested in the potential of artificial intelligence in healthcare, but the adoption of such tools in the real world has been slow. While the number of randomized controlled trials and actual use of AI in medical facilities is still low, more evidence that will facilitate adoption could begin to emerge this year, predicted Michael Howell, chief clinical officer at Google.
“In 2023, I think we’ll start to see high-quality evidence about the impact of AI and ML on real-world health outcomes and healthcare processes,” Howell said. “The question I get asked all the time is, ‘Will AI replace doctors and nurses?’ No. But will AI start to augment and support doctors and nurses? I think we’ll start to see examples of that.”
The U.S. Food and Drug Administration is speeding up its approval of medical artificial intelligence tools, having authorized more than 520 devices as of November.
As more devices are approved, experts predict we will see more providers incorporate AI into their operations for revenue cycle management, clinical decision support and patient engagement.
As healthcare organizations struggle with a widening disconnect between consumer expectations and the reality of the healthcare experience, as well as competing with market entrants such as Amazon and Walmart, payers are also using technology to find efficiencies and find new ways to use the data they collect, according to a report from digital consulting firm West Monroe.
Healthcare companies take cybersecurity and privacy seriously
As healthcare organizations continue to adopt technology, the attack surface expands and the need to secure their cyber environments increases, according to Chris Bowen, founder and CISO at data security company ClearData.
For example, a recent study found that the number of ransomware attacks against hospitals more than doubled between 2016 and 2021. Researchers estimated that the data of more than 42 million patients was exposed in that five-year period.
The rise in incidents will force healthcare organizations to increase their cybersecurity budgets, in some cases by more than 15% compared to 2022, Bowen predicted. Federal law enforcement agencies may also become more aggressive in fighting cyberattacks, especially ransomware.
Additionally, as biometric and AI-driven healthcare technologies become more widespread, policymakers may take data protection laws more seriously, according to Bowen. The lack of a comprehensive federal data privacy law is seen as a major oversight in today’s digital age, and HIPAA privacy laws have notable gaps in the data they protect.
“It’s disturbing that mobile app developers can collect health-related data that doesn’t have federal data protections,” Bowen said.
Google’s Howell agreed that data protection and trust will be crucial this year, as the national debate over privacy that began with the overturning of Roe v. Wade continues into 2023. In response to the ruling, many period-tracking apps, data brokers and tech companies like Apple and Google have taken steps to tighten their privacy and security protocols, often under pressure from regulators and public opinion.
Howell said companies operating in the healthcare industry will continue to work to ensure patient data remains safe and build trust with patients who are wary of the collection and use of sensitive medical data.
“We’re going to continue to focus on those,” Howell said.