For the past decade, investors have been pushing money into digital health companies that promise to improve the health of consumers and positively disrupt the state of healthcare systems around the globe. To date, these investments in technology-focused start-ups have yielded some of the most interesting and innovative companies, many of whom target employer plan sponsors as a chief source of revenue. Investment in the sector reached new heights in 2020, with $14.1 billion dollars of venture funding pouring into US digital health companies.
What’s behind the record year? To be sure, many of these companies have focused on the role of the consumer in healthcare, and this human-centric focus was a hallmark in design at most successful start-ups. Consumer demands have been a major catalyst for digital health programs and platforms, but in 2020 the digital health investor fire was fueled to a great extent by employer actions.
In March 2020, as the world began reacting to the spread of COVID-19, employers and employees faced a world that had changed almost overnight. Across industries and geographies, employers prioritized supporting their employees through the disruption wrought by the pandemic. Expanding benefit programs was one important way in which employers stepped up to support employees and their families. According to Mercer’s National Survey of Employer Sponsored Health Plans 2020, 68% of large employers in the US added health and benefits programming for the 2021 plan year. With so many people now working from home and everyone asked to avoid in-person health facilities, employers focused on digital resources. They enhanced telemedicine and virtual care programs and added screener tools, behavioral health support apps, and special resources for families to help parents juggling work and home schooling.
The reason employers were able to adopt new digital health solutions so quickly during the pandemic is because so much money had been invested in the space in the years leading up to it – $30.8B between 2015 and 2019. Technology like APIs, and the popular software-as-a-service (SaaS) model made deployment speedy and a relatively low-lift for employers at a time when speed and ease of response was critical. These “wins” for digital health companies do a lot to enhance the sector’s reputation with employers.
To investors, the dramatic movement by employers represented strong proof of concept, spurring additional investment in companies that hold the promise of strong sales to employers.
For employers, this record funding year will yield pros and cons.
In the digital health market, employers serve as both a catalyst for growth and a beneficiary of it. Employers’ agility in the face of last year’s crises spurred the digital health markets to new heights, and this investment no doubt will unlock new opportunities. But it’s increasingly clear that employers need to be very strategic in adding digital health solutions if these innovations are to deliver on their potential to add efficiency and lower cost while improving user experience. “Best-in-class” vendors have robust (and realistic) future product roadmaps, understand the importance of data privacy, and prioritize the user experience to ensure engagement from employees and families. With the increased complexity in the market, building a successful digital-forward program for the long-term requires employers to do their homework in advance.