Digital Health: The Competitive Advantages of Tomorrow’s Healthcare Companies
Digital Health: The Competitive Advantages of Tomorrow’s Healthcare Companies
Digital Health: Competition for VC Dollars
Digital health is an exciting area, ripe with growing Medicare reimbursements, new technologies, and a real potential to improve the frustrating healthcare consumer experience in the USA.
Jahani and Associates analyzed over 200 M&A transactions and equity investments in digital health from 2013 to 2016. Our results showed a 20% decrease in investment funds per company in 2016 versus 2015. Despite a 604% growth in Medicare reimbursements from 2006 to 2016 and a 62% increase in telehealth consultation over the same period, digital health companies must carefully develop their competitive advantages to both increase access to capital and decrease their cost of capital.
By analyzing companies that maintain competitive advantages such as Welltok, SnapMD, Pager, and Teladoc, we elicited two opportunities for creating value:
There are opportunities for digital health returns, but companies must respond to a saturating market by focusing on improving the customer experience while at the same time optimizing the business model of existing healthcare giants. Jahani and Associates (J&A) recommend digital health companies focus on four major intangible assets to accomplish the value goals listed above:
- Optimize member access via subscription contracts, members per client, providers per network, and the visits offered to members based on contracts.
- Create a revenue model driven by customer engagement. Digital health companies are much closer to their consumers than traditional healthcare companies.
- Create a scalable and flexible business model that responds to seasonality, subscription fee, and access fee changes.
- Consistently provide regulatory compliant solutions in response to existing and expected reforms such as HIPAA 1 and 2, HITECH, ACA, and BPCI.
This is all predicated on the business’s ability to identify, develop, and monetize intangible assets.
Digital Health: Reviewing Competitive Advantages in the Marketplace
J&A mapped a selection of these digital health companies onto a four-quadrant plane to understand how they fit in the marketplace. We considered both the scope of care delivery (for example, an urgent care company versus a software analytics company) as well as headcount and financial size of the business. A summary and description of our findings is presented below.
Quadrant 1: Social Players
These digital health companies typically have a large customer base, but are relatively lean due to the simplicity of their products. These are socially themed companies like FitnessKeeper and b.well.
Quadrant 2: Analytics Leaders
These are software companies whose businesses provide automation, simplicity, and streamlined data solutions for other players in the complex healthcare ecosystem.
Quadrant 3: Agile Players
Our research indicates that these digital health companies are largely transitioning to quadrant four, Tomorrow’s Healthcare Providers. They have strong customer relationships and are starting to scale.
Quadrant 4: Tomorrow’s Healthcare Providers
These are the dominant players of today and tomorrow. These digital health companies have the ability to scale, are generally profitable, and have strong brand recognition. They continuously evolve by providing new and innovative solutions to the market or by acquiring other innovative companies.
Originally published August 2017. Updated July 2018.
Sources: Crunchbase | McKesson 10K | PwC Money Tree Report | Pitchbook | Bloomberg
