Perspectives

2022 presented both familiar and novel challenges for the industry. Following a year of unprecedented funding, skyrocketing valuations, and a record number of IPOs, the digital health sector experienced a pullback amid shaky economic waters in 2022. Investor confidence across public and private markets was impacted by global conflict, rising inflation, and recession concerns, leading to a weakened funding environment. Contemporaneously, our nation’s health system faced its own set of hurdles, including rising rates of COVID-19, flu, and RSV, staffing shortages, cyberattacks, and financial difficulties.

Despite these challenges, 2022 was still a year of landmark innovation, disruptive partnerships, and continued value creation for industry stakeholders and healthcare consumers alike. Corporate giants further entrenched their positions as healthcare heavyweights through their multi-billion-dollar investments in consumer-centric healthcare delivery models. The year also saw leading digital health companies step up in the face of new public health threats, including 7wireVentures portfolio company FOLX Health which quickly mobilized to launch a virtual care offering addressing the country’s mpox outbreak.

At 7wireVentures, we believe consumer-focused digital technologies play an endemic role in transforming our healthcare system. 2023 will represent a continuation of this belief, as the demand for improved care experiences shows no sign of abating. Our predictions for the new year include:

#1 Consolidation is The Name of the Game – Saturated sectors will experience consolidation as mature players seek to satiate investor and market expectations for growth in 2023

2020 and 2021 saw digital health startups raise $43.8B in venture financing across 1,217 deals. This record-breaking flurry of investment in the space was fertile breeding ground for new market entrants to pour into the digital health sector. However, as public and private capital markets have grown less friendly over the past year, many companies will enter the new year in search of alternative paths to support runway. Simultaneously, more mature market players, still fueled by massive funding rounds in 2021, will be seeking new ways to jumpstart their next phase of growth and gain scale. The combination of these forces sets the stage for meaningful market consolidation.

While 2022’s M&A market was not immune to the macroeconomic forces that impacted the funding markets, increased activity in Q3 suggests companies are finding their footing amidst the shaky economic environment and are reprioritizing business building. Newly hired corporate development leaders who took a back seat in 2022, will have their sights set on 2023 as a landmark year for strategic investments that further expand their customer base and bolster offerings. In the new year, crowded sectors such as mental health will experience a significant volume of M&A activity. Headspace’s merger with Ginger last year and their more recent acquisition of inclusive mental health and wellness company, Shine are prime examples of the type of consolidation the market is ready for.

#2 The Digital Health Arms Race Heats Up – In order to counter growing pressure from retailers, leading health systems will expand and deepen their digital health partnerships to broaden their reach, improve the continuity of care, and enhance the patient experience

Competition to own healthcare’s front door is steadily growing. 2022 saw the likes of CVS, Walgreens, Walmart, and Amazon make headlines through their market disrupting acquisitions – each company attempting to further entrench themselves as dominant care delivery players. Through these acquisitions, retail giants are rushing to meet the growing unmet needs of consumers for more accessible, convenient, easy to navigate, and transparent care. With footprints in local communities across the country, retailers have the food, the medicine, the pharmacist and now even the access to local and convenient care consumers need.

As it stands, only 7% of traditional providers are considered top performers in terms of their digital strategy and infrastructure for supporting healthcare consumerism. As pressure from retailers continues to mount and the healthcare industry faces continued financial challenges, hospitals and health systems will increasingly partner with digital health companies to strengthen patient loyalty while protecting and expanding revenue. Accelerated investment in key technologies and partnerships that personalize care delivery and meet consumer needs for a superior experience will be top priorities for providers in the coming years. Innovative health systems are leading the charge through collaborations with digital front door and navigation platforms. Memorial Sloan Kettering is partnering with Jasper Health to augment their specialized expertise and treatments through Jasper’s digitally enhanced and personalized cancer care support. UTMB is working with PayZen to offer their patients affordable payment options while also remaining competitive in the future of shoppable healthcare services. Although no clear winner in the retail healthcare revolution has been crowned, retail players’ continued foray into care delivery will turn the heat on traditional stakeholders and has potential to usher in a step change towards a more consumer-centric and tech-enabled healthcare ecosystem.

#3 From Assessment to Action – Social determinants of health will continue to expand as a way to not only understand barriers to care, but to directly address consumers’ unique health needs

The importance of social determinants of health (SDOH) has been widely documented. Driven by regulatory pressures, advancements in technology, and an increasingly sicker and aging population, 2023 will be a breakthrough year for healthcare stakeholders to take action on addressing SDOH needs and health equity gaps. To meet this need at scale, healthcare organizations will increasingly partner with healthcare technology platforms, enabling a greater shift towards standardized SDOH data. Many such efforts are already underway, including Lyft Health’s integration with Epic and Cerner’s partnership with Jvion.

Ultimately, healthcare stakeholders will leverage rich datasets of non-medical information to design and implement interventions with the primary goal of closing equity gaps. For example, SameSky Health partners with health plans to uncover SDOH needs and delivers an insight driven, personalized member experience through culturally and linguistically aligned member engagement. MedArrive delivers a highly trained network of field providers to give patients the hands-on care they need at home, solving access challenges by meeting patients where they are. Further, companies like NourishedRx support health plans in directly closing gaps in health equity by making culturally relevant and nutritious meals accessible for vulnerable populations.

#4 Hold Your Headsets – The Metaverse will remain in the starting blocks in 2023, as most of the focus for VR/AR technologies will initially be limited to mental health applications

Stakeholders and industry watchers across the industry have expressed excitement around the role the metaverse will play in reshaping healthcare in the coming years – 81% of healthcare executives expect it will have a positive impact on their organizations. However, like most new technologies, the metaverse comes with its own hurdles that will initially deter its widespread application and use within healthcare. High technology costs, interoperability, and concerns surrounding privacy and security in particular present significant headwinds. These challenges will likely take time to be resolved, suggesting healthcare’s embrace of the metaverse will be a cautious one that is initially deployed across select use cases that are buttressed by meaningful outcomes research.

Mental health presents a unique and large opportunity for the technology to flourish. The need for novel therapies is becoming increasingly crucial as recent estimates indicate that by 2030, depression will be the leading cause of disease burden globally. Although research in the area continues to grow, studies have long shown the effectiveness VR/AR can have in the diagnosis and treatment of mental health disorders. In fact, OxfordVR, an early pioneer in the space, is a product of two decades of research conducted at Oxford University. The company recently merged with BehaVR to build and commercialize a suite of solutions across the mental health acuity spectrum. As demand for mental health services continues to exceed our nation’s available resources, VR/AR technologies have been hailed as a timely saving grace and will play a meaningful role in the new year. Success found with mental health will encourage continued research and commercial application across other promising condition areas, including pain management and stroke rehabilitation.

#5 The Future of Health – As Gen-Z increasingly enters the workforce, there will be increased demand for healthcare benefits that meet their unique expectations for how healthcare should be delivered

Next year employers plan to hire 14.7% more 2023 graduates compared to the class of 2022 and by 2025, Gen-Z will make up 27% of the workforce. Facing a highly competitive labor market, forward-looking employers will move to take a more tailored approach in designing their health and wellness benefits, aligning offerings closely with the needs of this emerging generation. Gen-Z employees will expect their employer to fill gaps in care they feel are not adequately addressed by traditional offerings – and if employers fail to do so, they are not afraid to vote with their feet. As Gen-Z is the most diverse U.S. generation to date and the most likely to identify as LGBTQIA+, we will see increased demand for more personalized solutions that support their lived experiences and identities.

Companies like Caraway and FOLX actively address the unique care needs of healthcare’s newest consumers. Caraway provides an integrated care model that is intentionally designed to serve the holistic physical and mental health needs of Gen-Z women. The company’s mental health program is purpose-built to deliver therapy and self-management tools contextualized for the problems that often surface for this generation. FOLX enables companies to provide culturally competent and LGBTQIA+ focused virtual care, including primary care, mental health care, hormone replacement therapy, and PrEP, to their employees – meeting the whole person needs of the community.

#6 Shifting Strategies – D2C digital health companies will be forced to accelerate shifts to B2B models as consumers tighten their belts amid high inflation

Financial pressure from rising prices is beginning to squeeze household budgets, with consumer spending pulling back across various market categories.  Already burdened by rising out-of-pocket healthcare costs, consumers will be increasingly unwilling and unable to absorb healthcare costs that are outside of their existing benefits. Reduced demand for cash-pay offerings, will drive an increased number of D2C companies to pivot to B2B models to survive.

Likely in response to the changing macroeconomic environment, digital health companies that have traditionally experienced success as D2C businesses, such as wearable developer Oura and weight loss company Noom, have started rolling out enterprise offerings in earnest this year. Jasper Health, launched as a D2C business, has found success in its shift to serve enterprise clients. After supporting nearly 12,000 cancer patients and their caregivers through the company’s D2C offering, Jasper expanded its platform to a wide variety of healthcare organizations, including health plans, self-insured employers, and health systems that provide cancer care. The company has inked partnerships with Employer Direct Healthcare, Walgreens, and Cigna’s Evernorth, among others.

#7 Not For the Faint of Heart – Following the year’s slowed funding environment, specialist investors will continue to find success in the market due to the meaningful value and expertise they bring

Digital health funding was dominated by the veteran investor in 2022. In the first half of the year, 70% of investors were experienced investors relative to 55% in the prior year. Shaken by volatility in the public and private markets, non-specialist investors that poured capital into digital health in 2021 took a step back this year to re-evaluate their portfolios. With weak economic conditions expected to extend through 2023, industry veterans will continue to rise to the top, as companies seek support navigating uncertain waters.

Investing in healthcare is not for the faint of heart and during difficult market conditions doing so becomes an acute challenge for the non-specialist investor. Healthcare is a complicated industry, characterized by numerous public and private stakeholders, competing incentives, and a dizzying array of federal and state regulations. Over a lifetime, healthcare specialists develop a tremendous network and a wealth of institutional knowledge that creates real value and drives outsized growth for companies.   Deep industry expertise, a strong network, and boots-on-the-ground support will continue to deliver meaningful value for companies in 2023 and beyond.

Digital health is a market characterized by sustainable business models, a supportive regulatory environment, and outsized market need. Despite the year’s challenges, 7wireVentures remains excited about the future of the sector and the opportunities that exist for the industry to empower Informed Connected Health Consumers. As we look towards 2023, we are eager to continue working alongside passionate healthcare entrepreneurs to build category-defining companies that reimagine our healthcare system.