Private equity-owned hospital chain files for bankruptcy

https://www.beckershospitalreview.com/finance/private-equity-owned-hospital-chain-files-for-bankruptcy.html

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New LifeCare Hospitals, a long-term acute care hospital operator based in Plano, Texas, filed for Chapter 11 bankruptcy protection May 6, according to The Wall Street Journal.

The company, owned mostly by affiliates of Blue Mountain Capital, Monarch Alternative Capital and Twin Haven Special Opportunities Fund, cited declining reimbursement due to Medicare changes as the reason for the bankruptcy filing.

Prior to entering bankruptcy, New LifeCare, which operates 17 facilities in nine states, closed some hospitals and took other steps to cut costs.

New LifeCare is in discussions with potential buyers, and CEO James Murray expects the company to be auctioned through the bankruptcy process later this year, according to The Wall Street Journal, which cited bankruptcy court documents.

 

 

 

Hospitals look to venture capital as R&D extension

https://www.healthcaredive.com/news/hospitals-look-to-venture-capital-as-rd-extension/549854/

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Academic and nonprofit hospitals are increasingly embracing venture capital as a way to test new technologies, a shift away from the traditional reliance on developing in-house intellectual property.

Since their founding days, providers like Mayo Clinic and Cleveland Clinic have leaned heavily on investing in IP to test new products and services. More recently, players like Tenet, Trinity and Community Health Systems have become comfortable investing in externally-run funds. Now, hospitals of all sizes, types and tax status are giving corporate venture capital funds, where they invest directly in companies, a go.

Hospital fund managers perceive the financial risk in the same light they see other investments, except venture capital can offer hospitals more flexibility. It’s how health systems like Intermountain think of R&D.

Mike Phillips, managing director of Intermountain Ventures, told Healthcare Dive venture funds offer hospitals a chance to “double dip.” If an investment is successful, the outcomes are positive both clinically and financially.

Most don’t take the lead on investments, preferring to take a minority stake. Hospitals see venture as a way to bring in and test out new technologies.

“If they (the startup) can get a champion in the organization that really helps refine it, improve it, augment it, that is much more valuable than the money,” Mary Jo Potter, an investor and consultant in the field, told Healthcare Dive.

Potter cautioned against expecting too much too soon. It typically takes take 10 years to get an exit and even then, returns are most likely to be in the range of twice or triple the investment. Well over half of the health system-linked venture funds are less the five years old, Potter said.

UPMC Enterprises, the venture capital arm of University of Pittsburgh Medical Center, made $243 million when its population health management spinout Evolent Health went public in 2015, according to UPMC Treasurer Tal Heppenstall, and the nonprofit still retains stock.

Heppenstall, who also leads UPMC Enterprises as president, told Healthcare Dive the health system plans on spinning out two companies by the middle of this year. That would bring its count to five as part of its “renewed focus on the translational science space” — finding business applications for medical research.

In February, the fund participated in a $15 million investment in data analytics company Health Catalyst. UPMC will pilot Health Catalyst’s products in-house.

Early entrants

Ascension seeded its first venture fund with $125 million in 1999, making its first investment ($8.4 million in radiation system TomoTherapy) two years later. Eventually, Ascension decided to bring in limited partners to help close the fund.

Ascension Ventures now currently manages $805 million across four funds.

Kaiser Permanente Ventures is an active investor in its own right. The venture arm of the hospital system manages $400 million in assets over four funds, with 28 exits, according to CB Insights.

Early adoption of CVC by health systems like Ascension and Kaiser paved the way for health systems that want to give venture a try, but want to start slow as limited partners. In recent years, deal flow is ramping up at a healthy clip.

Deals involving at least one provider-backed venture fund totaled nearly $1.3 billion in 2018, according to PitchBook, an all-time high — and on track with overall corporate venture capital participation in the healthcare sector, which CB Insights reports having jumped 51% to $10.9 billion last year.

Newly-seeded funds are springing up in health systems across the country. Providence St. Joseph Health, one of the largest health systems in the country and most active in the venture space, announced its second $150 million healthcare venture capital fund in January, managed by its venture arm Providence Ventures. Providence Ventures’ first fund was launched in 2014.

Starting small

Like many smaller health systems establishing themselves as new players in venture capital, Intermountain made its foray into the space as a limited partner in larger funds managed by Heritage Group and Ascension.

Large firms “have a lot of understanding in how to help manage young companies and get them through the business end of growing their company. We can help on the clinical end,” Phillips said. “We definitely rely on the other folks investing … to both learn from and be a good partner to the companies we invest in.”

Intermountain formally launched its first $80 million venture fund this year.

While the health system recognizes the risk, Phillips argued many hospitals have institutional knowledge most investors don’t. That, in theory, allows them to mitigate some of that risk.

Intermountain’s portfolio is comprised partially of the companies the hospital system spun out of R&D. That’s not uncommon for nonprofit and academic health systems that have traditionally focused on developing IP in-house. As of 2017, 90% of Cleveland Clinic Ventures’ portfolio was invested in IP owned by the health system.

IP is the bread and butter investment for most academic and nonprofit health systems, helping to bring in some return while allowing physicians, who often develop those patents themselves, to retain some benefit.

Mayo Clinic, for example, says it has generated $600 million in revenue from licensing its IP since 1986. The health system has recently rolled its venture activity into its R&D arm under the name Mayo Clinic Ventures. Nevro, a device company the system spun out in 2014, has a current market cap of $1.32 billion.

Hospital executives like to say CVC is a complementary tool to R&D, that it’s another way to tinker — that the money doesn’t matter as much as the ability to improve quality and decrease cost does. That may be true, but at the end of the day it’s an investment, and hospitals have to hope it yields a positive return.

If there’s a chance an investment can lower the cost of care, increase quality and improve clinical care, Phillips said, the bigger risk is not giving it a shot.

 

Consolidating Retail Medicine: Positioning Single Specialty Practices for Acquisition

https://gallery.mailchimp.com/d610d4deb64a452522c5c8e05/files/6c3cd18d-1b68-4860-8a68-30eb1b09e5bd/CBC_59_032719.pdf

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Funded by Private Equity, the ongoing consolidation of solo and small-group physician practices into Physician Practice Management organizations reflects a maturing healthcare marketplace that is repositioning to deliver single specialty care services in retail settings.

Time is running out for solo and small group practices. To position themselves for successful consolidation transactions now and in the future, operators and buyers need to understand the fundamental market dynamics shaping valuations.

POPULATION HEALTH TRENDS TO WATCH, TRENDS TO QUESTION IN 2019

https://www.healthleadersmedia.com/clinical-care/population-health-trends-watch-trends-question-2019?utm_source=silverpop&utm_medium=email&utm_campaign=ENL_190319_LDR_BRIEFING_resend%20(1)&spMailingID=15320844&spUserID=MTY3ODg4NTg1MzQ4S0&spJobID=1601503618&spReportId=MTYwMTUwMzYxOAS2

Healthcare organizations cannot afford to ignore consumers in 2019, as a number of major trends shape the future of care delivery (and a number of other trends warrant more critical thinking).

This article was first published March 18, 2019, by MedPage Today.

By Joyce Frieden, news editor, MedPage Today

PHILADELPHIA — The consumer will be where it’s at for population health in 2019, David Nash, MD, MBA, said here Monday at a Population Health Colloquium sponsored by Thomas Jefferson University.

“Whatever business model empowers the consumer, wherever she is,” including at home, will spell success, according to Nash, who is dean of Jefferson’s School of Population Health. “That’s where population health must go.”

Nash noted that back in 1990, Kodak, Sears, and General Electric were the most important companies in the Dow Jones Industrial Average; all those companies have disappeared or almost disappeared today.

“If we ignore the consumer, it will be at our peril,” Nash said, citing home healthcare, telehealth, and the use of wearables among the trends to watch in the coming year.

Nash, who is a columnist for MedPage Today, also cited these other trends to watch:

  • The growth of Medicare Advantage and managed Medicaid. “These are two programs that are working,” he said. “They’re working because they deliver value — high-quality care with fewer errors — and they follow our mantra: no outcome, no income.”
  • Tax reform. “Whatever your politics are [on this issue], park it at the door,” he said. “The sugar high is over, and now we’re in a carbohydrate coma. We’ve got the biggest deficits in American history; if we continue to spend money we don’t have, what will that do to healthcare? I think it will bite us in the butt when [it] comes to the Medicare trust fund.”
  • Precision medicine and population health. “[There is a notion] that precision medicine and population health are actually kissing cousins,” said Nash. “They are inexorably linked.”
  • Continued deal-making. The CVS/Aetna, UnitedHealth Group/DaVita, and Humana’s deals with Kindred Healthcare and Curo Health Services are just some of the more recent examples, he said. And he noted, the healthcare company formed by Amazon, Berkshire Hathaway, and JPMorgan Chase now has a name: Haven. “It’s a place where they’re going to figure it all out and they’ll let us know when they do.”
  • Continued delivery system consolidation. “Big surprise there,” he said sarcastically. “The real question is will they deliver value? Will they deliver synergies?” Nash noted that his own institution is a good example of this trend, having gone from one or two hospitals 5 years ago to 16 today with another two in the works.
  • Population health technology. “The gravy train of public money into this sector will [soon] be over; now the real challenge is for the IT [information technology] systems on top of those legacy companies; can they create the patient registry information and close the feedback loop, and give doctors, nurses, and pharmacists the information they need to improve care?”
  • The rise of “population health intelligence.” “That’s our term for predictive analytics, big data, artificial intelligence, and augmented intelligence … It says we don’t want to create software writers — we want doctors, nurses, pharmacists, and others who can glean the usable information from the terabyte of information coming our way, to [know how to interpret it].”
  • Pharmaceutical industry disruption. “This is really under the thumb of consumers … It’s all about price, price, price,” Nash said. “We’ve got to find a way to rationalize the pricing system. If we don’t, we’re going to end up with price controls, and as everybody in this room with a background in this area knows, those don’t work either.”
  • More venture capital money. Nash described his recent experience at the JPMorgan Chase annual healthcare conference, where people were paying $1,000 a night for hotel rooms that would normally cost $250, and being charged $20 just to sit in the lobby of one hotel. “What was going on there? It was more private-sector venture money coming into our industry than ever before. [These investors] know that when there’s $1 trillion of waste in an industry, it’s ripe for disruption.”
  • Workforce development. This is needed for the entire industry, said Nash. “More folks know a lot more [now] about population health, quality measurement and management, Lean 6 Sigma, and improving processes and reducing waste. The only way we’re going to reduce that waste of $1 trillion is to have the right kind of workforce ready to go.”

Lawton Burns, PhD, MBA, director of the Wharton Center of Health Management and Economics at the University of Pennsylvania here, urged the audience to look critically at some of these possible trends.

“You need to look for evidence for everything you hear,” said Burns, who coauthored an article with his colleague Mark Pauly, PhD, about the need to question some of the commonly accepted principles of the healthcare business.

Some of the ideas that merit more critical thinking, said Burns and Pauly, are as follows:

  • Economies of scale
     
  • Synergy
     
  • Consolidation
     
  • Big data
     
  • Platforms
     
  • One-stop shops
     
  • Disruption
     
  • Killer apps
     
  • Consumer engagement

“I’m not saying there’s anything wrong with those 10 things, but we ought to seriously consider” whether they’re real trends, Burns said. As for moving “from volume to value” in healthcare reimbursement, that idea “is more aspiration than reality” at this point, he said. “This is a slow-moving train.”

Burns also questioned the motives behind some recent healthcare consolidations. In reality, “most providers are positioning themselves to dominate local markets and stick it to the payers — let’s be honest,” he said. “You have to think when you hear about providers doing a merger, you have to think what’s the public rationale and what’s the private rationale? The private one is [often] more sinister than you realize.”

“IF WE IGNORE THE CONSUMER, IT WILL BE AT OUR PERIL.”

 

 

 

 

Pipeline Health buys 22 freestanding ERs

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/pipeline-health-buys-22-freestanding-ers.html?origin=cfoe&utm_source=cfoe

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Pipeline Health, a privately held hospital ownership and management company based in Los Angeles, has acquired Arlington-based Texas Health Resources’ majority stake in 22 freestanding emergency rooms, according to The Dallas Morning News.

Pipeline Health will jointly own the freestanding ERs, which are in the Dallas-Forth Worth area, with Lewisville, Texas-based Adeptus Health. Adeptus was acquired by a hedge fund in 2017 after filing for Chapter 11 bankruptcy.

The group of freestanding ERs will be renamed City Hospital Emergency Care, and they will become outpatient ERs of City Hospital at White Rock in Dallas, which Pipeline owns.

 

 

10 Notable Health Care Events of 2018

https://www.commonwealthfund.org/blog/2018/10-notable-health-care-events-2018?omnicid=CFC%25%25jobid%25%25&mid=%25%25emailaddr%25%25

2018

Between the fiercely competitive midterm elections and ongoing upheaval over the Trump administration’s immigration policies, 2018 was no less politically tumultuous than 2017. The same was true for the world of health care. Republicans gave up on overt attempts to repeal and replace the Affordable Care Act (ACA) through legislation, but the administration’s executive actions on health policy accelerated. Several states took decisive action on Medicaid and some of the struggles over the ACA made their way to the courts. Drug prices remain astronomically high, but public outrage prompted some announcements to help control them. At the same time, corporate behemoths made deeper inroads into health care delivery, including some new overtures from Silicon Valley. Here’s a refresher on some of the most notable events of the year.

1. The ACA under renewed judicial assault

Texas v. Azar, a suit brought by Texas and 19 other Republican-led states, asked the courts to rule the entire ACA unconstitutional because Congress repealed the financial penalty associated with the individual mandate to obtain health insurance that was part of the original law. District Judge Reed O’Connor ruled in favor of the plaintiffs, creating confusion at the end of the ACA’s open enrollment period, and setting up what may be a years-long judicial contest (yet again) over the constitutionality of the ACA. To learn more about the legal issues at stake, see Timothy S. Jost’s recent To the Point post.

2. Turnout for open enrollment in health insurance marketplaces surged at the end of the sign-up period

The federal and state-based marketplaces launched their sixth enrollment season on November 1 for individuals seeking to buy health coverage in the ACA’s individual markets for 2019. Insurer participation remained strong and premiums fell on average. While some states have extended enrollment periods, HealthCare.gov, the federal marketplace, closed on December 15. After lagging in the early weeks, enrollment ended just 4 percent lower this year than in 2017.

3. The administration continues efforts to hobble ACA marketplaces

While the reasons behind lower enrollment cannot be decisively determined, executive action in 2018 may have contributed. The Trump administration dramatically cut back federal investments in marketplace advertising and consumer assistance for the second year in a row. The federal government spent $10 million on advertising for the 34 federally facilitated marketplaces this year (the same as last year but an 85 percent cut from 2016) and $10 million on the navigator program (down from $100 million in 2016), which provides direct assistance to hard-to-reach populations.

4. Insurers encouraged to sell health plans that don’t comply with the ACA

Another tactic the Trump administration is using to undercut the ACA is increasing the availability of health insurance products, such as short-term health plans, that don’t comply with ACA standards. Short-term plans, previously available for just three months, can now provide coverage for just under 12 months and be renewed for up to 36 months in many states. These plans may have gaps in coverage and lead to costs that consumers may not anticipate when they sign up. By siphoning off healthy purchasers, short-term plans and other noncompliant products segment the individual market and increase premiums for individuals who want to — or need to — purchase ACA-complaint insurance that won’t discriminate against people with preexisting conditions, for example.

5. Medicaid expansion in conservative states

Few states have expanded Medicaid since 2016, but in 2018, a new trend toward expansion through ballot initiatives emerged. Following Maine’s citizen-initiated referendum last year, Idaho, Nebraska, and Utah passed ballot initiatives in November to expand Medicaid. Other red states may follow in 2019. Medicaid expansion not only improves access to care for low-income Americans, but also makes fiscal sense for states, because the federal government subsidizes the costs of newly eligible Medicaid enrollees (94 percent of the state costs at present, dropping to 90 percent in 2020).

6. Red states impose work requirements for Medicaid

A number of states submitted federal waivers to make employment a requirement for Medicaid eligibility. Such waivers were approved in five states — Arkansas, Kentucky, Wisconsin, New Hampshire, and Indiana — and 10 other states are awaiting approval. At the end of 2018, lawsuits are pending in Arkansas and Kentucky challenging the lawfulness of work requirements for Medicaid eligibility. About 17,000 people have lost Medicaid in Arkansas as a result of work requirements.

7. Regulatory announcements respond to public outrage over drug prices

Public outrage over prescription drug prices — which are higher in the U.S. than in other industrialized countries — provided fodder for significant regulatory action in 2018 to help bring costs under control. Of note, the Food and Drug Administration announced a series of steps to encourage competition from generic manufacturers as well as greater price transparency. The U.S. Department of Health and Human Services in October announced a proposed rule to test a new payment model to substantially lower the cost of prescription drugs and biologics covered under Part B of the Medicare program.

8. Corporations and Silicon Valley make deeper inroads into health care

Far from Washington, D.C., corporations and technology companies made their own attempts to alter the way health care is delivered in the U.S. Amazon, Berkshire Hathaway, and J.P. Morgan Chase kicked 2018 off with an announcement that they would form an independent nonprofit health care company that would seek to revolutionize health care for their U.S. employees. Not to be outdone, Apple teamed up with over 100 health care systems and practices to disrupt the way patients access their electronic health records. And CVS Health and Aetna closed their $69 billion merger in November, after spending the better part of the year seeking approval from state insurance regulators. In a surprise move, a federal district judge then announced that he was reviewing the merger to explore the potential competitive harm in the deal.

9. Growth in health spending slows

The annual report on National Health Expenditures from the Centers for Medicare and Medicaid Services estimates that in 2017, health care spending in the U.S. grew 3.9 percent to $3.5 trillion, or $10,739 per person. After higher growth rates in 2016 (4.8%) and 2015 (5.8%) following expanded insurance coverage and increased spending on prescription drugs, health spending growth has returned to the same level as between 2008 to 2013, the average predating ACA coverage expansions.

10. Drug overdose rates hit a record high

Continuing a tragic trend, drug overdose deaths are still on the rise. The Centers for Disease Control and Prevention reported 70,237 fatalities in 2017. Overdose deaths are higher than deaths from H.I.V., car crashes, or gun violence, and seem to reflect a growing number of deaths from synthetic drugs, most notably fentanyl. 2018 was the first year after President Trump declared the opioid crisis a public health emergency. National policy solutions have so far failed to stem the epidemic, though particular states have made progress.

As we slip into 2019, expect health care issues to remain front and center on the policy agenda, with the administration continuing its regulatory assault on many key ACA provisions, Democrats harassing the executive branch with House oversight hearings, both parties demanding relief from escalating pharmaceutical prices, and the launch of health care as a 2020 presidential campaign issue.

 

 

The Burgeoning Role Of Venture Capital In Health Care

https://www.healthaffairs.org/do/10.1377/hblog20181218.956406/full/?utm_source=Newsletter&utm_medium=email&utm_content=ACA+Contraceptive+Coverage+Mandate+Litigation%3B+Venture+Capital+In+Health+Care%3B+Telehealth+Evidence%3A+A+Rapid+Review&utm_campaign=HAT&

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The US health care system relies heavily on private markets. While private insurers, provider organizations, and drug and device companies are familiar to many, little is known about the increasing presence of venture capital in today’s delivery system. The growth of venture capital and venture capital -backed, early-stage companies (startups) deserves the attention of patients and policy makers because advancements in medicine are no longer exclusively born from providers within the delivery system and increasingly from innovators outside of it.

While venture capital -backed startups in digital health offer opportunities to affect the cost and quality of care, often by challenging prevailing modes of care delivery, they pose potential risks to patient care and raise important questions for policy makers. To date, however, an analytic framework for understanding the role of venture capital in medicine is lacking. 

A Brief History

Venture capital firms provide funding to startups judged to have potential to disrupt existing industries in exchange for ownership and some control over strategy and operations. Venture capital businesses have recently funded hundreds of startups developing technology-enabled digital health products, including wearable devices, mobile health applications, telemedicine, and personalized medicine tools. Between 2010 and 2017, the value of investments in digital health increased by 858 percent, and the number of financing deals in this sector increased by 412 percent; more than $41.5 billion has been invested in digital health this decade (see Exhibit 1). This growth far exceeds the growth of total venture capital funding (166 percent) and total number of venture capital deals (50 percent) (in all fields) in the overall economy, as well as growth in health care spending (34 percent). In 2017 alone, venture capital firms invested more than $11.5 billion in digital health, from patient-facing devices to provider-facing practice management software to payer-facing data analysis services.

Exhibit 1: Venture Capital Funding For Digital Health Versus US Health Care Spending

Sources: Data are from StartUp Health Insights 2017 Year End Report and the National Health Expenditure (NHE) Accounts Team. Notes: Dollars invested (blue bars) have units of billions. The NHE plot is expressed in trillions (T) of dollars. A deal is a distinct agreement reached between venture capital investors and a startup company, typically including parameters such as the amount of money invested and equity involved in a given startup company. 

Three key elements have likely driven this growth. First, the inability of physicians to consistently monitor patients and persistent challenges with patient adherence have created a need for digital technologies to serve as a mechanism for care delivery. Second, the increasing migration of medical care out of the hospital and fragmentation of care among specialties has increased demand for new forms of patient-to-provider and provider-to-provider communication. Third, expansions in insurance coverage and new payment models that encourage cost control have aligned incentives for technologies that aim to substitute higher-cost services with lower-cost, higher-value services.

Strategies For Disruption

The venture capital movement will likely be judged on two factors: whether it improves patient outcomes and experience, and whether it saves money for society. To date, rigorous evidence on the impact of venture capital -backed innovations is scarce. Most deals have occurred in the past few years, and most startup technologies take time to scale and are not implemented with a control group or a design that facilitates easy evaluation. Traditional provider groups may often be too small, hospital operations too rigid, and delivery systems too skeptical for a given digital health innovation to be implemented widely and tested rigorously. Moreover, data on the impact of such technologies on patients and costs may often be held privately akin to trade secrets.

However, some early small-scale randomized controlled studies have suggested potential health benefits (for example, improved glycemic and blood pressure control) of mobile health applications and wearable biosensors. Evidence may grow as startup products are brought closer to market.

Despite the shortage of rigorous public evidence, the strategies of startups to influence use and spending are apparent. Many startups target wellness and prevention among self-insured employers, using smartphones and wearable devices to engage and track patients with the hope of lowering costs through decreasing use. Although this strategy of saving money through helping people become healthier in their daily lives remains largely unproven, hundreds of companies in this space have received substantial amounts of funding. Among the most well-known is Omada Health, which provides proprietary online coaching programs and other digital tools to help prevent diabetes and other chronic diseases. It is considered the nation’s largest federally recognized provider of the Centers for Medicare and Medicaid Services (CMS) Diabetes Prevention Program, having received more than $125 million in venture funding since it was founded in 2011. 

Another segment of startups focus on a separate driver of health care costs—the prices of medical services. These firms are increasingly partnering with employers to steer patients toward lower-cost providers for expensive treatments such as joint replacements. Their path to success—creating savings through price transparency—is also largely unproven, although lowering prices through enhancing competition is a reasonable approach. 

Still other digital health startups focus on improving access to primary care via telehealth, virtual visits, and related mechanisms of accessing care. Some use biometric data (genetics or biosensor data) to facilitate early detection of medical problems. While evidence is sparse, these efforts may lead to increased use and spending. Moreover, there is no guarantee that the startup technologies will be priced below existing substitutes. To the extent that these technologies improve outcomes but at a greater total cost, policy makers and adopters of such innovations may face difficult decisions over access and tradeoffs. 

Points Of Caution 

Given differences among health care and other industries, the success of the digital health boom is far from promised. Medical evidence suggests that changes in practice typically lag behind technological advancements. For evidence-based guidelines, randomized controlled trials remain the gold standard despite their considerable expense and length, which place them out of reach for many startup technologies. In addition to showing efficacy, interventions must convincingly demonstrate that they “do no harm.” 

This culture directly conflicts with the “fail fast, fail hard” reality of venture capital, in which a return on investment is typically sought within several years. Furthermore, the complex clinical workflows of traditional medical practices offer little room for disruption without potentially putting provider satisfaction or patient safety at risk (at least in the short term). In a profession in which institutions move slowly and health is at stake, technological innovations face a higher threshold for acceptance relative to other industries.

Other barriers to adoption include: the difficulty of building successful business models centered on lowering spending in a largely revenue-maximizing system in which providers often lack the incentives to eliminate waste; HIPAA-related privacy rules and restrictions that hinder data sharing across digital platforms; incompatibility between newer cloud-based technologies that startups build and old legacy technologies used by traditional providers; and the lack of billing codes and ways of recognizing provider effort in digital health, which complicates budget or price negotiations. It is perhaps no surprise that 98 percent of digital health startups ultimately fail

Outlook For The Future 

In the first three quarters of 2018, venture capital involvement in health care has further accelerated. The third quarter saw an estimated $4.5 billion in digital health funding—the most of any quarter on record. As this industry grows, policy makers have an important role to play. 

Regulatory guidance is needed to shape the scope and direction of new technologies, with patient safety and societal costs in mind. Venture capital firms and startups often point to a lack of regulatory guidance on what must undergo formal approval. The current Food and Drug Administration (FDA) Digital Health Innovation Plan is a positive step toward defining the path to market for low-risk digital devices and specifying what digital health tools fall outside the FDA’s scope.

Second, a reimbursement framework for digital technologies is needed. Thoughtful debate about their prices and new billing codes should be had in an open forum. Outcomes-based pricing and other value-based approaches that go beyond the fee-for-service standard should be considered.

Most importantly, policy makers and government agencies such as the FDA, CMS, and the National Institutes of Health should study the effects of startups in health care and facilitate research on these products to inform payers and the public of their benefits and drawbacks. In the current climate, little funding has been allocated toward such research. This leaves providers and patients relying almost exclusively on industry-funded studies, at times conducted by the same startup that is selling the product or service. Publicly funded, independent studies of the impact of venture capital-backed products and services on clinical and economic outcomes are needed to establish an evidence base that patients and providers can broadly trust.