Where digital health investors are aiming their money in 2023

Investment in digital health has exploded in the past decade as the healthcare industry and consumers increasingly saw technology as a vital tool to potentially optimize everything from patient care to how we develop pharmaceuticals. Digital health tech has even permeated many of our everyday lives, with the rising popularity of telehealth services like BetterHelp and wearables like the Fitbit your mom bought you for Christmas in 2016. (Let’s be honest, you wore it religiously for three weeks and then never touched it again, right?)

But analysts predict investors could be a bit pickier with their money in 2023.

While venture funding for digital health hit an all-time high last year—jumping to $29.2 billion in 2021 from $8.1 billion in 2019, according to data from digital-health seed fund Rock Health—2022 has been a sobering year. Funding dipped to $12.6 billion for the first three quarters, and Tom Cassels, CEO of the fund’s consulting arm, said he expects 2023 to be “pretty much in line with 2022.”

So, where might investors be aiming their dollars in 2023?

Moving patient care out of the hospital

Chris Moniz, a market manager in Silicon Valley Bank’s HealthTech & Devices segment, expects alternative care to be one of the most invested-in areas of digital health in 2023. Alternative care includes care given outside of the traditional hospital setting, like in a patient’s home, said Moniz. People who need long-term care for a chronic condition or serious injury may prefer to get treatment at home than stay in a long-term care facility, for example.

Since 2019, between 40% and 50% of health-tech investing—roughly $30 billion—has gone to alternative care, Moniz said, who also noted that telehealth has been heavily invested within alternative care. Medical devices like home dialysis machines or remote trackers used to monitor things like heart conditions are also seeing a lot of investment, according to Moniz.

In 2023, Moniz said he expects two subsegments of alternative care to see the most investment growth: mental health solutions and women’s health. Women’s healthcare is “starting to branch out from just fertility solutions to whole care, and we’re starting to see a lot of traction there and a lot of dollars being raised there,” he added.

Developing drugs and devices

Cassels expects startups focused on research and the development of pharmaceuticals and medical devices to attract significant investment.

To speed drug development, artificial intelligence (AI) is being used to test some chemical compounds more quickly. It’s also being used to recruit people for clinical trials, Cassels said. Investors are particularly interested in digital health companies focused on increasing the participation rate of historically marginalized populations—including women, African Americans, and Latinos—in clinical trials, he said.

So far this year, investors have poured $1.7 billion into startups in this area of digital health; for all of 2021, that figure rose to $5.8 billion, almost double the investment of any other area in digital health, according to Rock Health.

Reducing doctors’ workload

Software that offloads administrative work for doctors is also a huge area of investment—raking in about $26 billion since 2019, Moniz said. Technology that makes it easier and faster for doctors to complete tasks like filling out patients’ electronic health records is one example.

Doctors spend about 34 minutes on each patient they see, with 18 minutes dedicated to the visit and 16 minutes charting, according to two studies published in 2020 and 2021 by the Annals of Internal Medicine and Medical Care, respectively. That means doctors spend nearly the same amount of time doing administrative work as actually seeing and treating patients.

“If you could put that back into patient care, you would 1) be able to attract talent 2) you could retain talent and 3) they can actually take care of all the people who need to be taken care of,” said Jen Goldsack, CEO of the Digital Medicine Society, a nonprofit dedicated to improving access to digital medicine.

Robotic process automation in for a shaky ride

Kaushik Bhaumik, leader of EY Americas’ health technology segment, said we’re going to see a “shakeout” in the robotic process automation segment of digital health in 2023.

“There have been a lot of companies like Olive and Akasa, and others who have teared into that space for the last several years, lots of huge funding rounds,” said Bhaumik.

But many of those companies that got a huge burst of funding haven’t yet delivered on their promises to investors, Bhaumik said, and investors are putting less money into them.

“It was sort of a classic overinvestment curve, where a lot of money was thrown at it. And you know, the results are taking longer to prove out,” Bhaumik said.