Interest in digital health investment increases despite uncertainty
Digital health investment has become more attractive with Fitbit's huge IPO, whilst many still remain unsure as to which business models will prove successful within a market that is continuously developing. A group of venture capitalists which included Julie Papanek of Canaan Partners, Robert Mittendorff of Norwest Venture Partners and Skip Fleshman of Asset Management Ventures  recently discussed these problems at the Stanford Medicine X conference.

Fitbit’s monster IPO has fueled interest in digital health investment, and speculation over which business models will succeed in a market that continues to evolve.

It prompts questions like, “Where is the direct to consumer market is headed?” and, “How have other digital health IPOs performed?”

A panel of venture capitalists including Julie Papanek of Canaan Partners, Robert Mittendorff of Norwest Venture Partners and Skip Fleshman of Asset Management Ventures wrestled with some of those issues at the Stanford Medicine X conference over the weekend.

Mittendorff said that although direct to consumer is a huge part of the equation, it comes with a very different set of incentives than the business to business models that dominate the digital health sector. “It’s very much a learning area. We have not found a single model that fits D2C.”

He sees telemedicine as a promising area, particularly Doctor on Demand — a business co-founded by Phil McGraw, aka. Doctor Phil. It charges $40 for a virtual visit. He also flagged up Oscar, a health insurance startup with the ambitious goal of making the industry more efficient.

But, as Mittendorff pointed out, there’s plenty of low-hanging fruit – like knowing which of their members is alive or dead. That is something payers have struggled with.

On the subject of concierge care, particularly on-demand house calls,

Mittendorff was not so enthusiastic.

“The economics of urgent care on demand are very hard to work, but the big problem is filling the time of providers which, by the way, are not used to driving to patients’ houses.”

Mittendorff pointed to big box drugstore chains – Walmart,Walgreens and CVS – as areas to watch. He reminded the audience of Walmart’s aspirations to be the biggest primary care provider in the U.S. The idea is they will charge $4-$8 for employees and $40 for non employees.

“I’m interested in what’s happening with Apple and Google coming into digital health. It’s a fascinating moment in consumer capture right now,” Papanek said. “The consumer has already chosen the engagement channel —mobile phones, but [the challenges is] figuring out the best moment to capture the consumer. Is it when they get hit with a big doctor’s bill? When they want to lose weight? But they have to get smarter about search and profiling.”

Still, Papanek added that she has seen several companies providing an Uber-style prescription medicine home delivery service. Each of them has under $2 million in revenue. “I have no idea how to pick a winner in that race.”

One area that has seen a lot of activity is with lowering healthcare costs for self-insured employers with the idea of improving employees health. Fleshman said he was “a bit leery” of this area because it’s tough to get leverage. “Insurers are an easier sell.”

But maybe it just depends on the kind of self-insured employer. Papanek said, “What’s interesting is a self-insured employer that is also a provider. There’s a lot of early stage adoption by health systems hoping to learn and they’re actually doing this with their own lives under management.”

Fleshman observed that if they were having this panel discussion five years earlier, “we would be talking about quantified self.” But with the adoption of the Affordable Care Act and the HITECH Act, “we’re talking about companies connecting to the healthcare ecosystem.” Digital therapeutics with the potential to change behavior — such as diet, sleep and exercise in conjunction with other therapies are pervasive.

The IPOs for digital health companies this year have been few and very different from each other. The panelists agreed that you can’t compare a big wearables company like Fitbit with a huge number of consumer customers to Evolent Health, a high-priced software companies that only has a handful of accounts — albeit sizeable ones.

Teladoc has some growing to do, said Fleshman. Although telemedicine by phone and email has been around for years, the most recent stage of its evolution is still taking shape.