The financing of digital health companies represents a new effort in which health systems are seeking to shape the future of healthcare—one with complex incentives and boundaries. We describe key ways in which health systems are acting as a small but important group of investors in digital health companies. Over the past 8 years, health systems made 184 investments in 105 early stage digital health companies. Over one-third of health systems making these investments were academic and the majority were non-profit organizations.
Health system investors have multiple motivations that could influence their investment decisions, including funding solutions that align with institutional priorities, generating non-clinical revenue, commercializing internally developed intellectual property, and gaining insight into upcoming and potentially disruptive innovations to maintain organizational competitiveness8,11. Compared to other digital health investors, we found that health systems are making unique investment choices. Health systems were more likely to invest in companies with healthcare providers as the end user and/or customer and in companies that focused on clinical and non-clinical workflow solutions, on-demand healthcare services, and data infrastructure/interoperability. In doing so, health systems appear to be focusing their investments on what they know—the provision of healthcare services8,12. The tendency to invest in these areas may also reflect that health systems perceive them as particularly promising, sustainable, and scalable. Conversely, health systems were less likely to invest in fitness and wellness products, which was the top investment area for other investors. Health systems may not see these products as impactful, profitable, or aligned with their mission.
In contrast to the broader digital health investor landscape, we observed a decline in the total volume of digital health investments by health system investors in 2017 and 20183,7. The reasons for this are unclear and warrant further investigation. Further, the magnitude and types of future investments in digital health by all investor types may be dramatically impacted by the coronavirus disease-2019 pandemic.
There is value in further monitoring and evaluation of investments made by health systems, as these choices have implications for patient, provider, industry, and health policy stakeholders. First, the products and services in which health systems invest may indicate their prediction of which will generate value in healthcare and meaningfully impact patients and/or providers. Second, an improved understanding of best practices and the strategic and financial returns on investment achieved by health systems would better inform how health systems may use these activities to support their core mission. Third, health system investments should be monitored due to the potential conflicts of interests that they represent for the institution. Public reporting standards and disclosure requirements would help ensure that these potential conflicts are appropriately acknowledged and managed. It is uncertain the degree to which such policies have been established within health systems amidst the recent flood of digital investments.
This study has several limitations. The database captures publicly disclosed investment deals >$2 million as deals of lesser value are not consistently filed with the U.S. Securities and Exchange Commission (SEC) or announced publicly by the company or the investor. Less than 7% of digital health deals are estimated to be <$2 million, but these deals are not included in our study10. This represents a potential source of bias. Also, the database includes companies that are venture-backed such that large, well-established companies with a portion of their work in digital health are not captured. Further, while the database used in this study is thought to be comprehensive, it is difficult to independently verify whether every investment deal >$2 million is captured; though, we are not aware of a more comprehensive database of investments in digital health companies.
The emerging trend among health systems to invest in venture-backed digital health companies represents a new frontier in their ability to influence the future of healthcare. This activity warrants continued monitoring and further exploration of its motivations and outcomes.