Digital health is now the fastest growing segment of the healthcare market, with the challenges of the pandemic creating tailwinds that saw the industry overcome many of its previous barriers to adoption. With patients, clinicians and regulators increasingly on board with the opportunities that digitisation of healthcare presents, investors are enjoying a favourable climate as digital technology helps drive improvements to access, affordability and quality of healthcare solutions.

At our recent Healthcare Private Equity Europe 2022 conference in London, we were pleased to be able to bring together a panel of digital health and medtech experts to discuss the themes, challenges and opportunities available to investors today.

Drivers of digital health

Health systems globally are currently investing more than ever in digital technology, eyeing the opportunities for data analytics to power efficiencies and improvements across medtech, life sciences and healthcare services, and seeing the potential for a rapid expansion of digital diagnostics and remote monitoring tools to improve access and enhance home and point-of-care diagnostics.

One of the issues driving growth is a shortage of healthcare professionals and caregivers across many health economies.

Charles Hardwick, principal at Vitruvian Partners, told HPE Europe 2022: “Almost everywhere you look there are not enough people providing care and there is a growing gap between the demand for services and the ability to provide them. These highly-qualified practitioners are not easy to create, so there is a necessity to find another route. Digital health is solving a problem that is never going to go away and that the pandemic has made worse.”

At the same time, changes in demographics and pressures on health systems means that efficiencies are needed.

Kayleigh Hartigan, chief of staff and chief commercial officer at digital-first healthcare provider HealthHero, pointed out: “Many of the underlying drivers behind growing demand for digital health are the same drivers behind growth in physical health, such as an ageing population, supply side challenges and the need to create cost efficiencies. We continue to see those drivers of demand, and Covid has removed many of the barriers to adoption that had previously held back investment in digital health.”

Dr Katherine Wiles is a member of the Hg Genesis team, focusing on investments in B2B software, and is a qualified medical doctor with a background in healthcare. She identified three operational problems in healthcare that digital solutions are starting to address: workforce challenges, around getting the right people to the right place at the right time; core digitisation, to create the cloud network and software required in areas like radiology; and the need to deliver more care in the home given shortages of hospital beds.

“We have invested behind more care in the home and how you link that into general practice and social care systems,” Wiles explained. “Carers coming into the home tend to be very low paid professionals, which results in a high level of turnover, so we have invested behind technology to address some of those issues.”

Challenges for investors

While the drivers of growth in digital health are largely global, the challenge for investors is often around creating models for adoption that translate across borders. Tech focussed on healthcare services may sometimes be more difficult to scale because of the hurdles created by different regulatory approaches, particularly where companies are delivering treatments to patients. For B2B providers focused on delivering efficiencies into the system, cross-border growth can be easier to navigate.

Another challenge has been overcoming patient attitudes to digital interactions with clinicians. Suman Saha is co-founder and medical director at Doctify, a company focused on giving patients more visibility of their healthcare options through online reviews of doctors, dentists and hospitals. He told HPE Europe 2022: “We need to look at other sectors that are further ahead to see where healthcare is going. Fifteen years ago we used to book flights by going into a shop, but things have moved on.”

He added: “Hospitals have very low online profiles and most patients don’t understand outcomes data and want to know about the experience of others. Most healthcare is amazing every day, but we aren’t capturing that, and we need more transparency around how providers deal with problems, talk to patients and improve care.”

In 2021, investment in digital health hit an all-time high. But, 2022 has seen difficult macro-economic and political conditions, notably leading to share price falls for listed tech companies. This has had an impact on the wider climate for digital health and health tech leading to more realistic valuations and a focus on where solutions provide value in core focus areas. Some digital health businesses are certainly cautious about the availability of capital. Nevertheless, the demand for tech driven solutions remains high and assets that focus on delivering real value remain in demand.

Hartigan told the conference: “We may see more acquisitions going into next year as companies see opportunities to create value building out healthcare business models. In this sector, the need hasn’t changed; in fact, it is probably more pressing.”

Wiles added: “The lovely thing about healthcare is that it is fundamentally about bringing great care to patients and that happens every day of the year regardless of what is happening in the financial markets. The need is not only increasing but will continue to increase. Platforms that provide something that is essential to patient care are the technology businesses that are maintaining their valuations. There is a lot of concern about running businesses well, making sure growth is sustainable and debt levels are manageable, but there are still lots of opportunities out there.”

While the demand for healthcare isn’t going to change, the market for digital health is maturing and investors are far more focused on capital efficiency and long term, sustainable business models. Dealflow may be more muted in 2023, but we can expect investors to continue to get behind transformative solutions that enhance the patient experience, reduce cost, drive efficiencies and tackle workforce challenges.