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Healthcare Investments Are Slowing Down

The global economy is currently at a turbulent intersection, one that even the most celebrated economic pundits and fiscal savants cannot seem to accurately navigate. While some say that the economy is headed for a “soft-landing,” others exclaim that a full-blown recession is inevitable.

The healthcare industry is by no means immune to these economic pressures. In fact, healthcare has had many years of its own unique fiscal challenges— those that were uniquely exacerbated by the Covid-19 pandemic. Regardless, over the last decade, venture capital (VC) funding and investments in healthcare have actually been quite strong, as investors were eager to invest in cutting-edge technologies and the next generation of care delivery. Now, however, these same sources of funding are starting to slow down in fear of economic turmoil, indicating that rapid innovation in healthcare may indeed take a pause.

A recent report by Rock Health indicated that there has been a significant slow down in healthcare funding, specifically in the areas of the digital health. The report authors explain: “For the digital health sector, 2022 was a downhill ride—one that we think signals the tail end of a macro funding cycle centered around the COVID-19-era investment boom […] 2022’s total funding among US-based digital health startups amounted to $15.3B across 572 deals, with an average deal size of $27M. Not only did 2022’s annual funding total come in at just over half of 2021’s $29.3B2, but it also just squeaked past 2020’s $14.7B sum. Notably, 2022’s year’s Q4 $2.7B total was less than half of last year’s Q4 raise ($7.4B).”

As the report alludes to, the digital health industry has seen an incredible boom over the last decade. The U.S. Food and Drug Administration (FDA) defines digital health broadly as anything which “includes categories such as mobile health (mHealth), health information technology (IT), wearable devices, telehealth and telemedicine, and personalized medicine.” And given its relatively broad scope, digital health tools have had tremendous impact over a variety of healthcare sub-industries, ranging from diagnostics and care delivery, to augmented healthcare insights and tools for data-driven decision making.

One of the most notable areas has been the boom of telehealth and virtual health services, which was especially fueled by stay-at-home and social distancing restrictions during the Covid-19 pandemic. Notable names in this space that captured an immense amount of attention are Teladoc and Amwell. These companies continue to innovate in the virtual care space.

In terms of “big tech,” companies such as Amazon, Walmart, Google, and even Oracle have continued their investments in digital health and healthcare technology. For example, Amazon’s bold purchase of One Medical will undoubtedly give the eCommerce giant a significant leap forward into healthcare delivery. Leveraging its incredible technology platform, millions of insights on consumer retail patterns, and last-mile logistics network, this venture by Amazon will definitely be a game-changer.

However, even “big tech” has not been immune to economic pressures. Last year, Google announced that it would be moving many of its employees from its Health division into other positions around the company, indicating a “shake-up” of its health vertical. Similarly, Amazon itself shut down its “Care” business, citing that Amazon Care was likely not the best way to deliver valuable impact to its clients or patients. These moves candidly illustrate that even the most successful companies have to execute challenging decisions to maintain fiscal responsibility.

Assuredly, economic conditions will not improve overnight, and a sense of uncertainty will likely last for the coming months, if not for years. The healthcare system as a whole is already skating on thin ice, balancing razor-thin margins while also dealing with macro-economic issues such as increased costs, a significant labor shortage, and changing consumer preferences. Given these circumstances, investments in healthcare innovation and technology will likely also slow down in the near future. However, as history has indicated, the healthcare industry is resilient and relentless. Undoubtedly, both the economy and consumers will find a way to reinvigorate it in due time, and innovation will be bountiful, yet again.