“The more uncomfortable something is, the more we know we are driving change.”

–Harriet Green, CEO, IBM IoT, Commerce and Education Businesses divisions

When you’re flying a two-seater prop at 2,000 feet, a 500-ft drop in altitude could be enough to make you a groundling once you’ve been reaquainted with your stomach. But in a jetliner at 30,000 ft, a 500-ft dip is butterflies in the belly and a bit of spilled merlot.

So the relative slump in deals for digital-health startups so far this year shouldn’t give you pause. There’s good reason to think it’s a patch of thin air in a big sky. CB Insights not only projects this to be a record year in funding to private companies, they’ve also reported the kind of optimism that calls digital-health disruption the health care industry’s “space race.”

It’s no secret that the U.S. health care system is sorely strained. The Brookings Institution’s 2015 report, “A cure for health care inefficiency?” enumerates many of the systemic challenges being addressed through innovation, and their conclusions are wholly focused on the opportunity before us.

Rock Health, the digital-health venture fund, is more effusive. Unlike tech overall during 2015-Q1’16, they see digital-health funding resuming its record pace in 2016. They note that the most common route for exits in 2016 was M&As rather than IPOs.

So it’s no coincidence that seven of the 19 success stories that the University of Pittsburgh’s Innovation Institute boasts on its website are digital-health startups.

Meanwhile, Fast Co recommends that we temper our enthusiasm and reset our expectations after a time of “silly valuations” in the digital-health space.

According to CB Insights, “Q2’16 has been the first quarter with sub 200 deals since Q4’14, and is a 27% decrease from the previous quarter,” putting the current year “on course to fall below the number of deals in 2015.” So. The number of deals probably down, but total valuation, up. It’s that 500-ft hiccup at 30,000 ft.

Where medtech disruptions will continue to occur speaks to a the vast number and variety of pain points that innovators aim to heal. To cite just a few:

Interoperability & Its Barriers

While America’s hospitals, in the words of the American Hospital Association, “share the vision of a health care system where widespread use of interoperable electronic health records (EHRs) supports improved clinical care, better coordination of care, fully informed and engaged patients, and improved public health,” such widespread use of EHRs is still but a vision.

Portable, transmissible patient data is the Holy Grail of efficient clinical workflow, an antidote to confusing, “unstructured” health data. The number of medtech startups aimed at untying that knot, even in a single setting (The Farm in New York’s SoHo), is staggering.

According to the AHA, the major obstacle to meeting the potential of health IT is lack of Interoperability: the dearth of EHRs, incompatibility between EHR systems, the unrealized potential of health-information exchanges (HIEs), uneven IT standards.

Clinical integration is the key to efficiency.

Population health management

As the late Russell Ackoff, professor of management science, has said, paying doctors to care for us when we’re sick means that we have “a disability-and-sickness-care system, not a health care system…. If you wanted a health care system, you would have to pay a doctor for keeping you healthy.” Moving from traditional “sickness model” toward population health and value-based care is the paradigm shift of the moment and an unprecedented logistical hurdle with deep implications for physician-payment reform and cost savings to consumers.

Payment reform, pricing & MACRA

Everyone knows that an MRI at one hospital is about as accurate as an MRI anywhere else, but prices can vary as much as 80 percent. That lack of transparency, along with compensation models closely tied to the population-health trend, present enormous potential for innovation. MACRA (the Medicare Access and CHIP Reauthorization Act of 2015) is a major vector here, to be phased in beginning next year. According to the AHA, “MACRA creates incentives for physicians to participate in advanced [alternative payment models], thereby moving the Medicare program away from [fee-for-service payments] and closer to a payment system tied to patient outcomes and population health.”

Biotech & medical device innovation

From consumer wearables & biosensing (think Fitbit) to access to early-stage lab space for innovators in biotech and medical-device development, the challenges inherent in biotech entrepreneurship are uniquely complex. Turns out, the deal and investment concentrations in the U.S. digital-health ecosystem are less concentrated in the major VC hubs than is total venture capital, according to Brookings. Also, “the geographic analysis suggests that innovation will not come from the health care sector itself but from outside it,” Brookings says, in metros with “advanced industries” other than health. Meaning, the big dogs in Silicon Valley, Boston and New York may find serious competition from regions like the Southeast.


The real and growing urgency of cybersecurity will be a perennial space for entrepreneurs and investors. The Healthcare Information and Management Systems Society (HIMSS), a global, not-for-profit organization focused on better health through information technology, recently published its 2016 HIMSS Cybersecurity Survey. The key take-aways are sobering:

  • 80 percent of providers in 2016 admitted that their organization had experienced a recent “significant security incident” (Chart 1).
  • The most common reason for attacking health information: medical identity theft (77%).
  • The Internet of Things poses security threats that are assessed very differently by acute-care providers compared to non-acute care providers.
  • The top challenges to mitigating cybersecurity risks: Lack of appropriate cybersecurity personnel (59%), and lack of financial resources (55%).
  • The top three perceived cybersecurity vulnerabilities for providers: Email, mobile devices, the Internet of Things.
  • Providers’ biggest cybersecurity concerns of the future: Ransomware (69%), phishing attacks (61%), advanced persistent threat attacks (61%)

We don’t call them “pain points” for nothing.

But the better term is “opportunity.”

TechCrunch perceives waves of innovation in the digital-health space. The past year was all about payer disruption. Next year they foresee a return to the core practices of medicine — “technology that enables providers and biopharma to extend their reach and take greater risk for outcomes” — and with it, VC investment. TechCrunch sees health care not as an industry but a global economy.

The complexity of digital-health innovation calls for a deeper dive, so in the weeks to come, we’ll massage each of the pain points touched upon here.

We invite you to suggest new or additional angles for us to explore and to contact tekMountain about opportunities and partnerships right here in southeast North Carolina. Great things are happening in digital health. Join us!

This blog was produced by the tekMountain Team of Sean AhlumMike PattonRod WhisnerAmanda Sipes, and Zach Cioffi with lead writer Bill DiNome

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