Are healthcare technology startups answering the right questions?

August 5, 2014 in Medical Technology

Healthcare technology is hot stuff, with startups and investors from Silicon Valley to the Charles River chasing after the next paradigm-shifting blockbuster innovation. Each passing quarter sees an ever-increasing tally of eager rounds of funding.

In the first three quarters of 2013, health IT venture capital leapt steadily from $493 million to $623 million to $737 million, according to Mercom Capital Group. By Q1 2014, it was up to $858 million.

In Q2, VC funding for digital health passed $1 billion for the first time ever: $1.8 billion worth of deals.

“Funding into the healthcare IT sector continues at an astonishing pace,” said Mercom CEO Raj Prabhu in a press statement in April.

It’s all very exciting. But are all of these new companies developing technology that will truly help transform care delivery, or are too many of them making apps that just chip away at the edges of the more essential and systemic challenges faced by healthcare?

No question, consumer-facing technologies are attracting a ton of investor attention, and have for some time. As Prabhu told Healthcare IT News in 2013, “consumer-focused technology and applications are a driver. The investment community is recognizing and seizing on the opportunity.”

But that doesn’t necessarily mean that companies getting the biggest checks are those that are “addressing the right challenge,” he said.

As investor Stephen Bloch, MD, general partner at Canaan Partners, noted in that same article, while “the consumer side of healthcare is super important,” he puts his money with companies that address more fundamental changes being accelerated by the Affordable Care Act and other reforms.

“The entire healthcare ecosystem is thinking about how to be more efficient,” said Bloch. It’s technologies that address those needs that are most intriguing, rather than “stuff that is very wellness-focused, based on personal health or diet have different apps to track your health behaviors,” he said.

Still, it often seems it’s exactly those types of technologies that are getting the most attention. That stands to reason, said Bloch. After all, healthcare is complicated and can be intimidating. Consumer apps are much more approachable and understandable. Many investors “tend to gravitate toward things they know.”

But that doesn’t necessarily mean those products are out to solve the right problems. And one wonders just how many of these fresh startups will still be around and making a difference in five years’ time.

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