Digital Health Funding Blasts Off And Showcases Promise Of Platforms
Like Richard Branson and Jeff Bezos’s recent space flights, digital health funding blasted off in the first half of 2021, following an already record-breaking year in 2020. In fact, per Per Rock Health’s 1H 2021 Digital Health Funding Report, the first half of 2021 saw $14.7 billion flow into the sector, eclipsing 2020’s breakout year totaling $14.1 billion.
Among the investment firms making serious moves in digital health and engaging in what Rock Health refers to as “blitz-funding” is Tiger Global, a tech-focused firm that’s participated in 14 investments for US digital health startups in the first half of 2021 alone. What’s interesting, when looking closer at the digital health companies Tiger Global invested in, is that a majority of these companies are platform businesses, or heavily utilize platform business model concepts as part of their core business strategy.
Platform businesses rely heavily on network effects to create value for customers: the more customers, users or partners there are, the more value there is for all. One analysis suggests that 70% of value from technology firms over the past 30 years has been driven by network effects.
Clearly, Tiger Global is paying attention, as more than $1.1B of the $1.9B invested in the 14 companies is going to platform businesses. These companies include:
Cedar: Patient financial technology platform, which recently acquired OODA Health, a healthcare technology company focused on improving the healthcare administrative experience with payers and providers, for $425M. Cedar benefits from data network effects: the more clients and consumers using the platform, the better its insights.
DispatchHealth: In-home care provider coordination platform that received $200 million in Series D financing from Tiger Global in 1H 2021. DispatchHealth relies on a network of service providers to supplement its own clinical staff; as its network grows, its service breadth does and its attractiveness to payers does as well.
Qualio: Quality management system platform for life sciences that recently secured $50M Series B funding round led by Tiger Global. Qualio is building out a network of partners in addition to its Life Sciences clients, seeking to leverage these relationships to establish Qualio as the commonly accepted protocol for quality management.
Papa: On-demand senior care platform that recently expanded its services to all 50 U.S. states and launched its health management platform, Papa Health. Papa connects seniors requiring help with “Papa Pals”, people with spare time who can provide support services. The platform also offers virtual primary care, urgent care and chronic care management facilitated by board-certified healthcare providers called Papa Docs.
Rightway: Care navigation and pharmacy benefits platform to help employees better navigate their healthcare plans. Rightway recently raised $100 million in Series C, led by Khosla Ventures, with participation from Thrive Capital, Tiger Global Management, and other existing investors.
Innovaccer: Innovaccer’s Health Cloud is what the company calls a platform-as-a-service offering that combines its Data Activation Platform and application suite with platform services and tools aimed to help customers and partners develop interoperable applications for patient engagement and operational performance.
Aledade: A platform and suite of services that empowers independent physician practices to stay independent and deliver higher quality care at lower costs through Accountable Care Organizations.
Carrum Health: Centers of Excellence navigation platform to help self-insured employers find quality surgeons to avoid variation in the cost and quality of surgery and improve the patient experience for employees.
Tytocare: Telehealth and remote patient monitoring platform that includes several connected device components, including an otoscope for the ears, a stethoscope for heart and lungs and a tongue depressor for the throat. It also lets patients examine the skin, body temperature and abdomen.
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Network effects and platform businesses aren’t new to healthcare, but increased funding and attention they are starting to receive speaks to the promise that they hold in healthcare. A recent digital health market analysis suggests there is a greater than $1T (yes, trillion) total available market (TAM) opportunity for digital health platforms to address healthcare’s greatest challenges, which often entail orchestrating activities between patients, providers, payers, pharmacies and others.
Companies that leverage network effects and connect different groups of users users using a platform-as-a-business-model approach can solve problems in healthcare by:
Effectively and efficiently matching supply and demand: Allowing users on different sides to interact directly with each other increases transparency, reducing search times and associated costs on both sides, reducing or eliminating the role of antiquated and ineffectual middlemen.
Increasing access to knowledge and information: Platforms allow people to tap into a network of expertise far beyond their own, increasing access to and the speed of expert knowledge and information sharing.
Reducing transaction costs: Virtually all commercial transactions include common components, including contracting, payment, legal uncertainty, risk mitigation, and post-transaction policing. Platforms can standardize these ‘many to many’ processes and leverage economies of scale to bring down costs.
Aggregating the “long-tail”: Many “long tail” segments are unattractive to traditional pipeline businesses due to unattractive unit economics. Platforms can subsidize and aggregate the long tail to make technology, information, and tools available to those who have not had the time or resources to make investments.
Reducing information asymmetry: Problems of information asymmetry—specifically, differences in access to relevant information between buyers and sellers—have long plagued markets. Platforms can bring radical transparency by increasing supplier competition and allowing buyers to share feedback with others.
Unlocking innovation: Platforms that successfully bring together users from different sides and reduce existing transaction costs can unlock “shadow markets” by adding other sides to the network or opening up access to the platform to third party developers.
If the second half of 2021 stacks up to the first, expect to see more funding in the digital health space flow to platform businesses.