September 23, 2020
The 2020 COVID-19 pandemic has highlighted the critical importance of investment in innovations related to connected health and wellness. The health and wellness economy has been an important focal point for corporate and financial investors for the past several years. According to “Health Tech Investment Trends: How Are Investors Positioning For The Future Of Health?,” a report by global advisory firm Deloitte, funding for health tech innovators totaled more than $7.4 billion in 2019 alone. A separate report, “Emerging Tech Research” by financial data and software firm Pitchbook, noted that venture capital funding in wellness technologies in 2019 totaled $2.6 billion. And KPMG, in their “2020 Healthcare and Life Sciences Investment Outlook,” estimated that deal activity in the healthcare and life sciences industries showed a 40% growth in 2019 over 2018.
UL Ventures, the exploration and investment arm of UL, is actively studying the current and future trends of health and wellness. As a member of the Mid-America Healthcare Investors Network (MHIN), a venture capital (VC) investor group with more than 50 member firms, UL Ventures actively engages with MHIN members, which includes leading health systems, insurance companies and investment firms.
To better understand the investment landscape in the dynamic health and wellness economy, Simin Zhou, managing director of UL Ventures, recently conducted a survey of MHIN members on current and emerging trends. Zhou and the UL Ventures team interviewed nearly 20 members of MHIN and summarized the below insights into both the challenges and the opportunities facing companies in today’s health and wellness space, as well as those areas where new investments hold the greatest potential for the future.
Key health and wellness themes
Our interviews revealed a number of common themes among investors regarding the state of health and wellness in the U.S. Here is a summary of what we learned:
Consumers are strongly influencing health and wellness solutions coming to market
It’s probably no surprise that most of our interviews affirmed the view that consumers are playing an outsized role in defining the future of the health and wellness landscape. More and more Americans are seeing the interconnectedness between the state of their health and their everyday activities, such as diet and exercise. Several of the VCs interviewed highlighted the increased relevance of emotional health in consumers’ views about health and wellness, with a significant uptick in activities that contribute to mental and emotional well-being like meditation and yoga.
At the same time, consumers are seeking ways to take advantage of health and wellness-related activities without the inconvenience of traveling to a health care or wellness facility. The 2020 COVID-19 pandemic has certainly increased our dependence on telemedicine and remote diagnostic technologies. And, of course, home-based health and wellness solutions can help to certain populations overcome critical barriers to care, such as physical conditions or inadequate transportation. But, according to our interviews, consumer preferences for virtual or home-based care have been growing for years since it provides more options for actively engaging with health and wellness professionals as well as other consumers.
Our interviews also revealed another important factor driving the increased engagement of consumers in their health and wellness. Most investors interviewed indicated health insurance reimbursement payment systems are shifting larger portions of healthcare costs back to consumers through programs such as high deductible health plans (HDHPs). These and other approaches give consumers a stronger financial incentive to proactively manage their own health as a way of reducing their overall medical costs.
Traditional approaches to health and wellness are being transformed
Concurrent with the growing importance of consumer voices in the health and wellness space, providers, payers and employers are evaluating traditional approaches to their offerings and exploring different ways to meet today’s health and wellness challenges. Like consumers, healthcare providers are understanding the connection between health and wellness, and are embracing a more holistic approach with regard to the scope of their services, expanding their offerings to better address consumer needs. For several investors interviewed, this expansion also supports a more proactive approach in the delivery of health and wellness services, which they see as especially important in the effective management of chronic health conditions like diabetes and obesity.
Of course, efforts to address health and wellness holistically can also contribute to lower overall healthcare costs, since healthier consumers are less likely to require frequent medical care. According to the investors interviewed, more favorable economic outcomes generated by a proactive approach could eventually support the broad adoption of value-based pricing of health and wellness services. Adopting such a pricing structure would potentially allow health and wellness providers to move away from the legacy “fee for service” model and be reimbursed instead on the quality of healthcare outcomes.
The health and wellness infrastructure is adapting
Consumer influences and the move toward a more holistic approach are also driving important changes in the traditional health and wellness infrastructure. The investors interviewed view increased accessibility to health and wellness services as essential to improving overall societal health. As a result, they report a massive shift away from mega-hospitals and healthcare complexes in favor of community centers where consumers can more easily access the services they need. These changes play an especially important role in expanding access to essential health and wellness services in urban areas, and in reaching underserved populations that often experience a higher rate of chronic health conditions than others.
In the current COVID-19 pandemic, increased telemedicine and remote monitoring capabilities are also helping to bring health and wellness services to consumers wherever they are. The availability of virtual health and wellness services increases real-time access for more people, and contributes to reduced overcrowding in critical care facilities. For the investors interviewed, the use of virtual health and wellness technologies for non emergency care will continue to grow even after the effects of the pandemic have subsided. In addition to increasing accessibility, virtual technologies can help lower service delivery costs and reduce our dependence on brick-and-mortar solutions.
As several investors pointed out, the potential benefits of virtual technologies also possess an important caveat. The use of telemedicine and remote monitoring services ultimately depends on consumer access to supporting technologies, including secure computers or smartphones and high-speed internet access. Providers cannot assume that everyone who wants or needs health and wellness services has access to these supporting technologies and should have remedies in place for addressing this challenge.
Innovators are focusing on ways to increase engagement in health and wellness
The expanded use of technologies, cloud-based platforms, wearables and smartphone apps in health and wellness also highlights the importance of considering how best to foster and sustain user engagement.
The interviewees were unanimous in their belief that the best innovations in the health and wellness space are those that are built with the consumer first and foremost in mind. Further, most expressed the opinion that giving consumers the ability to customize a solution to meet their unique requirements and expectations is also critical in helping to ensure its continued use. Investors also recommended that innovators make available new features and enhancements to their products and services over time, as a way of creating new value and increasing user commitment.
Another key engagement factor that revealed itself in our interviews is the importance of providing consumers with incentives to help foster their continued use of a given innovation. Investors interviewed identified a variety of incentives that can stimulate ongoing engagement, such as “gamification” in which users are rewarded for achieving certain benchmark results. Several also pointed to the effectiveness of small but regular prompts to action and virtual feedback loops as effective tools in helping to drive more positive outcomes.
Importantly, our interviews highlighted the importance of giving consumers the ability to access and control their own health and wellness data. Many of the investors believe that ownership of data can encourage consumers to actively participate in the long-term management of their own health and well-being, and that data ownerships stands out as an important element in current and future innovations.
But there are important challenges to overcome
While our interviews uncovered a number of positive developments in the health and wellness economy, they also identified a number of critical challenges that we need to overcome.
Perhaps the most prominent of those challenges is the lack of transparency and consistency in pricing, particularly for healthcare services. For this reason, the investors interviewed believe that insurance providers and other payers are the least transparent players in the healthcare ecosystem, since their function has typically focused exclusively on the financial side of the equation. However, as payers begin to embrace a more holistic approach to health and wellness, investors believe that their expansion of services may provide a gradual opening for a more trusting relationship with consumers.
Another challenge is encouraging employers to find more ways to help their employees take full advantage of their company’s health and wellness benefits. The investors interviewed agreed that companies need to actively educate employees on the array of benefits that are available and how to take advantage of them, instead of just setting up an online benefits portal for employees to navigate on their own. Here too, various forms of incentives can help drive up utilization. And tracking the use of key health and wellness benefits can provide direction on potential efforts to expand underutilized options.
Finally, the blending of health and wellness initiatives can support the identification of upstream solutions to persistent or chronic health and wellness problems, in which focusing on root cause issues can lead to more effective and lasting solutions. However, most investors agreed that measuring the return on investment (ROI) of such solutions is difficult, given that it can take years for these solutions to generate sufficient quantitative data to demonstrate their long-term effectiveness.
Technology and the future of health and wellness
As leading investors in a dynamic and ever-changing landscape, the interviewees offered their own insights into the technology trends that they believe will shape the future of the health and wellness economy. Here’s a list of the top seven trends identified:
- Smart technologies — It’s easy to become awed by technology solutions. But, according to the investors interviewed, the best smart technologies provide information that directly supports more informed clinical evaluations and decisions.
- Widening scope of technology solutions — A number of investors are actively exploring investments in technologies that address previously underserved conditions, such as devices and apps based on behavioral science that can help us control anxiety or sleep more restfully.
- Virtual/augmented reality — Several investors pointed to the potential of innovative devices utilizing virtual or augmented reality (VR/AR) technology. VR/AR-based devices are already being used in some therapies associated with physical or psychological rehabilitation efforts.
- Artificial intelligence — Artificial intelligence (AI) has the potential to radically transform the health and wellness space and dramatically improve health outcomes. Innovations that effectively leverage the power of (AI) present the greatest opportunity for every investor we spoke with.
- Robust data sets — At the same time, the effectiveness of AI, VR/AR and other innovative technologies are ultimately dependent on the quality and applicability of the data sets that are used. For investors, data aggregators are at the center of that effort.
- Improved medical records integration — Despite significant progress over the past decade, efficient access to complete and seamless medical records is far from where it should be to function as an effective tool in treating patients. Investors see ongoing opportunities in this space.
- Human-centered design — Lastly, “tech and touch” is the mantra for developers of the next generation of health and wellness technologies. The investors we interviewed were unanimous in supporting innovative technologies that bridge the human barriers that impede their effective use.
The COVID-19 pandemic has illustrated all too clearly that unexpected challenges to our current approaches to healthcare are the norm and not the exception. Our interviews with health and wellness investors offers strong evidence of how innovative technologies continuing to bring new and effective health and wellness solutions to market, while also helping to reduce healthcare costs and to improve access for millions of people around the world.
Current and future investments in innovative technologies are vital in supporting the ongoing transformation of health and wellness. By making targeted investments in emerging health and wellness platforms, UL Ventures works to support the insights and innovative approaches of a new generation of scientists and entrepreneurs. We believe that, working together, our shared commitment and passion will help make a genuine difference in the quality and effectiveness of health and wellness technologies and services in the 21st century.
UL helps create a better world by applying science to solve safety, security and sustainability challenges. We empower trust by enabling the safe adoption of innovative new products and technologies. Everyone at UL shares a passion to make the world a safer place. All of our work, from independent research and standards development, to testing and certification, to providing analytical and digital solutions, helps improve global well-being. Businesses, industries, governments, regulatory authorities and the public put their trust in us so they can make smarter decisions. To learn more, visit UL.com. To learn more about our nonprofit activities, visit UL.org.
Founded in 2002, the Mid-America Healthcare Investors Network (MHIN) helps healthcare investors learn about investment opportunities in the health and wellness industries, and provides an opportunity for members to share their experience and expertise with other industry professionals. By building strong professional and personal relationships between investors and the health community, MHIN makes important contributions to the introduction of innovative health and wellness solutions, as well as more successful investment outcomes. For more information, visit our website at www.mhinonline.com or email us at [email protected].