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Survey: Optimism for Health IT Startups in 2018, Skepticism for Amazon Healthcare Partnership

April 26, 2018
by Heather Landi
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Despite all the buzz about new entrants disrupting healthcare, the majority of healthcare stakeholders are dubious about the impact of the Amazon/Berkshire Hathaway/JP Morgan healthcare partnership and believe the effort will face substantial challenges and take a lot of time to be successful, according to a survey by venture capital firm Venrock.

For its “2018 Healthcare Prognosis” survey, Venture polled 300 respondents from various parts of the healthcare sector, representing health IT startups, large employers, insurance companies, healthcare providers, academics, government, investors and professional service providers.

Among many topics, the survey polled respondents about their perspectives on new entrants joining the effort to change healthcare for the better and whether these “disruptors” will be successful. Despite the press on the Amazon/Berkshire Hathaway/JP Morgan partnership, which was announced January 30, only 16 percent of respondents viewed that partnership as the most important healthcare event in the past year, trailing the survival of the Affordable Care Act (51 percent say that as the most important healthcare event) and the CVS/Aetna deal (22 percent). One percent said Scott Gottlieb becoming the Food and Drug Administration Commissioner was the most significant event.

Back in January, the CEOs of Amazon, Berkshire Hathaway and JPMorgan Chase & Co. announced the companies are partnering on ways to address healthcare for their U.S. employees with the aim of improving employee satisfaction and reducing costs.

In fact, when asked what the future holds for the Amazon partnership, only 27 percent of respondents said, “They might just pull this thing off,” and the overwhelming majority (73 percent) see the three companies facing substantial challenges. Forty-eight percent responded, “It’s gonna be a long haul,” and 25 percent responded, “They have no idea what they’re getting into.”

However, the majority of respondents also selected Amazon and Apple as the companies most likely to make progress in healthcare in 2018. Half of respondents (51 percent) said Amazon is the company most likely to shake things up, 26 percent choose Apple, 18 percent said Google, 3 percent said IBM and 2 percent said Microsoft.

Looking at challenges to healthcare IT innovation, talent and hiring top the list of respondent’s concerns (cited by 71 percent), followed by regulatory changes (63 percent). This is in contrast to last year when 78 percent of respondents cited regulatory changes under a new Trump Administration as the biggest concern. Concerns about economic uncertainty also dissipated a little, as only 60 percent cited that as a challenge to healthcare IT innovate, compared to 80 percent who cited that as a concern last year.

Regarding the issue of drug pricing, respondents are skeptical that prescription drug prices will be curtailed in the next four years. The majority (75 percent) believe there will still be more talk than action on prescription drug prices, and 19 percent believe nothing will happen.

Looking ahead at the future of hospital consolidation, 59 percent of respondents believe this trend will speed up to consolidate market power prior to MACRA (the Medicare Access and CHIP Reauthorization Act) going into effect. Ten percent believe this trend will slow down due to an emboldened Federal Trade Commission (FTC), and 30 percent see consolidation slowing down due to an inability to create value as larger health systems.

The respondents also provided a crystal ball as to what’s on tap for healthcare IT companies and health IT technologies in 2018, and beyond. With regard to artificial intelligence (AI), the majority (55 percent) believe the technology will play an important role in healthcare, but it will be a few years before the industry sees real-world use cases. Fifty-five percent said it will take two to three years before AI really matters, while 7 percent said the industry will see successful applications and business models during this year. Thirty percent said AI may have an impact, but noted that healthcare adopts technology slowly.

Looking at healthcare IT sub-sectors, respondents forecasted strong growth for telemedicine and big data/analytics. When asked which of the following healthcare IT sub-sectors will experience growth (e.g., some combination of new entrants, influx of capital, customer traction) in the next 12 months, 95 percent said analytics and big data will see either rapid growth or some growth, and 94 percent said telemedicine would see either rapid or some growth. Respondents were more tepid on the growth of wearables and consumer sensors as well as the electronic health records (EHRs)—only 14 percent believe the wearables sector will see rapid growth, and 53 percent said the sector will see some growth, and 42 percent see no growth for the EHR market.

Similarly, respondents showed high confidence (46 percent) that Teladoc’s stock will rise in 2018 (Teladoc is a telemedicine company), while only 3 percent forecasted the same for wearables company Fitbit.

Respondents seemed concerned about bad news from insurance companies, including Oscar and Clover Health, while care providers Iora and One Medical have rosier expectations (75 percent and 70 percent of respondents, respectively, expect good news for those companies in 2018). However, when asked to put on their investor hat and indicate which 2017 early stage financings they regret not having been in, the majority picked Devoted Health and Bright Health, part of the new wave of startups tackling the insurance industry, the survey reports.

Will the IPO market pick up in 2018? IPOs predicted as most likely for One Medical, Health Catalyst and Grand Rounds in 2018, according to the survey respondents.

Overall, according to the survey respondents, the outlook is rosy for healthcare IT companies. The survey found increased optimism about the capital markets and creation of new healthcare IT companies this year, thanks to the stock market's continued rise and plentiful venture funding for this sector. A quarter of respondents (24 percent) believe the capital markets for private healthcare IT companies will remain strong at all stages, which is up from 15 percent in 2017. And, 68 percent of respondents expect the creation of new healthcare IT companies to increase over the next two years, up from 60 percent in 2017.

 

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