Private Investment and Digital Health: Continuing Reimbursement Is Key to Health Equity

For years, we have all seen headlines about record-breaking amounts of money being invested in digital health startups. Ten years ago, investment in digital health was approximately $1.1 billion annually. By March of this year, the market was seeing the same investment made weekly.

While this most certainly reflects the growth of the digital economy during the COVID-19 pandemic, it was also spurred by the loosening of decades-old laws and regulations around the utilization and reimbursement of digital health. This not only allowed the growth of digital health tools built to address the health needs of vulnerable and underrepresented populations but also has the potential to advance health equity. If these policies are not continued permanently, we will backslide on one of the pandemic’s few positive impacts.

A key consideration for any startup founder is: “How will we eventually be profitable, and who will pay for this?” In a heavily regulated market like health care, answering this question is not easy. In recent years, some startup founders have taken an “if we build it, they will come” approach with policymakers. Some built products they knew they could sell to private health insurance payers (health plans and employers), like workplace wellness applications, on-demand virtual care and health self-management tools. Others chose to skip the middleman altogether and sell direct-to-consumer. For the most part, they all assumed federal health programs would be beating down their doors once they saw their performance in other markets.

Unfortunately, while investment continued to pour into the market and new tools were developed, neither of these approaches did much to advance health equity, as state and federal lawmakers remained skeptical. The “Field of Dreams” approach assumes government regulators are eager for innovation and disruption, which we in Washington have learned through experience is not true. Regulators must balance being stewards of taxpayer dollars with the need to promote the health and well-being of all they serve.

The reality is that, for the most part, Washington moves too slowly for venture capital investors, and, faced with the very real need to be profitable to grow, startups look to markets where they will be paid for their products and services. So, while digital health investment continued to grow steadily, and more and more private insurance beneficiaries had access to these tools, those who could potentially benefit most — vulnerable and underserved patients on Medicare and/or Medicaid — were mostly left behind.

Until last year, digital health grew almost exclusively because of the private insurance market. While many point to very real concerns about health equity in growing digital health outside of that market, including access to affordable high-speed broadband or smart devices, what’s often left out of the conversation is whether most digital health tools are designed to support vulnerable populations or even with such populations in mind.

Due to restrictive federal and state reimbursement policies and impatient venture capital investors, digital health tools were mostly built to support the health needs of young, healthy individuals. Although some companies have tried to seek Medicare and Medicaid reimbursement for their tools, they have lacked the data specific to sicker and more vulnerable populations that is necessary to make their case.  The problem was that there was very little of such data — until now.

Early last year, when it was clear that in-person activities, including the provision of health care, were likely to be restricted or at least discouraged for a significant period of time, Congress and many state legislatures passed emergency authorities to allow for broad reimbursement of digital health in Medicare and Medicaid programs.

Nearly overnight, utilization of virtual care skyrocketed. One in 4 Medicare beneficiaries had a telehealth visit between the summer and fall of 2020. Nearly half of Medicare primary care visits were provided via telehealth in April of 2020, versus less than one percent in February of 2020. In looking at utilization of telehealth by race, Black patients represented a greater proportion of encounters after the policy expansions compared to the same period the prior year. As utilization grew, so did venture investment. In 2020, digital health investment rose to $14.1 billion — 72 percent higher than 2018, which previously held the record for the most investment in digital health. In 2021, digital health investment has already exceeded $20 billion.

Now we are seeing the success of early-stage startups focused on vulnerable populations. Unite Us, a startup focused on connecting patients with social services, secured Series C investment; Strive Health, which focuses on chronic kidney disease, is now post-Series B; and Folx Health, launched in 2021 and focused on queer and trans care, raised a strong $25 million Series A round — to name just a few.

Although Congress acted to address one key aspect of ensuring health equity in digital health tools with the Senate’s passage of the bipartisan infrastructure package, which included key investments in broadband, it must be aware that failure to ensure permanent reimbursement for digital health after the COVID-19 public health emergency ends would have an incredibly harmful impact on health equity. Not only would patients immediately lose access to high-quality, efficient care, but investment in future tools to better serve vulnerable populations would sharply decline. Without the certainty of reimbursement, venture capital investors would likely be reticent to invest in new companies with no path to market. Young, healthy and mostly white patients will continue to be able to use these tools, while vulnerable patients would be left behind yet again.

Author disclosures: Gjanje Smith is an employee of Cigna, which recently expanded its virtual care offerings by acquiring telehealth provider MDLIVE, Inc., in April 2021.


Catherine Pugh is assistant vice president, policy at the eHealth Initiative.

Maria Phillips is senior counsel, privacy and compliance at Imprivata Inc. and a CEO Action for Racial Equity alum.

Gjanje L. Smith, M.D., MPH is a urologist in the Seattle area and Cigna’s CEO Action for Racial Equity fellow.

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