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Challenges and success factors of digital health startups

by Brad Sitler

Published on 5/4/2022

Bringing digital health innovations to market can be notoriously challenging for startups, especially those focused on pediatric digital health innovations. In this edition of the Cerner blog, Brad Sitler, Head of Innovation at Bear Institute, discusses the challenges facing all digital health startups and associated key requirements for success, as well as the unique challenges and opportunities for pediatric digital health innovation.

Digital health innovation funding

The digital health innovation space has grown exponentially over the past 10 years, with $2 billion invested in 2011 and $44 billion invested in 2021 by the global financial and corporate markets. This represents a 20x increase. While this level of investment is good for health innovation, it can create a hyper competitive market for new digital health startups trying to gain traction. Further, the increase in funding has largely targeted specific markets such as patient empowerment, prevention/wellness, remote patient monitoring, telehealth, research, personal health and population health. One segment of healthcare that did not see an increase in investment is children’s digital health, which received less than 1% ($167 million) of global digital health funding ($22 billion) in 2020, according to StartUp Health’s annual report on digital health funding.

Challenges and key requirements for startup success

While other industries allow for incremental improvements in new solutions, healthcare, with its required upfront research, data and development investment, needs new solutions to either capture a sizable share of the market or warrant a substantially higher price for its product or service. Studies require proving safety first, then validating performance and effectiveness, and finally, quantifying ROI. This process is often repeated for each new country or region the solution is being introduced, depending upon the payer models that exist.

Startups focused on digital health must hire well-rounded leadership to address as many early needs as possible and have a clear strategy/commercial vision for yearly milestones. These startups face a hyper-competitive market given the global financial community’s investment and need a committed investment with a longer time horizon than other industries. A clearly defined strategy for commercialization, including a comprehensive reimbursement model, is necessary for success.

Gavin West, Vice President of Sales & Marketing, Smileyscope, said, "We not only have the responsibility to pursue strong clinical efficacy, but also to build a product that is fiscally efficacious. Every start-up needs to pursue these goals in parallel. A truly disruptive device is one that improves outcomes while reducing cost to the institution. Accomplishing that goal is good for the hospital, patients and industry alike."

Pediatric digital health innovation

While tremendous investments continue to pour into digital health innovation, not all segments of digital health have received the same level of interest and associated investment. Pediatric digital health innovation is woefully underfunded when compared to the broader digital health market.

Startups focused on pediatric digital health face unique challenges because the market is stratified by children’s age and weight, leading to small market segments and lower investments by VC and angels. Scaling to market is also challenging with no sizable pediatric provider organizations, no HCA and over 250 standalone pediatric hospitals to individually pursue. Understanding and complying with the special ethical and regulatory protections for children constitutes another challenge.

With a predominantly fee-for-service-based reimbursement model, there is no driving force for substantiative care model change, which further limits innovation. Dr. Kevin Cleary and Dr. Natasha Shur from Pediatric Care Innovations, LLC, explain, “Business leaders often tell pediatric innovators that their concepts are too early for investment – in other words, considerable time and resources must be spent demonstrating a specific patient or provider need before product creation. While this is practical advice, there are too many financial and regulatory obstacles to actualize even the best of ideas. While there have been many advances in medicine, some parts of pediatric practice have not been reimagined since the 1970s. Pediatric clinical and biomedical teams just need a fraction of the same resources and support as other consumer markets to make a real difference for our kids.”

Fortunately, pediatric digital health startups have several unique opportunities by being focused on children. The pediatric healthcare community is very collaborative in nature. There are many grant and philanthropy opportunities, and even outside the immediate pediatric healthcare community, people are frequently willing to volunteer time and resources to help kids.

Bear Institute PACK

Fortunately, pediatric digital health innovation start-ups have access to numerous incubators and accelerator challenges with prize pools and dedicated support. The Bear Institute Pediatric Accelerator Challenge for Kids (PACK) event was designed to assist pediatric digital health startups looking to bring new solutions to market for kids. Bear Institute PACK is hosted by the Bear Institute for Health Innovation and co-sponsored by Children’s National Hospital and Cerner. This is an innovation challenge for pediatric digital health startups to compete for a rich price pool, including marketing/PR across healthcare, targeted awareness to the pediatric community, prize money, a pilot opportunity at Children’s National and potential integration work by and with the Bear Innovation team.

Digital health continues to realize market validation with increasing guidance from the FDA, continued and growing investment for over a decade in digital health, entry by major technology vendors (AWS, Google, Microsoft, Apple, etc.), as well as payers and major industry associations embracing the market.

Now is the time for digital health startups to demonstrate the claimed benefits of the technology at scale with a strong positive ROI. An increasing number of incubators/accelerators with targeted funds, demonstration pilots, clinical trials with extensive data collection and integration with hospitals’ decreasing number of technology systems provide for validation, scalability and commercial viability for digital health startups.