The COVID-19 pandemic may have roiled the U.S. economy and caused unemployment rates unseen since the Great Depression, but that hasn’t stopped the flow of money into digital health, according to a recent Rock Health report.
Rock Health’s 2020 Midyear Digital Health Market Update shows that six months into the year, investors have spent a record-breaking $5.4 billion on digital health startups. While the researchers said they expected a major slowdown in response to the coronavirus pandemic, that hasn’t been the case: although there was an initial slowdown, at the tail end of the second quarter, there was a major upswing.
“Digital health funding had a wild ride through the first half of 2020. After coming out of the gates quickly with a record $3B in funding in Q1, digital health investment—and overall venture funding—hit the brakes in April as COVID-19 spread rapidly around the globe,” the report’s authors wrote. “But investors came roaring back into digital health in May as several regulatory and reimbursement barriers to digital health adoption were brushed aside in a rush to keep healthcare systems operational in the midst of the pandemic.”
Deal sizes are getting bigger, too. Rock Health reports that the average size of venture deals in the first half of 2020 was $25.1 million, the highest average in the research and VC firm’s history. To date, there have been 11 deals that have raked in more than $100 million, including ClassPass, Amwell, and Cedars.
Telemedicine has been one of the big targets of venture funding, with $926 million being invested in that sector. As COVID-19 case numbers grew and government officials recommended that people use telehealth rather than in-person doctor appointments, telehealth startups were staggered by record-breaking visit volumes. In addition, regulatory barriers to virtual healthcare have been removed: CMS has expanded reimbursement for telehealth, as have private payers; and HHS has waived HIPAA penalties if the telehealth interaction was done “in good faith.”
Finally, the digital behavioral health industry is also booming—particularly the high-acuity behavioral health market. In the first half of the year, there have been 11 digital behavioral health venture deals totaling $588 million.
Ultimately, Rock Health researchers say macroeconomics will have a major impact in the second half of the year, and that companies selling to providers and employers may have a tougher time accessing venture capital.
“Financial market uncertainty is hard to overstate, with even near-term economic forecasts having been thrown into a jumble. … Added to this uncertainty, a potential second wave of the virus could quickly reverse the Q2 public market rebound and growth in private digital health investment,” the researchers wrote.
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