Digital healthcare is at a pivotal moment, with innovation, funding and expansion creating new opportunities and challenges for startups and established companies. In 2024, digital health venture funding reached $10.1 billion, slightly down from the previous year but still surpassing pre-pandemic levels. Most of these funds have been directed toward early-stage ventures, especially in areas like nonclinical workflows, mental health and obesity care.
Late-Stage Funding Declines Drive M&A Activity
However, a decline in later-stage funding reveals larger companies are facing more difficulty securing capital, potentially leading to consolidation and partnerships.
“Many late-stage players spent significant capital developing and piloting their solutions but weren’t able to clear the necessary hurdles to operate sustainably at scale,” Lawrence M. Chu, co-chair of Global M&A at Goodwin, said in Rock Health’s 2024 Digital Health Care Report released Monday (Jan. 13). “Today’s decrease in late-stage investments will likely lead to more M&A in the near future. These acquisitions may not be ‘champagne popping’ events, but they will streamline operations and free up founders to eventually start a new crop of digital health companies.”
As Chu noted, the decline in late-stage investments is likely to spark more mergers and acquisitions as companies struggle to scale sustainably. These acquisitions, while not high-profile, will streamline operations and allow founders to innovate, contributing to the “David and Goliath” dynamic, where both startups and large players must find ways to collaborate and complement each other.
New startups are “attracting investor attention despite a more tempered funding environment,” according to the report, and “their growth trajectories will depend on how effectively they navigate a Goliath-rich environment. Later-stage startups struggling with downward valuation pressures or stalled fundraising rounds could fold or seek acquisition in the coming year—potentially restarting digital health M&A activity, which hit a decade low in 2024 at 118 deals.”
AI and Infrastructure Growth in Digital Healthcare
Digital health companies are building enterprise tech stacks on foundation models, with key players like Epic, Cerner, Microsoft and startups such as Commure and Abridge competing in this space. These companies develop complex artificial intelligence (AI) architectures for large healthcare clients, addressing multiple use cases, ensuring compliance and often partnering with one another.
“While there are many companies in healthcare AI, the seemingly low barrier to entry is a bit of a mirage,” Shivdev Rao, MD, CEO and co-founder at Abridge, said in the report. “Similar to how there are clear leaders at the foundation model level, there are select players who can deliver enterprise-grade AI solutions for major healthcare organizations. The bar for success is as high as ever, with stringent and evolving requirements beyond core product capabilities. That said, the effort and investment is worth it — it’s a huge opportunity to create historic impact.”
The development of digital health infrastructure companies like TriZetto, founded by Jeff Margolis in 1997, illustrates the potential of integrated technology solutions. Margolis’ vision, which he discussed in a recent podcast, was to create a unified platform combining computing power, software and data analytics — three pillars that remain essential in healthcare today.
“Strategic innovation was a key theme,” Margolis said in the podcast. “The whole concept of what today we call the cloud did not exist. So, you had people laying down software on their own computers in their own data centers. TriZetto was based on a construct I derived from a musical term, which refers to a composition for three voices. If any of the three parts is not performed, the composition is not complete. We felt customers in the healthcare industry should be able to accomplish three things: get the network computing power and infrastructure to run their businesses; have application software that ran their day-to-day businesses and take all the date derived from transactional systems and turn it into useful information for decision-making, administration, clinical and strategic.”
His approach to both organic and inorganic growth, including the $2.7 billion acquisition by Cognizant, highlights the importance of scale in the healthcare industry. As digital health evolves, particularly with the use of AI and machine learning, the lessons from infrastructure pioneers continue to resonate.
“The healthcare industry is so big that if you don’t scale relatively quickly, you’re going to have a difficult time,” Margolis said.
Rising Demand for Digital Healthcare Tools
Consumers, including older generations, are seeking digital tools to manage healthcare tasks such as appointment scheduling, test results, and payments, according to PYMNTS Intelligence data.
According to the PYMNTS Intelligence report, “The Digital Healthcare Gap: Streamlining the Patient Journey,” a collaboration with Experian Health, two-thirds of consumers use patient portals, with millennials and higher-income individuals most likely to engage with them. Additionally, 32% of nonusers expressed interest in using a portal, if available. Among healthcare visits in the past year, 1 in 5 patients scheduled appointments digitally, with urgent care patients most likely to use digital channels such as patient portals (17%) and websites (16%).
This shift toward digital healthcare engagement is also evident among older generations, as highlighted in the PYMNTS Intelligence report, “The Digital Platform Promise: What Baby Boomers and Seniors Want From Digital Healthcare Platforms,” in collaboration with Lynx.
According to the report, 78& of baby boomers and seniors are satisfied with receiving test results online, and 64% have participated in at least one digital healthcare activity in the past year. Their satisfaction with digital healthcare exceeds the general population, with 72% expressing satisfaction with online appointment scheduling. Additionally, 65% of baby boomers and seniors show interest in unified digital healthcare platforms, with 24% demonstrating high interest.
The Year of Evidence in Digital Healthcare
What is the theme for digital healthcare in 2025?
“I would say this is going to be the year of evidence,” Jared Augenstein, senior managing director at Manatt Health, said in an interview with PYMNTS. “There continues to be significant and increasing demand for clinically impactful, financially valuable digital health solutions that move the needle on patient outcomes, cost of care, or both. Yet there are many technologies that, despite having gotten some traction at the Seed or Series A stage, don’t yet have a compelling, evidence-based, clinical, or financial ROI story. The health tech companies that deliver meaningful value to their customers have a bright future and the ones that don’t need to quickly prove out their value proposition or they will struggle to be viable.”
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