The days of high valuations for digital health companies are over, said Mario Schlosser, CEO of Oscar Health, at the Modern Healthcare Transformation Summit on Tuesday.
“Digital health investors start by assuming that nothing works,” Schlosser said. “That’s the only way to interpret all these valuations we currently have right now, including ours.”
Schlosser was part of a panel at the Transformation Summit that included Dr. Steven Klasko, executive-in-residence at VC firm General Catalyst and former CEO of Jefferson Health; Randy Oostra, CEO of ProMedica; Michael Slubowski, CEO of Trinity Health; and Karen Murphy, chief innovation officer at Geisinger Health System.
Klasko cued up Schlosser and said that in 2021 someone could put the letters A and I in the same sentence and there’d be a $2 billion company to come out of it. “This year, valuations aren’t quite there,” Klasko said. “In a way, it’s a good thing because companies will have to be more sustainable.”
Schlosser called it a winter for digital health investment. He said the only way to overcome it was by proving a company has a viable economic model and technology that works for its end users.
The only companies that would avoid this winter are the ones that contribute to inflation in healthcare, Schlosser said. “Certain companies, like Doximity, are mostly about perpetuating the flows in the system. That still makes money, which is the irony of the American healthcare system,” he said.
The comment comes on the heels of a challenging few months for Oscar, the New York-based insurtech. On May 10, the company announced it was exiting Colorado and Arkansas in its push toward profitability. During the first-quarter call, it reported a net loss of $77.3 million, a decrease from $88.1 million during the same period last year.
The company’s stock price went from a peak of $29.25 a share in June 2021 to $5.96 a share today. It’s one of many publicly traded digital health companies that have struggled on the market in recent months. Others that have had a rough 2022 on the stock market include GoodRX, Teladoc and Accolade.
The private investment market has started a downturn of its own. There was $6.6 billion invested in Q1 2022, dropping 13% quarter-over-quarter and 8% year-over-year, according to Digital Health Business & Technology’s quarterly data. There have been fewer big-money funding deals in 2022 compared with 2021.
Despite a market downturn, panelists were still bullish about using digital health to transform healthcare. Murphy said Geisinger is using remote patient monitoring, artificial intelligence and patient-reported outcomes for chronic disease management. She said the company would rather partner with software engineers and digital health companies than try to do these tasks internally.
“Health systems have the patients and the knowhow and by partnering with tech companies, we’ll move a lot faster than we have in the past,” Murphy said.
Klasko said when he was at Jefferson, the health system knew that partnering with certain digital health companies might hurt short-term revenue, but it had to lean into the inevitable trend, such as home-based healthcare. That’s why Jefferson decided to co-invest in certain digital health companies, which it did in October through a formal partnership with Klasko’s current employer, General Catalyst.
“Moody’s has downgraded a lot of health systems. Part of the reason they kept [Jefferson] at an A-stable rating was we were not only reacting to the changes that would affect our traditional revenue streams, but we also we started to own a certain percentage of those [digital health] companies that would do the disrupting,” Klasko said.