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As Tide Shifts Toward Value-Based Care, Digital Health Is Ahead of the Curve

Arnab Sarker

1776 Health Columnist

In April, the Senate overwhelmingly passed H.R.2, otherwise known as the “Doc Fix,” a revamp of the ever-troublesome sustainable growth rate formula (SGR). SGR has determined how doctors get paid under Medicare for the past 18 years—but now with the President’s signature, change is in store.

As victory hugs were exchanged and toasts were toasted around Washington, though, the star of the moment wasn’t a person, but a word: “value.” Value-based care is the current Promised Land in healthcare, and it’s a function of two variables: quality, using metrics on which no one can agree, over cost, using pricing structures on which no one can agree.

Despite the constant controversy over metrics, however, value-based care is something our country desperately needs. The “Doc Fix” will spur a national exploration of the definition of “value,” and the acceleration of digital-health funding over the past year suggests that startups might already be a few steps ahead.

To be frank, it should come to no surprise that the “Doc Fix” passed with such support. Without it, doctors would face a 21.2-percent reduction in Medicare payments this year, causing a crippling mass exodus of physicians who accept Medicare patients.

Yet, the truly interesting portions of the bill lie in two new incentive programs replacing the SGR. These programs require providers to meet certain requirements in order to qualify for their yearly Medicare payment increase. The first program, the Merit-based Incentive Payment System (MIPS), combines meaningful use, clinical-quality reporting and new value-based-care metrics into a single incentive program. The second is the Alternative Payment Model program, offering payment bonuses to providers that adopt new payment models, which ultimately lead to capped payments and/or shared savings.

Providers will have standard payment increases until the incentive programs eventually kick in during 2019, but the message is immediately clear: The public is tired of the status quo—and will only pay if providers make real progress toward improving value. MIPS and the Alternative Payment Program represent a tightening of the belt across the system, and both health systems and payers will need a new set of tools to weed out the business and clinical processes that ultimately have little effect on outcomes. Generally, outcomes have meant making sure that patients are kept healthy, but increasing patient choice and price transparency means that outcomes must heavily integrate patient satisfaction as well.

In our hospital, surgeons are often taught to treat the final skin closure as the most important portion of the operation. Patients can’t see the large tumor resection or the perfectly anastomosed bowel, but they will question quality of their care based on the only thing they can see: their scar. Increased price transparency means that it’s never been more important to optimize every interaction with the patient, and dramatic increases in venture funding for companies focused on patient engagement and administrative processes suggests there might be a market, too.

Without question, investors have noticed the tide shift toward value. Providers and payers alike are hungry for digital solutions that transform organizations into efficient and patient-centric machines. The funding numbers tell the same story—while pharmaceuticals and biotech continue to draw in large amounts of investor capital, digital health has become by far the fastest growing segment in the healthcare space.

In 2014, $4.1 billion went into digital health companies, according to RockHealth—a sum greater than all of the prior three years combined. That’s twice the growth rate of venture funding as a whole, and represents the first time that digital health has outpaced medical device funding. This acceleration has been driven in large part by a rapidly progressing cohort of young companies entering the space, with a 38 percent increase in Series A and 61 percent increase in Series B rounds since 2013.

With 2015 Q1 numbers showing $600 million cashed into digital health already, the trend continues. The two largest subcategories in 2015 thus far have been analytics/big data and consumer engagement – sectors that enjoyed an average 3x growth in 2014 as well. Recent IPOs in digital health, including Castlight Health,, and newcomer Evolent Health, also show that these sub-sectors are heating up. Still, their relatively lackluster performance compared to the market suggests that health care providers haven’t quite determined how these new tools fit into the overall patient experience.

These numbers are more than just bets. They should be a wake-up call to new companies and the whole healthcare system. Improvement in the “value” patients seek is more than just diagnosis and treatment of disease; it’s also about consumer experience and operational efficiency—and when it comes to these issues, patients are anything but patient.

For new hopefuls entering the space, I have one piece of advice: Do what we do in the hospital every day, and know your patients as real people. Go out and find them, listen to them and try to understand how you might fit into the healing process. We’ve gotten quite good at keeping patients alive, but now it’s time to figure out how to help people thrive—and for that we need all the help we can get.

Arnab Sarker

1776 Health Columnist

Arnab Sarker is an independent healthcare consultant, medical student, and former Director of Operations of K Street Capital. He writes/thinks/breathes about healthcare trends and how policy, technology and medicine can…