The Future of Digital Health January 2023

Boston Consulting Group partners with leaders BCG X is the tech build & design unit of BCG. in business and society to tackle their most Turbocharging BCG’s deep industry and important challenges and capture their greatest functional expertise, BCG X brings together opportunities. BCG was the pioneer in business advanced tech knowledge and ambitious strategy when it was founded in 1963. Today, entrepreneurship to help organizations enable we work closely with clients to embrace a innovation at scale. transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, With nearly 3,000 technologists, scientists, build sustainable competitive advantage, and programmers, engineers, and human-centered drive positive societal impact. designers located across 80+ cities, BCG X builds Our diverse, global teams bring deep industry and and designs platforms and software to address functional expertise and a range of perspectives the world’s most important challenges and that question the status quo and spark change. opportunities. BCG delivers solutions through leading-edge Teaming across our practices, and in close management consulting, technology and design, collaboration with our clients, our end-to-end and corporate and digital ventures. We work in a global team unlocks new possibilities. Together uniquely collaborative model across the firm and we’re creating the bold and disruptive products, throughout all levels of the client organization, services, and businesses of tomorrow. fueled by the goal of helping our clients thrive and enabling them to make the world a better place.

The Future of Digital Health he health care market has focused in recent months Tech advances in general will unlock many new opportuni- on how to navigate a post-COVID-19 world. During ties in digital health. Virtual reality will offer new approaches T the pandemic, digital health options led to great for treating mental health conditions, and the health care opportunities for physicians to reach patients through industry will embrace more use cases for digital twins in telemedicine and remote monitoring, and paved the way clinical trials, hospital operations, and disease modeling. for new approaches to providing better care. Unsurprisingly, We see a push for smarter clinical development, and investments flowed into digital health care as the pandemic organizations are already testing ChatGPT, the generative spread. They began to slow in the second half of 2022, AI technology, in developing therapeutic ideas, analyzing however, as investors’ focus gradually shifted from exciting medical data, and identifying patterns. We also expect new ideas to demonstrated outcomes and evidence, with more tech-related advances to focus on reducing consumers’ startups being asked to show value and a business model required out-of-pocket spending for health care. out of the gate. Even as the flow of investment into startups decelerated, several nontraditional players made significant Meanwhile, digital tools will improve health equity over moves into the health care market in 2022 (as we anticipated), the coming year by helping to bridge care gaps, expand partnering with traditional players in an effort to create access, enable more personalized treatment, and eliminate new channels and markets and to advance the new hybrid geographic barriers. Mental health services, in particular, health care environment. will benefit, with more options becoming available to those seeking care. Still, the industry must contend with a cloud As we enter 2023, many trends in digital health that of economic uncertainty—and even though health care is the pandemic inspired and spurred on continue to gain typically resilient in this type of climate, we can expect traction, but other developments are beginning to play a some important shifts, including the following. role as well. In this latest edition of “The Future of Digital Health,” experts across BCG and BCG X—BCG’s new tech • The focus of digital-health investments will move from build and design unit—delve into what will define the top-line growth to profitability, following the number of space in the year ahead. big bets made in recent years. Home-based health care will keep gaining momentum • Pharma IT will become more attractive to healthtech after strong growth in 2022, due in part to the aging companies, given the current need for more comprehensive baby boomer population and to powerful technological and industry-specific digital solutions. advances—especially as the industry moves toward more “patient-led” delivery. We also expect alternative care • Strategic investments and M&A in the healthtech models and new entrants in the health care space to arena will increase even as financial investors pull emerge (watch for Microsoft and Apple), while retailers back somewhat. such as CVS, Walgreens, and Walmart further develop their health care strategies. We are extremely excited about the ongoing evolution of digital health and—given the following developments The women’s health arena will continue to attract and trends highlighted by our global team of experts— attention, investment, and innovation in 2023. We see expect 2023 to be a transformative year. exciting trends in fertility options, community-based care, and support for the underserved, among others. Femtech products and solutions (technology that specifically addresses women’s health needs) will grow at a rapid pace, and femtech businesses will compete to develop hybrid, one-stop shops.

Organizations are already testing ChatGPT in developing therapeutic ideas, analyzing medical data, and identifying patterns.

A plethora of companies are trying to change the way women are supported, are treated, and take care of themselves. Ashkan Afkhami Managing Director and Partner • Progress and momentum in the women’s health • Alternative care models and new entrants will space will continue as they have in recent years. appear. Companies such as CVS, Walgreens, and A plethora of companies are trying to change the way Walmart will build on their existing infrastructure to women are supported, are treated, and take care of provide community-based health services and explore themselves. We are especially excited to see positive channels for providing near-real-time care through trends in fertility options (such as those offered by innovative new technologies and services. Other compa- Ovia Health and Progyny), community-based care nies, such as Amazon (following its recent acquisition of (Cayabacre), support for underserved populations One Medical), will leverage their strategic assets to move (Sesh Groups), care advocacy (Maven), alternative birth into holistic health care, including work that focuses on options (Oula Health), and mental health services that sleep, activity, and nutrition. are uniquely designed for women (Caraway Health). In addition, both large companies and startups will make • The need for outcome-based solutions backed strong pushes for women’s health equity in different by real-world evidence and studies will pose a countries around the world in order to provide better stronger barrier to entry into digital health. Over experiences and options. We look forward to additional the past decade, we have seen various organizations— attention, investment, and innovation in the women’s such as Omada, Proteus Digital Health, WellDoc, health space in 2023. Akili Interactive, and Pear Therapeutics—take digital solutions to market, with mixed outcomes. As a result, although CPT/ICD (procedural and diagnostic) codes are available for remote patient monitoring and other clinical services, manufacturers within the pharmaceu- tical and medical-device sectors, along with payers and providers, will require more evidence before they adopt or reimburse such digital health solutions.

Digital tools will advance health equity by supporting companies, payers, and providers who want to reach underserved populations. Johanna Benesty Managing Director and Partner • Digital tools will advance health equity by supporting • Digital technology will help improve clinical care companies, payers, and providers who want to reach by enabling data-driven analysis and giving health care underserved populations. Examples include tools that practitioners tools that support continuous learning, enable better decisions, permit the measurement of best-practice sharing, and operational research based on impact, allow more personalized treatment pathways, real-world evidence. For example, networks of intensive correct biases in data collection, or alleviate geographic care units (ICUs) may use federated learning—a barriers through the use of hybrid care models that machine-learning technique that multiple entities can use provide access to specialized services. to build a common model without sharing their data—to identify best practices in patient management and create a score for each ICU on the basis of its compliance with those practices and its alerts for high-risk cases.

Full-stack solutions increasingly rely on an ecosystem architecture powered by a community of partner companies. Nate Beyor Managing Director and Partner • Experienced builders of digital products and solu- • Pharma IT will become more attractive as a tions are beginning to recognize that compliance customer target for healthtech companies. With influences products. For example, regulations often health provider budgets tight—and with IT even tighter limit investments in new products, yet compliance within them—growth-stage digital-health companies teams frequently take a spectrum of stances when need a path toward revenue and profitability that will interpretating these regulations. For instance, how can a bridge inevitably longer funding cycles. Although pharma pharmaceutical company support telehealth? Not at all? spends big on technology, it often does so in disjointed At arm’s length? Or by setting up some sort of virtual ways across the value chain (discovery, development, clinic? Answering this question, and others like it, will manufacturing and supply chain, commercial), with directly affect patients’ product and user experiences. solutions that are either built from the ground up or Thoughtful builders will therefore address these repurposed from other industries. As a result, over the questions head-on early in their innovation cycle. coming months, more comprehensive and industry- specific digital solutions will grow and compete for • Technology partnerships are no longer optional. pharma IT dollars. Full-stack solutions, composed of linked platforms across layers of the technology stack, increasingly rely on an ecosystem architecture powered by a community of partner companies. Within such an ecosystem, layers have different owners and work together through tech- nology interfaces. Strong platform layers will have robust connections through well-defined APIs and software development kits (SDKs), with business models to accompany them that allow the complete solution to scale by aligning incentives to all parties.

Individuals’ lives outside of the health care system significantly affect their ability to understand, prioritize, and act on medical recommendations. Satty Chandrashekhar Managing Director and Partner • Smarter clinical development will be a key focus • Applying data science to better understand social over the coming year. More than 20,000 new drug can- determinants of health (SDOH) will sustainably didates are currently under development. The statistical and equitably improve the health of at-risk pop- likelihood is that more than 30% of those entering Phase ulations. Individuals’ lives outside of the health care II will not progress and that approximately 60% of those system significantly affect their ability to understand, reaching Phase III will fail. Given that bringing a drug prioritize, and act on medical recommendations. As a to life takes around ten years and $2 billion, the case result, precision care interventions powered by SDOH— for improving the probability of success seems straight- such as housing, transportation, and food security—can forward. Meanwhile, a range of existing capabilities, significantly influence a person’s overall well-being. Most from machine learning of trial data to natural language important, data science can help clarify the health driv- processing of clinical notes, can create new efficiencies, ers among SDOH, suggest patient interventions for care although there is a critical supply gap in the talent workers to undertake, or recommend healthier behaviors needed to enable them at scale. In a number of areas for individuals to adopt. To make this actionable, provid- across the clinical life cycle, organizations can realize ers and health systems need access to extensive SDOH material benefits when these capabilities are present. data and capabilities. These include customized insights Key opportunities include improved trial speed, cost, and by population segment, human-centric intervention de- quality. Relevant areas include study strategy (selecting signs informed by behavioral science, and AI platforms appropriate countries and sites), protocol definition that channel interventions physically and digitally to the (choosing the best trial-design criteria and endpoints), right patients at the right time in the right ways— patient recruitment (finding and onboarding patients), learning and improving as they gather more data. and pharmacovigilance (understanding who might fail a screening and how a study is likely to perform).

Compared to the innovation potential in hardware, the untapped potential of software is enormous. André Heeg Managing Director and Partner • Health care will continue to move closer to the • Science- and evidence-based facts will continue to people, especially the older generation, given the compete with fake medical news. We live in a time demand. The move will be powered by digitally enabled when misinformation, such as about the pandemic or products and services, such as home testing, home about diet and nutrition, spreads very easily. Conse- monitoring, at-home care, telemedicine, e-prescriptions, quently, the need to establish sources of trustworthy, and health checks that can be performed without doctors. reliable, and accurate medical information is becoming This trend will include a subtrend involving patient- increasingly acute. Many people try to gain an advantage centric care models and offerings that generate patient or benefit by distributing false or misleading medical engagement and, ultimately, the use of related services information and even by discrediting medical profession- and products. als. Managing that trend with readily available, truthful medical information will become more and more • Medtech will move from hardware-wired to soft- important. ware-coded. Traditionally strong medtech companies will further explore and expand their efforts to support their hardware with software products and services. Compared to the innovation potential in hardware, the untapped potential of software—especially the appli- cation of AI algorithms—is enormous. This includes software on both the provider side, such as in workflow management and decision-support tools, and the patient side, such as in preclinical administration and evaluation support and post-procedure report generation.

Telehealth and telemedicine cannot deliver well-rounded patient care in isolation. Ami Karnik Director and Venture General Manager • Virtual care is certainly here to stay, but its future • The year to come will see retailers deploying is rooted in how well it is paired with in-person health care strategies with even greater force. care. With the peak of COVID-19 mayhem behind us, Spurred by the need for convenient COVID-19 testing it is becoming clearer that telehealth and telemedicine sites, retailers have enthusiastically entered the health cannot deliver well-rounded patient care in isolation. The care space. Their near-term focus will be on expanding coming year will reveal which companies can deliver the primary care and on increasing omnichannel capabilities right combination of virtual and in-person care in a way to bring accessible, low-cost, and convenient care to pa- that optimizes patient convenience, reduces clinician tients. In addition, as competition in the space heats up, burnout, enhances clinician-patient engagement, and many retailers will opt to boost their personalized care improves health outcomes. offerings through data analytics and cloud computing ca- pabilities. Meanwhile, consumer stickiness will become • Home-based health care will receive a lot more the key to longer-term success. attention in the coming year. Driven by a growing geriatric population and improvements in technology, the balance between traditional in-person care and home-based care has been tilting toward the latter—a trend accelerated by the pandemic. With an expected annualized growth rate just shy of 8%, according to Grand View Research, home-based care is likely to continue picking up pace as more baby boomers need longer-term care for chronic conditions. In tandem, sup- port services for caregivers will increase as the demands on them become more acute. These services could cover everything from hands-on medical support to ancillary and logistics services that ease caregivers’ burden.

In customer service, organizations will use generative AI to respond to patient inquiries, freeing health care companies to improve the patient experience. Daniel Martines Managing Director • Health care organizations will adopt generative • Patient analytics will inform many different areas, AI technologies (the use of artificial intelligence algo- from diagnostics and therapies to the optimization of rithms to generate new data, such as images, text, or medical supply chains on the basis of patient density audio). As a result, we will see an emergence of genera- or therapeutic trends. In tandem, patient-related analyt- tive AI use cases and experimentation across all health ical models will become more and more sophisticated care sectors in 2023. Organizations are already testing through the use of AI and external information such as ChatGPT, a generative AI technology, in developing ther- demographics, social-media data, and social determi- apeutic ideas to feed clinical trial pipelines, analyzing nants. Patient-data platforms—including anonymized large amounts of medical data, and identifying patterns integration of electronic-health record platforms—will that may indicate new treatment options or potential emerge, as will domain-specific data science teams to health risks. In customer service, organizations will use capture value. generative AI to respond to patient inquiries, freeing health care companies to improve the patient experi- • Patient data will be integrated into the health ence and reduce the workload on human customer- care supply chain and employed across use cases. service representatives. In addition, they can use gener- Pharmacies will monitor drug-therapy adherence and ative AI in clinical trials to help find the most suitable personalize patient communications. Clinical-trial patients for the trial and to create patient-specific treat- project teams will optimize country selection and site ment plans. activation. And pharma companies will optimize drug distribution. Meanwhile, patient-data compliance will continue to evolve, and organizations will need to im- plement automated controls to ingest, manage, and use the data. In addition, companies will need to strengthen their enterprise data-management function to unlock patient-analytics use cases.

Patients who have difficulty accessing mental health care in person will have more options for connecting with telehealth providers. Lauren Neal Principal, Data Science • As AI and machine learning (ML) continue to make • Telemedicine will be used to bridge gaps in care, rapid progress, the number of AI- and ML-enabled expanding access and increasing care delivery to under- medical devices being developed and approved for served communities. More specifically, telemedicine will use by the FDA and other regulatory bodies will extend mental health services and improve adherence to increase. Use cases for these devices will expand from medication and therapy by removing barriers to engage- radiology into other areas, including oncology and car- ment. Patients who have difficulty accessing mental diology. At the same time, more devices will incorporate health care in person will have more options for connect- learning algorithms, fostering the evolution of device ing with telehealth providers, leading to higher-quality software over time, and regulatory agencies will need to care and fewer hospitalizations. Combining telemedicine adopt new surveillance processes for evaluating device with remote patient monitoring will allow providers to performance. manage chronic conditions and reduce costs. • The health care use cases for digital twins will grow, including clinical trials, hospital operations, and disease modeling. In the case of clinical trials, researchers will use digital twins to reduce the number of patients in placebo groups and increase study diversity, thereby low- ering recruitment costs and accelerating time to approv- al. Scientists will also use digital twins to predict how individual patients will respond to treatment through the use of deep phenotyping, which compiles health records, genomic data, and other data sources.

Winning will mean not only having a great product-market fit, but also making wise choices about how to work with healthtech ecosystem partners. Julius Neiser Managing Director and Partner • In digital health, competition will shift from player- • Health care delivery will increasingly evolve versus-player to ecosystem-versus-ecosystem. from patient-centric to patient-led. Patients are Winning will mean not only having a great product- demanding to take charge of their own health, using market fit, but also making wise choices about how to disease management solutions to do so and finding new work with healthtech ecosystem partners. Such partners ways to connect to their care teams, such as through include data ecosystems, infrastructure and cloud ever-more-advanced remote diagnostic, delivery, and ecosystems, and device ecosystems, as well as networks monitoring solutions. This new wave of patient-led care of providers, payers, and health systems. will require great leaps in integrating people, services, software, and hardware. • The focus of digital-health investments will fundamentally change from top-line growth to profitability. Digital-health solutions have proliferated, with investors making big bets to capture a share of the booming healthtech sector. In the coming year, many of these solutions will fail if they have not sufficiently reduced business-model risks and demonstrated a path to profitability. On the flip side, investors will double down on solutions that satisfy these requirements, as health care in general—and healthtech in particular—is recession resistant.

Although consumers on Medicaid have historically been harder to engage, we expect to see a wave of innovation prompted by digital- tech and localization-focused new entrants. Etugo Nwokah Managing Director and Partner • Medical- and prescription-cost transparency will tainable growth in premiums (which were about $13,700 be a renewed focus for payers, providers, employers, per employee in 2022). Consumers will increasingly use governments, and consumers. The catalyst is the Center financial services such as “buy now, pay later” to finance for Medicare and Medicaid Services’ Transparency in their medical needs. And this trend may shape how Coverage Rule (CMS-9915-F), which went into effect on industry players enter new markets and engage with July 1, 2022. The dynamics involved—including the MLR existing ones. credit, the financial mechanism that will allow payers to provide incentives to consumers to shop for health • Medicaid is the next frontier for health care care services—are complex. On the prescription side, innovation. Over the past decade, Medicare has been companies such as GoodRx, Mark Cuban Cost Plus Drug the primary focus of innovation, much of it in the health Company, and Amazon are using scale and operational care payer and services space. Medicaid and Medicare efficiency to find pockets of drugs that they can source, face similar cost pressures, especially within the macro administer, and deliver at low cost to consumers. environment, and this has implications at both state and federal levels. Although consumers on Medicaid have • Ongoing advancement in technologies such as AI historically been harder to engage, we expect to see a and ML, blockchain, and workflow automation will wave of innovation prompted by digital-tech and create more opportunities to address the out-of- localization-focused new entrants. Such innovation will pocket spending that US consumers require must touch on social determinants of health but also, more provide health care. Health care costs account for 10% to comprehensively, on individuals across topics such as 20% of a typical US consumer’s wallet—and 20% of total nutrition, mental health, and sleep. US GDP spending—and US employers are seeing unsus-

Partnerships will enable healthtech products that previously struggled to gain distribution and scale to expand more aggressively. Sid Thekkepat Managing Director and Partner • Strategic investments and M&A in healthtech will • Microsoft and Apple will make significant inroads grow. As financial investors pull back slightly, strategic into health care. While Amazon and Google have investors will partner, invest in, and acquire companies. made their moves, Microsoft and Apple have largely These partnerships will enable healthtech products that been in the background. This should change as the most previously struggled to gain distribution and scale to trusted tech brands make bigger pushes into the field. expand more aggressively. • Drugs will increasingly be launched digitally rather than through a salesforce. As pharmaceutical firms experiment with models, there will also be a significant shift to digital-first models when launching drugs.

The coming year is likely to see an increase in femtechs striving to be one-stop shops for women’s health. Alice Wilson Lead Strategic Designer • Virtual reality will continue to showcase new • Femtechs will race to offer comprehensive—and approaches to treating mental health conditions. hybrid—care models. The femtech market is predicted Although the metaverse hype has begun to decrease, to grow to $103 billion by 2030, according to Precedence VR-based exposure therapy is still exhibiting positive Research, meaning that a significant amount of white results in improving patient outcomes—and now that space remains. As a result, the coming year is likely BehaVR and OxfordVR, the leaders in this field, have to see an increase in femtechs striving to be one-stop joined forces, this trend is well positioned to continue. shops for women’s health, offering both virtual and The more immersive interactions within the metaverse in-person services. New York–based Maven Clinic, now could support better access to care through virtual valued at an estimated $1.35 billion, has shown that clinics, as Mind-Easy has done in Decentraland; offer such efforts can succeed. And around the globe, numer- ways to manage broader psychological disorders, such as ous comprehensive hybrid care providers are waiting in body dysmorphism, autism, and depression; and provide the wings, including Plenna in Mexico, Kindred in the spaces for mental well-being practices, such as those Philippines, and Almond in the US. provided by Tripp, a digital wellness company.

Players must relentlessly focus on the true problem they are solving for patients, consumers, care teams, or health care professionals.

ur experts clearly see a number of major themes on • Think big but start small. The overall market bene- O the health care horizon in 2023, including an ongoing fits from big thinking, disruption, and new models for shift to in-home diagnostics, more alternative-care models providing care. Nevertheless, players must relentlessly and new entrants, technology advances that improve treat- focus on the true problem they are solving for patients, ment or reduce the share of patients’ wallet expended on consumers, care teams, or health care professionals. health care, and a greater emphasis on specific therapeutic They should run tests to establish a product fit with the areas such as women’s health. We are excited to watch intended user or users, and they should co-create where these themes as they emerge, evolve, and, in some cases, possible with that audience, with health systems, and consolidate to create meaningful impact for patients, with payers. Finally, they should choose the appropriate caregivers, and physicians. geographic focus, starting small and growing from there, rather than trying to boil the ocean in multiple markets. For quite a while, players in the digital health space have been attempting to bridge the chasm between digital and At BCG and BCG X, we are committed to helping organiza- in-person health care, most often by generating adoption, tions enable innovation at scale and unlock new possibili- engagement through real-world evidence, and compelling ties to reshape the health care ecosystem with digital tools, business models. Although the chasm remains, it is narrow- technologies, and solutions that empower patients, physi- ing steadily. Here are some ways for the digital health com- cians, care teams, and others who work in the field of munity to advance their collective journey: health. As we step into 2023, we look forward to collaborat- ing with you to create the next generation of digital-health • Seize partnership opportunities. Continue to observe solutions. larger shifts in the market with an eye toward how incumbents spend their time, money, and energy, while also looking for opportunities to partner or to create or join the respective ecosystems. • Demonstrate value. Be more judicious than in the past about demonstrating value, showcasing clinically validated outcomes, and creating sustainable business models. A number of health care companies have closed their doors in recent months because they did not move quickly enough to generate appropriate evidence for their solution and a scalable reimbursement model. Many companies have interesting ideas, but investors want to know who is going to pay for them and how they will generate value for all stakeholders.

Add Co-Sponsor logo here Boston Consulting Group partners with leaders Uciam volora ditatur? Axim voloreribus moluptati in business and society to tackle their most autet hario qui a nust faciis reperro vitatia important challenges and capture their greatest dipsandelia sit laborum, quassitio. Itas volutem opportunities. BCG was the pioneer in business es nulles ut faccus perchiliati doluptatur. Estiunt. strategy when it was founded in 1963. Today, we Et eium inum et dolum et et eos ex eum harchic help clients with total transformation—inspiring teceserrum natem in ra nis quia disimi, omnia complex change, enabling organizations to grow, veror molorer ionsed quia ese veliquiatius building competitive advantage, and driving sundae poreium et et illesci atibeatur aut que bottom-line impact. consequia autas sum fugit qui aut excepudit, To succeed, organizations must blend digital and omnia voloratur? Explige ndeliaectur magnam, human capabilities. Our diverse, global teams que expedignist ex et voluptaquam, offici bernam bring deep industry and functional expertise atqui dem vel ius nus. and a range of perspectives to spark change. Nem faccaborest hillamendia doluptae BCG delivers solutions through leading-edge conseruptate inim volesequid molum quam, management consulting along with technology conseque consedipit hillabo. Imaio evelenditium and design, corporate and digital ventures— haribus, con reictur autemost, vendam am ellania and business purpose. We work in a uniquely estrundem corepuda derrore mporrumquat. collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive. For information or permission to reprint, please contact BCG at [email protected]. To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcg.com. Follow Boston Consulting Group on Facebook and Twitter. © Boston Consulting Group 2023. All rights reserved. 1/23