Culling the health tech herd

The threat of economic cataclysm is in the air, following the failures of Silicon Valley and Signature banks.

For digital health companies, the growing sense of gloom follows a bleak 2022 during which venture capital investment in them fell by more than half, according to a report from industry analyst Pitchbook.

The biggest problem? Companies are under budget pressure and spending less on employee benefits.

Similarly, health systems are buying less technology as they continue to navigate financial challenges. Labor costs are up and patient volume is down, making operating margins tighter than ever, reports management consulting firm KaufmanHall.

“What a hospital or health system is willing to buy is a pretty narrow set of products,” said Rebecca Springer, who authored a report on the health tech market and is a senior health analyst at Pitchbook.

Growth opportunities: Limited opportunities to sell exist, Springer said.

Health systems continue to need software that can help administrative staff find and resolve unpaid bills. They also need technology to assist with hiring, contract staff and retiring workers.

Meanwhile, investment in digital therapeutics and technologies designed to treat chronic conditions like pain and diabetes, as well as behavioral health issues, remains resilient.

Long view: Venture capitalists will likely invest in products with a clear path to profitability that health systems and insurers need.

“This is part of the broader dynamic that we’re seeing in venture where there’s less of a risk appetite, valuations are coming down, and we’re not going to have these very lucrative public exits,” said Springer.

She added that consolidation is coming. Companies with useful, albeit niche, products will likely be subsumed into bigger players. But those that can’t compete may be doomed to fail.

This is where we explore the ideas and innovators shaping health care.

Cold water swimmer Adam Boggon, a doctor from England, examined enthusiasts’ belief that donning a wetsuit and swimming in partially frozen lakes can help combat depression in a recent piece for Harvard Public Health.

His take: It may, but probably because it brings people together for fun and exercise. If you try it, start slow, he writes, and consider risks like cold shock and heart arrythmia.

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Today on our Pulse Check podcast, host Megan Messerly talks with Katherine Ellen Foley about the Veterans Health Administration’s announcement that it will cover Leqembi, a new Alzheimer’s drug that appears to slow the disease’s progression, and why the VHA’s decision differs from other federal agencies.

Combine Covid’s toll on nursing home residents with most people’s preference for living at home as long as possible as they age, and it’s no wonder that at-home care is growing.

Most recently, it expanded at a 2.5 percent clip in 2021, according to a Medicare Payment Advisory Commission analysis of data from the Centers for Medicare and Medicaid Services.

But the commission, MedPAC, says the growth is not good for Medicare’s budget because the government pays providers too much for their services.

The commissioners, mainly medical school professors and health system executives, said Congress could save $10 billion over five years without affecting access to care by ordering a 7 percent cut in reimbursements.

“Medicare’s payments for home health services are too high, and the excess payments diminish the service’s value as a substitute for more costly services,” the commission said in a report to Congress it released Wednesday.

Industry shudders: MedPAC’s proposal is sure to draw criticism from advocates for and providers of home-based care.

And it’s not clear how Congress will react. Lawmakers have backed the extension of at-home care waivers through the end of 2024. The waivers enable hospitals to treat some emergency department and inpatient patients in their homes instead.

ARPA-H is zeroing in on a Washington home.

The year-old Advanced Research Projects Agency for Health, created by Congress in 2021 to fund ambitious moonshot initiatives considered too risky by the private sector, plans a base of operations in Washington or its suburbs.

ARPA-H Director Renee Wegrzyn announced the decision at a Tuesday briefing, but did not reveal the specific location. She said the General Services Administration is currently helping the agency choose an office to lease.

ARPA-H plans to announce two additional locations later this year. In a December law, Congress ordered it to set up offices in at least three places around the country, specifying that none of them could be the campus of ARPA-H’s parent agency, the National Institutes of Health, in Bethesda, Md., just outside the capital.

“Anyone in the biomedical space can tell you you need to stay close to your regulators, to your payers, and many of those folks are in the national capital region,” said Wegrzyn.

Why it matters: Several cities and states have waged a fierce battle to host ARPA-H, which Congress created in a December 2021 law. The localities believe ARPA-H will bring jobs and revenue and bolster their companies and universities as the new agency sponsors research projects that aim to transform health care.

So far, the agency has hired 100 employees for its first location, including its first two program managers: Paul Sheehan, a former program manager at DARPA, the defense agency on which ARPA-H is based; and Ross Uhrich, a surgeon and former Navy lieutenant commander who most recently was an assistant professor at the Uniformed Services University of the Health Sciences.