Brave new world of digital health: Why we need to adapt business strategies to a new reality

Fuelled by the pandemic, the digital health sector was “on steroids” for the last two years, particularly in the ‘digitalization of the patient journey’ space. Growth has been driven by venture and private equity-supported players entering the market pushing innovation, by strategic partnerships between tech firms and established care providers and by the expectation of a continuing regulatory acceptance.  Healthcare, one of the most conventional and regulated industries, is finally in the grip of transformation.

However, there are challenges ahead for the brave new world of the digital health industry:

• The Covid pandemic has faded out, reducing the demand for digital solutions
• Stringent budgetary conditions will require better evidence of health economic benefits of digital solutions
• Regulatory changes may be more susceptible to delays and “watering down”
• Investor climate is cooling down and higher cost of capital will restrict funding for start-ups

With a fast-moving digital transformation hitting increasing head- and crosswinds, it is vital for the healthcare industry to re-assess their strategies and business models. In this publication, we take a closer look at the German healthcare market and outline the guardrails and beacons to stay on course in the race for the winning strategy.

Respect the patient being in the centre of action

Patients will remain the driving force behind the evolution of their own journey since they increasingly expect a change towards both convenience and high-quality medical care.

In numbers:

• 90% of German patients are demanding more transparency about their treatment
• 83% want more digital health care offerings
• 60% demand longer opening hours with flexible care access (1)

New primary care providers e.g., Avi Medical and Patient21, have started to tackle these challenges and provide a continuous experience that does not end when the patient leaves the general practitioner’s (GP) office. Mayd, the on-demand medicine delivery platform promises “light-speed” drug delivery to the door in 30 minutes.

There is a competitive advantage for telemedical platforms and established healthcare providers looking at how less regulated and data-protected industries such as eCommerce have developed. Since eCommerce players such as Amazon or Germany’s Otto group have focused on the consumer from the beginning, they understand their customers’ behaviour and needs.

► Navigating towards a successful digital strategy will need to focus on the patients and their needs. Establishing measuring tools such as NPS (Net Promoter Score) and PROMs (Patient Reported Outcomes) at different time-points along the journey will lead to a higher quality of treatment processes and patient satisfaction. The collection and use of this data could ultimately create leverage for insurers and move the system to a "value- and outcome-based" compensation system.

Never bank your business on regulatory changes

Regulatory changes “remove roadblocks” in the way of innovation and allow early movers to transform into pioneers and future global market leaders. In 2019, a Digital Health Care Act (DVG) was passed in Germany, with the aim of improving the system through digital innovation. Since then, the German healthcare system has played a crucial role and acted as an internationally recognized pioneer in the field of digital therapeutics (e.g., by introducing Digitale Gesundheitsanwendungen or DiGAs).

At the same time, regulatory changes remain unpredictable, taking the e-prescription movement in Germany as an example: The telematics infrastructure was not sufficiently established; thus, the e-prescription systems could not be adequately tested. Instead of launching the e-prescription nationally as planned, the new government halted all projects. As a result, the strategy of online pharmacies such as Zur Rose and ShopApotheke were hit, with share prices today being a fraction of the February 2021 peaks.

► Entering a phase of possible economic recession, with increasing budgetary pressures and healthcare innovation being a lower political priority, innovators cannot bank on regulatory change being implemented on time; regulatory risk mitigation and diversification strategies are required.

Build sustainable, weather-proof businesses

The EU digital health market is expected to grow from €6.8bn in 2019 (2) to € 33bn by 2026 (3). In today’s more volatile economic and political climate, tapping into this growth will require “weatherproofing” innovative business models. Cash-hungry B2C landgrab and first-to-market strategies are susceptible to a higher cost of capital. Sharpening operating models regarding customer definition & pricing strategy as well as gaining endorsement and support of a larger traditional partner can help to build a more sustainable business without reducing pace.

Strategic partners and investors can also provide complementary care elements that extend the current coverage of the patient journey:Teleclinics, the pharmacy sector and door-step drug delivery platforms can collaborate for a seamless patient experience. Another angle for them is to coordinate with pharma R&D, providing much needed structured, longitudinal patient data.

► Undifferentiated B2C health apps, island solutions and business models with high customer acquisition costs will face increasing headwinds. Digital health innovators should consider B2B or B2B2C models as well as collaborations with established players such as eCommerce groups, big pharma, large employers, the pharmacy & wholesale sector as well as health insurers.

Summary

The healthcare sector is on the cusp of transformation, and we are witnessing an unprecedented transfer of data, knowledge, and wealth from existing to new digital players. However, while the healthcare industry is reinventing itself, global economic and regulatory challenges will increasingly stress-test business models. Embracing key critical success factors will be vital to adapting to a new reality: a patient centred model with objective measuring tools, insulation from regulatory dependencies and hyper-scaling businesses cash-efficiently with commercial customers or by synergistic partnerships.

Authors:
Ulrich Kinzel, Managing Director (Email)
 Dr. Lara Maier, Vanessa Boog 

Sources:
(1) BMJ Open 2017, Healthrelations 2017, Jameda 2021, Gesundheitsstudie 2017, Kantar Health 2011, Bitkom, Handelsblatt, ApoBank
(2) Statista.
(3) Statista.