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A year ago it wasn’t hard to find digital health companies aiming to make a business of connected and aggregating wearable devices like fitness trackers, heart rate monitors, and glucometers.
The idea was simple: With the advent of new “value-based” payment models ushered in with the Affordable Care Act, hospitals and medical groups now have a strong financial interest in staying in touch with patients throughout the year, not just when they come in for an appointment.
Of course, wearable devices were thought to be the instrument for keeping tabs on patients, and a good way of encouraging patients to adopt healthy living habits.
Many large employers are self-insuring for health care, so they too have an incentive to get their employees to use health wearables.
A year later, it’s not looking like a very good concept to hang a business on.
There is hesitation in the venture capital world to fund companies whose main business is to enable user engagement with wearable devices (and the apps that go with them).
It’s a problem of human nature. People tend to get fired up about engagement and healthy habits for a given period of time, then they go back to their old selves again. At-risk populations — the people who cost the system the most — resist using wearables, while people who are already healthy gravitate to them.
An oft-cited study by Endeavour Partners found that one-third of American consumers who bought a wearable device stopped using it within six months. Moreover, one out of every 10 adults owns some kind of activity tracker, but half of them no longer use it.
In order for engagement via wearables to truly move the dial for health care providers, patients (or employees) must strap on the devices and truly change their habits in the long term.
Whether the wearable or the engagement platform is good enough to do that is a touch bet for a VC to make.
“You can’t get ROI (return on investment) by following sugar for three months,” one venture capitalist told me.
I’ve seen several startups shift their focus away from wearables to some other more sustainable role in health care delivery or benefits delivery within large employers.
These days we’re hearing about large funding rounds going to companies that are willing to dive deep into the health care delivery system — wading through the complexities of the business model, the regulations, the cultural nuances — in order to remove waste, create efficiencies, and remove friction points.
SaaS-based health analytics platforms like Kyruus, Health Catalyst, and Aledade are pulling in some of the biggest funding rounds these days. They’re also seeing the fastest growth as value-based reimbursement models proliferate.
Fitbit and Apple will continue to sell health wearables — millions of them — but those companies get the money up front, and they’re not hurt if the buyer stops using the device in three months.
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