In recent times, Silicon Valley tech companies and venture capital (VC) funds have banded together to transform healthcare. This has lead to the creation of a new type of industry that includes digital health services, digital therapeutics, and even digital medicines. But don’t get sucked into the hype — the digital healthcare space has its own challenges and 2020 might be the year of reckoning for many companies.

A lot of money but little to show for

Since the first iPhones rolled out, developers were quick to release all sorts of health apps that monitor various factors, including weight, exercise, blood pressure, cholesterol levels, sugar levels, heart rate and sleep quality. Some apps even claim that they detect cancer.

Today, there are roughly 318,000 health-related apps available on the market and almost 20% of smartphone users have one or more applications on their device that help them track or manage their health.

The year 2019 saw a lot of money pouring into startups and many digital health unicorns (valued at over $1 billion) were created overnight with high-flying initial public offerings (IPOs).

VC funding leveled off to about $7 billion in 2019 after topping at $8 billion the prior year with over 350 companies funded. That same year, six companies had IPOs resulting in a combined market value of $17 billion, among them Livongo, Change Healthcare, Phreesia, and Health Catalyst. By 2026, the global digitalization healthcare market value is expected to reach around $511 billion.

But is digital health space headed for a bubble? That seems not only very likely, but also necessary.

In order to survive in the long-run, these companies need to demonstrate that they employ solid clinical evidence in their apps and digital services, as well as a solid understanding of what patients actually need.

Some companies have rich clinical experience and have their own research department. Others rely on a consumer technology background, building tools that are palatable to patients, but with little scientific rigor backing them.

You need both to work, though. A digital healthcare service won’t be effective unless that patient consistently engages with the product. Likewise, if a product isn’t clinically vetted, patients will stop using it when they see it doesn’t work as intended or their doctor recommends something else.

A prime example is Proteus, a digital therapeutics startup that receives FDA clearance for its product, a patch that detects whether patients took their medicine. The product sounds good on paper, but patients weren’t swayed. Recently, Proteus confirmed it would lay off a good portion of its staff, but claimed it will keep its two facilities open.

One of the biggest hurdles that digital healthcare companies need to address is patient reimbursement. This entails providing clear clinical evidence that their solutions will improve patients’ health.

Propeller Health, which was recently acquired by ResMed, is making leaps in this regard. So far, the company has received nine FDA clearances and published 15 peer-reviewed studies.

However, most other companies market solutions with no publication backing their tools. Others conduct a pilot study with insurance companies, but typically these involve a much smaller sample size, whose data can be skewed easily.

Looking forward, digital health companies face many challenges. Those that survive, however, will play a major role in the healthcare industry of the future.