Summit Health Report Finds Digital Health Platform Investment Increased 1,900% Over the Last Four Years, Outpacing Other Digital Health Markets

BOSTON, Feb. 17, 2022 /PRNewswire/ — Advisory, research and management consulting firm Summit Health today released its Platforms in Digital Health: 2021 Year End Market Report, finding that investments in digital health platforms exploded by approximately 1,900% from 2017 to 2021. Platform companies in this report are defined as those that are multi-sided platform (MSP) companies that exhibit two or more of required criteria^[1].

Summit’s research, which conducted a thorough analysis of many of the top market research databases, also found that digital health platforms accounted for four of the top 10 digital health deals in 2021. Approximately $2.24 billion went to the top 10 platform deals, representing a nearly 50% increase compared to 2020.

“We are just starting to see the platform revolution across healthcare. The pandemic has accelerated it along with the recognition that traditional players can’t solve the biggest challenges in healthcare on their own. From unlocking the power of connected systems and enabling the promise of machine learning, to the emergence of marketplaces that efficiently match supply and demand, to an evolution of the role of traditional EHRs, savvy investors and founders are now seeing the value that platforms can create,” said Seth Joseph, founder and managing director of Summit Health. “Combined with other market forces, these factors are dramatically challenging the narrative that all healthcare is local and that dominant health systems will dictate how care is delivered.”

More broadly, 2021 represented another banner year for digital health investments. Total funding among U.S.-based digital health startups reached a whopping $29.1 billion, nearly doubling the previous record set in 2020, according to Rock Health’s annual funding report.

However, sitting underneath the surface of those numbers, was the fact that digital health platforms are becoming the most transformative players in healthcare and are driving the biggest return on investment (ROI) for clinicians, patients, and investors alike. Platforms are already the biggest players in the broader business landscape: four of the top five most valued companies worldwide are platforms, and Fortune 500 tech platforms consistently grow at faster rates and are more profitable than their peers.

Summit’s Platforms Report suggests that healthcare will soon follow suit, with MSPs becoming the dominant and most profitable business models. Additional report findings include:

• Digital health platform deals are bigger and more aplenty. Platform deals of more than $100 million increased 66% in 2021 compared to 2017-2020 combined, with nearly a 3x increase in total deals in 2021 than in 2020. Additionally, in 2021, Series C and post-Series C average investment grew 80% and 173% respectively compared to 2017-2020.
• Platforms receive a valuation premium as they prove out market traction and network effects. Digital health platforms that have a ‘flywheel effect’ command a valuation premium. Starting with angel funding, platforms start to receive a valuation premium (versus non-platform peers) that grows over time, reaching a 2.8x premium for Series C and beyond.
• Publicly traded digital health platforms show why there’s a valuation premium. Compared to their non-platform peers, digital health platforms are more scalable (2x revenue per employee), have more pricing power (50% higher gross margins), are more profitable (24% vs -2% EBITDA) and realize enterprise values at 2.5x (25x vs 10x enterprise-value-to-revenue).

Despite greater value, platforms are harder businesses, especially in healthcare.

While platforms will deliver more value and will become more dominant in healthcare, creating any successful platform company is difficult, especially in healthcare. Platform companies fail at a higher rate according to Summit’s research, and face more complex business challenges including developing commercial strategies for multiple markets, aligning constituents’ interests and building trust between them, and organizational complexity. In healthcare, those challenges are exacerbated by a more stringent regulatory environment, sensitivity around health data, and atypical supply-and-demand dynamics .

Navigating these challenges requires startup founders and executives who understand platform strategy fundamentals and can communicate vision and patience to investors. Summit’s report includes multiple conversations with CEOs from leading digital health platform companies who lended their experience building their companies.

The full Platforms in Digital Health: 2021 Market Report by Summit Health can be downloaded here.

About Summit Health

Summit Health is a boutique strategic advisory, research and management consulting firm serving companies in the digital health and health technology space. Specializing in helping firms build and successfully scale multi-sided platforms in healthcare, Summit believes in the power of platforms and the value of network effects to solve many of the biggest problems in healthcare. Summit works with investors and founding teams to evaluate market opportunities, develop sound business strategy and execute with precision. Summit Health is led by Seth Joseph, a recognized expert, author and researcher in digital health who previously led Corporate Strategy at Surescripts. For more information, visit https://www.summithealth.io/.

CONTACT: Seth Joseph, seth@summithealth.io

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SOURCE Summit Health