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As Q1 funding to digital health startups reached an all-time high in 2018, it became clear that venture investors have decided to go all-in on healthcare technology bets.

Based on new data about the size of the healthcare industry, they have good reason to make these investments in innovative health tech companies.

According to research from The Economist Intelligence Unit as described by Deloitte, while global annual health spending reached $7.077 trillion dollars in 2015, this metric should balloon to $8.734 trillion dollars by 2020.

With the rising costs of quality care and the growth of the healthcare industry, both startups and established firms have an opportunity to bring innovative and cost-efficient solutions to market.

In this article, you will learn about several of the factors driving increased healthcare costs along with the opportunities they present.

Reasons for Increases in The Size of The Healthcare Industry

An Aging Population

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From data compiled by The Economist Intelligence Unit, Deloitte explained that between 2016 and 2021, worldwide life expectancy is expected to rise from 73 years to 74.1 years. Predictions based on this estimate suggest that by 2021, the number of people older than 65 years will jump to 656 million, which will be 11.5% of the total population at that time.

In 2014, Medicare expenses accounted for $618.7B in the US, which equated to 20% of all healthcare spending for the year.

A growing elderly population in both the US and abroad, coupled with the high average cost of providing quality healthcare to members of these groups, suggest that it will drive heightened expenses in healthcare.

Startups innovating in this sector have the opportunity to provide essential care to aging individuals while reducing costs as well. A few of the companies working to make this part of healthcare more efficient and helpful are:

  • CircleLink Health: Allows doctors to provide proactive care to Medicare patients by using its network of care coaches who help patients follow treatment plans. This improves the overall health of patients while reducing more traditional and expensive reactive care.

  • Vytalize Health: Partners with primary care providers to give them a suite of tech-enabled services that allow them to provide better care, manage their practices more efficiently, and transition to risk-based payment models for their Medicare patients.

Higher Prevalence of Chronic Diseases

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Due to increased consumption of processed foods in the US and abroad along with the fact that one in four adults and 80% of children around the world do not reach sufficient levels of physical activity, many experts expect chronic diseases to become more common.

For example, the International Diabetes Federation predicts that the number of people around the world who have diabetes will expand from 425 million in 2017 to 625 million by 2045.

Likewise, the American Heart Association expects the number of people who have heart failure in the US to rise from 6.5 million between 2011 - 2014 to 8 million by 2030.

Considering that researchers found the average lifetime cost of caring for complications caused by heart failure to be $109,541 per person in 2008, and the fact that medical expenses for someone with diabetes are typically 2.3X the cost for someone without it, the increased pervasiveness of these types of conditions will lead to drastic growth in healthcare spending.

Plenty of startups can make an impact by developing products that improve the lives of people with chronic diseases while also lowering costs. A few of the companies working on creative solutions to the issues posed by the rise in chronic diseases are:

  • Heartflow: Leverages data from a CT scan to create a personalized 3D model of a patient’s coronary arteries to analyze the impact that blockages have on blood flow. As a result, providers can often use Heartflow instead of invasive tests, which leads to improved patient outcomes and decreased costs.

  • Epharmix: Uses automated text messages and phone calls to perform evidence-based remote monitoring of patients to improve outcomes and efficiency when monitoring chronic diseases.

  • Wellth: Provides financial incentives to the highest risk chronic disease patients to help them develop habits and meet quantifiable health goals.

Greater Costs of Dementia Care and Treatment

Alzheimer’s Disease International reported data that suggests approximately 50 million people will live with dementia in 2017. The same report determined the global cost of treating and caring for people living with dementia would rise to more than $1T in 2018.

Based on these figures, the average annual cost of caring for each person who has dementia will be about $20,000 per year in 2018.

Because projections indicate more than 125 million people will have dementia by 2050, this condition will also contribute to the rapid rise of healthcare expenses.

Upstart businesses that augment existing dementia providers or create exciting new treatments can benefit millions of people in a value-driven way. A few of the companies already working on products in this space are:

  • Braincheck: Provides a product called BrainCheck Memory to families, individuals, senior care facilities, and (soon) providers to track brain health over time.

  • Ceresti Health: Produces a program that coaches, educates, and supports family caregivers as they help a loved one who suffers from Alzheimer’s Disease or dementia.

Wasteful Spending Throughout The Industry

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Wasteful and inefficient spending account for part of the recent and ballooning growth in healthcare. The Institute of Medicine conducted research and found that roughly $750 billion of health spending in the U.S. during 2009 (30% of the total that year) "was wasted on unnecessary services, excessive administrative costs, fraud, and other problems."

As providers treat more people with chronic diseases, and as a considerable percentage of the population passes the age of 65, healthcare costs will escalate.

In turn, the build-up of these legitimate expenditures and the complexities they bring will make it more difficult to decrease unneeded costs.

Businesses that help providers, payers, and other health organizations analyze their costs, reign in spending, and cut inessential expenses will become invaluable. In fact, researchers predict the healthcare analytics market will have a value of 18.7 billion dollars by 2020, up from a size of 5.8 billion dollars in 2015.

A few of the startups capitalizing on the healthcare analytics trend include:

  • Kermit: Performs audits and compliance inspections of vendor-submitted invoices to save hospital systems millions of dollars each year on orthopedic, spine, and cardiovascular Physician Preference Items.

  • Lumeris: Works with health systems and medical groups to use data analytics to align the incentives of payers and providers in a way that improves the value and quality of care.

  • iVantage Health Analytics: Allows health systems to identify areas in which they can improve their operational efficiency and quality of care while reducing unnecessary costs.

As you can see, rapidly increasing costs have driven meaningful growth in the size of the healthcare industry. Due to this trend, both payers and providers alike will look to improve care in a value-driven way. This development means startups will have the chance to introduce inventive solutions to the market.

Whether you’ve spent years building your health tech startup or are just founding your business now, you still have plenty of time to impact the industry as it integrates technology in more significant ways.

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