2024 Reflections, 2025 Predictions: What’s Next for Digital Health. Interview with Julia Croxen

The holiday season is upon us, a time for reflection and anticipation. In the world of digital health, it’s no different. Alex Koshykov, host of the “Digital Health Interviews” podcast, donned his festive attire to welcome Julia Croxen, a principal at Rock Health, for a special year-end episode. Before diving into the future, Alex took a moment to celebrate the podcast’s achievements in 2024, including 14 insightful interviews and 243,000 views on our YouTube channel.

The 2024 Digital Health Landscape: Steady Growth Amidst a Disciplined Market

The conversation then shifted to the current state of the digital health industry. Julia, with her deep expertise in the field, offered a nuanced perspective. She framed 2023 as a “year of market correction” and highlighted that 2024 has seen “a bit more of a disciplined growth mindset.” As of Q3 2024, $8.2 billion had been raised across 379 deals in digital health. While final numbers are still being tallied, Julia predicted that the total investment for the year would be around or slightly below the $10.4 billion mark set in 2023. Julia explained, “We’ve seen a shift towards early-stage deals, while we’ve seen mega deals kind of remain a bit steady in general.”

The Shift Towards Early-Stage Investments: A Sign of a Maturing Market

This focus on early-stage investments sparked Alex’s curiosity. Why the shift? Julia attributed it to a combination of factors, including the high valuations of later-stage companies and a broader industry movement toward sustainable growth. “It’s as important to grow and scale as it is to be on a path toward clear profitability,” she emphasized. The challenge for many later-stage companies, she noted, is pivoting to this new mindset, especially when they’ve already raised significant funds at high valuations.

Rock Health’s Innovation Maturity Curve: Surprises and Insights

The discussion then turned to Rock Health’s recently published Innovation Maturity Curve report, a data-driven analysis of the maturity of different types of innovation in digital health. This was the second year of the report, and it included three areas from the previous year and three new ones.

One area that remained in the “developing” phase was AI in healthcare. Julia explained that this was due to “the proliferation and diversity of use cases that are still emerging and being explored.”

In contrast, digital obesity care has moved up the maturity curve, driven by the buzz around GLP-1s. “We’ve seen a lot of startups emerge, a lot of interesting solutions, and kind of start to begin to seek to scale as well,” Julia noted.

Perhaps the most surprising development was the rapid advancement of “food as medicine.” Julia shared, “It was the most nascent area we looked at in 2023, but has really expanded and I think is one of the areas that I predict will really continue to kind of develop and evolve and mature in the coming year.” She pointed to the potential influence of RFK, the nominee for leading HHS under the upcoming administration, who has emphasized the importance of food in health.

Emerging Trends: Patient Phenotyping, Innovative Wearables, and Climate Health

The report also highlighted three new areas: patient phenotyping in digital health, innovative wearables beyond wrist-worn or ring-based devices, and climate health innovation. The latter, the most nascent of all, was particularly intriguing. “It’s something that I personally hadn’t heard at all before this year and seems to just be emerging,” Julia admitted. She expressed curiosity about how the transition to a new administration might impact this field, given the outgoing administration’s focus on the health implications of extreme weather. Julia concluded this part by saying: “there’s still a lot of foundational elements that would need to be put in place for it to be able to continue to mature along that innovation maturity curve”.

Climate Health Innovation: Addressing the Health Impacts of a Changing World

The conversation ventured into the relatively new territory of climate health innovation. Alex, intrigued by this emerging field, asked Julia for examples. She described solutions that provide “warnings about air quality for wildfires, which can be really devastatingly impactful to patients with respiratory conditions, asthma, COPD, etc.” These solutions integrate data from local weather reports to alert patients to potential risks in their area. “So that’s just one such example,” Julia noted, highlighting the practical application of these innovations.

Navigating a Challenging Year: The Success Story of “Tapestry Weaving”

With 2024 being a challenging year for digital health founders, Alex was keen to hear about success stories. Julia acknowledged the difficulties, stating, “I think it would be naive not to acknowledge that and not to acknowledge how significant it was for startups and founders to find success in this environment.” She then introduced a recurring theme observed by Rock Health: “tapestry weaving.” This strategy involves startups using M&A to expand their capabilities and service offerings. Julia elaborated, “We’ve seen Dario Health do this. We’ve seen Commure do this. We’ve also seen Fabric Health do this.” The latter, she noted, was particularly interesting as Fabric Health, founded in 2021, made four acquisitions between 2023 and 2024. They acquired solutions from Zipnosis, Giant, MeMD, and Team Health. According to Julia, these are “all distinct but complementary capabilities and features that make the overall offering more attractive and also provide an opportunity to introduce new revenue streams to the business as well.”

The Pandemic’s Lasting Impact: Reshaping Healthcare and Accelerating Digital Health Adoption

The conversation inevitably turned to the COVID-19 pandemic’s impact on healthcare. “I think sometimes we forget about how significantly COVID reshaped healthcare and really spurned digital health,” Julia reflected. The funding boom in 2020 and 2021, she pointed out, was a direct result of this. Beyond funding, the pandemic drove significant behavior change among healthcare decision-makers and providers. “It was necessitated by COVID. It was really a forcing function,” Julia explained. This “need to get creative and to problem solve in an environment of necessity,” she believes, has persisted to some degree.

Telehealth, a major beneficiary of the pandemic, has reached a point of equilibrium, according to Julia. For three years running, Rock Health’s consumer adoption research has shown that around 75% of consumers have used telemedicine. However, Julia highlighted an emerging trend: “consumer preferences are becoming more selective in terms of what they desire to use telehealth for versus what they would prefer to be going in person to see a provider.”

While the pandemic accelerated digital health adoption, it also exacerbated existing challenges. Julia pointed to provider burnout and the consequences of delayed preventative care as two areas still ripe for innovation. “Those are two areas that are still ripe for solutions and innovations and really some of the unmet needs resulted from the pandemic itself,” she concluded.

The Staying Power of Technology Adoption in Healthcare

Despite the challenges, Alex noted a sense of optimism from Julia regarding the continued adoption of technology in healthcare. Julia confirmed this, stating, “Yeah, that does seem to be the trend.” She pointed to the increasing number of providers and payers establishing innovation arms and laying the groundwork for evaluating and adopting digital health solutions. The key, she emphasized, is ensuring that these solutions reach the target end-users, whether they be “frontline providers and nurses or care or case managers amongst a payer, population health stakeholders, or even their patients or members.”

Navigating the Valuation Crunch: Challenges and Strategies for Overfunded Startups

The conversation then turned to a pressing issue facing many startups that raised significant funds in 2021 at inflated valuations. “Most of them need more capital and VCs are not really willing to give that valuation now,” Alex observed. Julia agreed, acknowledging that many startups are grappling with this challenge.

One trend Julia highlighted was the rise of “unlabeled rounds.” She explained, “It’s a way in which sometimes can be used, at least as a way in which startups can raise additional funds, extend their cash runway when they might not have reached the milestones necessary to raise the next labeled round.” These rounds, often involving previous investors, can also help companies avoid down rounds.

For startups facing this predicament, Julia emphasized the importance of shifting from a “growth at all costs mindset to sustainable growth or path to profitability.” She advised companies to “identify as many operational efficiencies as possible to reduce their cost structure while doing everything they can to maintain or even ideally grow their revenue.” Additionally, she suggested exploring the “tapestry weaving” approach, considering strategic acquisitions or mergers to enhance value and generate new revenue streams.

Despite these strategies, Julia cautioned that not all companies will survive. “We do expect that a number will shudder over the coming months and year,” she stated, noting that this trend has already begun in the digital health space.

AI in Healthcare: Hype vs. Reality

The conversation then turned to the much-hyped topic of AI. Alex questioned whether AI adoption, particularly Gen AI, would be faster than other technologies in healthcare or follow a slower path like telehealth. Julia acknowledged the widespread interest in AI, stating, “AI is definitely top of mind for everyone in the healthcare space and beyond.” However, she emphasized the diversity of use cases and applications, making it difficult to generalize about the speed of adoption.

The Speed of AI Adoption: Balancing Innovation with Risk

Julia believes that the speed of AI adoption will depend on two key factors: “how the AI works versus the degree to which it feels a bit like a black box spitting out an output and the risk associated with the application.” She predicted faster adoption for low-risk applications where the AI’s workings are transparent, such as AI scribes for note-taking. Conversely, she expects slower adoption and more caution for high-risk applications like clinical decision-making, where the AI’s inner workings might be less clear. “And I think to some degree, that’s responsible in the context of healthcare,” Alex added.

Investors and AI: A Focus on Problem-Solving and Competitive Moats

Finally, Alex asked about investors’ perspectives on AI-powered startups. Julia cautioned founders against using AI as a buzzword to generate excitement. “Not all solutions need AI,” she stressed, advising them to focus on the problem and solution and ensure that AI is a necessary and cost-effective component. She also emphasized the importance of a strong competitive moat: “Is your AI solution something that has a sufficient competitive moat and a place that makes sense for a startup and then a likely early-stage startup to enter the market or is it more of a solution that we would established incumbent type player, such as the big tech companies even, to be pursuing and successful in?” This distinction, she argued, is crucial for attracting investors and achieving long-term success.

True or False: Rapid-Fire Predictions on the Future of Healthcare

In a fun and engaging segment, Alex presented Julia with a series of true or false statements about the future of healthcare.

Will AI Replace Doctors?

“False,” Julia declared, adding, “I think not in any near future that I can envision will AI completely replace doctors.” She believes AI will play a significant role in providing recommendations, but a “human in the loop” will be necessary for quite some time.

The Future of Healthcare Funding: A Return to 2021 Levels?

“False,” Julia stated. She believes the “market recalibration has seen caution or has resulted in more caution among investors.” While she acknowledged the uncertainty surrounding the new administration’s impact, she predicted that the trend of consistent funding levels, lower than the 2021 peak, would continue.

Home-Based Care: The New Norm?

“True,” Julia responded, with a caveat. “It depends on exactly the type of care we’re talking about,” she explained. She sees home-based care becoming increasingly common for aging at home, remote patient monitoring, hospital at home, and rehabilitation. However, she doesn’t foresee all care being delivered at home.

Streamlining Clinical Trials: The Role of Digital Solutions

“True,” Julia affirmed. She believes digital solutions and remote patient monitoring will improve recruitment, access, and efficiency in clinical trials. While she doesn’t think these technologies will impact every facet of clinical trials, she anticipates they will lead to “efficiencies and better experiences.”

Value-Based Care: A Distant Dream or an Inevitable Reality?

“True,” Julia said, referring to the statement that a complete switch to value-based care will not happen in the next decade. While she sees certain areas transitioning to value-based care, she believes fee-for-service is too entrenched to be entirely replaced so soon.

The Quest for a Super App: Solving the Problem of Point Solution Fatigue

“True,” Julia stated, acknowledging the growing frustration with having to use multiple apps for healthcare. “We are seeing what we call point solution fatigue across the board,” she said. She anticipates that platforms will emerge as winners, with other solutions serving as “plugins.” The user experience, she believes, will become much more integrated over time.

Big Tech vs. Startups: Who Will Build the Super App?

Alex’s follow-up question about who might create this super app sparked an interesting discussion. “I think there’ll be a lot of stakeholders vying to be that super app,” Julia responded. She sees potential for big tech companies, payers, and even startups to compete in this space. However, she acknowledged that it would be challenging for a startup to become the “overarching backbone.” “There’ll be a lot of tension and competition in this space to own that super app and kind of a patient journey,” she concluded.

Looking ahead to 2025, Julia identified key areas that will define digital health. “I do think mental health and AI as kind of respectively clinical indication and type of technology will be mainstays in terms of garnering significant investment,” she predicted. She also expects cardiometabolic care, driven by the demand for obesity and weight management solutions, and women’s health, fueled by policy changes and consumer demand, to be “hot areas.”

A Balancing Act for Startup Founders: Innovation with a Focus on Sustainability

Finally, Alex asked for Julia’s advice to early-stage digital health startup founders. “I think it’s a balancing act,” she said. While big ideas and innovation remain important, she stressed the need for a critical approach to implementation, focusing on product-market fit, business model, go-to-market strategy, and regulatory requirements. This balance, she emphasized, is crucial for securing investment and bringing innovations to market successfully in the year ahead.