Challenges and opportunities for the digital health sector in 2023

Financial, account, statistics and business data medical health concept
Sheila Zabeu -

January 06, 2023

By 2023, after more than three years of the pandemic, overall healthcare spending is expected to fall in real terms due to inflation and slow economic growth. Concerning the digital health venture capital market, the amounts invested are expected to remain at the same level as in 2020, between $15 billion and $25 billion. There are many opportunities promised by the association between technology and patients that could be exploited in the year ahead. But the digitalisation of the healthcare sector is still likely to come under pressure from tighter regulation in many parts of the world regarding the use of patient data.

“Although investors in the digital health sector believe there will be a devaluation of assets in 2023, most still consider that the ecosystem overall is quite healthy and that investment levels will be comparable to recent years, staying between $15 billion and $25 billion,” says Justin Norden, partner at GSR Ventures.

We must not lose sight of the fact that in the interim, the pandemic has sparked a whirlwind in digital health investments, with startups raising $29.1 billion in 2021, almost double the 2020 figures ($15 billion).

For comparison, going back to a pre-pandemic period, venture capital firms invested $8.3 billion in digital health startups in 2019. That plateau is much more similar to what we’re experiencing today – digital health companies raised $2.2 billion in Q3 2022, marking the lowest funding period all of last year and the lowest fundraising quarter since Q4 2019, according to Rock Health’s latest quarterly report.

This slowdown in the healthcare sector is widespread, not just in its digital share. Overall spending (public and private sectors combined) is expected to grow by 4.9% in nominal terms in 2023, in dollar terms, driven by higher costs and wages, according to the research and analysis division of The Economist Group (EIU). However, spending will drop in real terms as it will not keep pace with inflation.

Beyond the economic issue that puts pressure on the entire health sector, the EIU anticipates that regulatory agencies worldwide will have to intensively monitor its digital dimension, from electronic medical records to online health condition apps.

For example, the European Union is to invest €220 million (US$220 million) between 2023 and 2027 in the development of the European Health Data Space, a segment-specific cross-border ecosystem of common rules, standards and practices, infrastructure and governance systems through which individuals will be able to control their health information, ensure data privacy based on the region’s General Data Protection Regulation while making data more interoperable and accessible. The UK has a similar action plan that will centralise data storage and protection for doctors and researchers to access remotely.

Such initiatives are likely to be replicated elsewhere, as the World Health Organization (WHO) has promised to close a partnership with the European Union in 2023 to implement a similar plan. On the other hand, the United States, where a private healthcare provider system predominates, is likely to face a more significant challenge in 2023 to extend health-related data protection under the proposed US Data Privacy Act, in view of the EIU study.

There are not only challenges

With the pandemic, or even before it, digital technologies started to give patients more tools to intensify self-care practices and their relationship with healthcare providers. While this has helped generate better clinical outcomes and quality of life, it has also required industry leaders to be more proactive in ensuring personalized experiences without major obstacles. With this, challenges arise, but also opportunities.

This market for patient engagement solutions enables healthcare organisations to communicate with patients and is expected to reach $102.5 billion by 2030 versus $23.4 billion in 2022.

In addition to patient engagement solutions, another area of opportunity in the digital health sector is Artificial Intelligence (AI) which can, for example, help improve treatments with data-driven clinical decision-making and simplify workflows for healthcare professionals. Precautions should be taken concerning protecting patient data used to train AI models and the generation of biases when developing AI algorithms.

The adoption of robotics in healthcare is another area of opportunity. This technology can assist with simple tasks that may present some risk of contamination, such as cleaning hospital environments, to more complex surgical procedures. In clinics and outpatient clinics, it can perform services such as elderly care, monitoring against falls, drug delivery and even patient relations such as occupational therapy.

And as it could not be otherwise, wearable technologies will be one of the key trends in healthcare in 2023, potentially offering excellent opportunities and benefits for both companies and users. Their continuous monitoring of health conditions enables personalised patient care and data-driven decisions for business leaders and healthcare professionals. In addition, sensors and apps can provide biomarkers and individualised data to aid treatment and disease management.

Finally, digital technology can also make valuable contributions to telemedicine, which gained momentum during the pandemic and is here to stay, helping to reduce physician overload and travel. Indeed, these systems still have much to be improved to ensure safe and reliable access to different population sub-groups, for example, for individuals with disabilities and residents of rural areas, and thereby generating many business opportunities – the telemedicine market is expected to reach $397 billion by 2027, according to Fortune Business Insight forecasts.