Health IT funding may rebound in 2024

The post-pandemic environment hasn’t been too kind to health IT companies seeking buyouts or venture capital investment, but prospects for companies seeking health IT funding may have an easier time in 2024, according to a series of new reports. 

2023 represented the worst year in health IT deal volume since before the pandemic, says Bain & Company, with buyout deal volume falling 23% from 2022. Rock Health notes that while US companies scooped up $10.7 billion in venture funding across 492 deals, the sum represents the lowest amount of capital invested via labeled fundraises in digital health startups since 2019. 

However, 2024 could be a different story if broader economic trends move in the right direction. For example, a survey from Boston Consulting Group (BCG) indicates that 65% of investors report an “optimistic outlook” over the next three years, and may start to feel more confident about shorter-term improvements if factors like inflation start to ease up soon. 

Familiar challenges prompt a search for innovative solutions

Bain & Company points out that some well-known economic challenges, such as a tight labor market, widespread inflation, and ongoing reimbursement issues, significantly affected the marketplace for provider buyers in 2023 as they looked to find more efficiencies within their organizations. 

To meet these goals, technology customers are putting their focus on the revenue cycle and are actively seeking tools to help them optimize financial processes. Streamlining clinical workflows and bulking up cybersecurity are also priorities for many provider types.  

Healthcare providers are putting skin in the game to achieve their objectives and are planning to increase their budgets for 2024, according to poll data from the Guidehouse Center for Health Insights. Eighty-six percent of survey respondents are expecting at least some additional leeway to spend in the upcoming year, with close to half anticipating a moderate or significant increase in budget.  

Digital health customers are particularly seeking tools to assist with infrastructure modernization, including cybersecurity packages and artificial intelligence tools. Close to two-thirds are hoping that these investments bring greater operational efficiencies, while more than half are aiming to improve patient experiences.  

Only 9% of respondents are planning to make any venture capital investments themselves, however, and just 13% are thinking about forming new joint venture alliances with digital health vendors. Instead, they will rely on partnering with companies that have secured their funding elsewhere, particularly those that offer outsourcing services to relieve burdens on internal resources. 

Overcoming obstacles to jumpstart investment in 2024

Companies seeking venture investment will need to navigate a difficult landscape over the next 12 months to secure funding and find a niche in an increasingly crowded market.   

BCG predicts that ongoing challenges with talent acquisition and retention, margin pressures, and a rapidly evolving regulatory landscape will continue to put pressure on companies looking for investors.  

Meanwhile, artificial intelligence will continue to shake up the health IT community. Large language models (LLMs) and other forms of AI are likely to dominate, but they will only attract investment if they are specifically designed for the unique needs of the healthcare environment and able to generate clear evidence of their trustworthiness, safety, and effectiveness.  

Bain & Company adds that health IT startups will be competing even more with Big Tech companies eyeing opportunities in healthcare. These players may have greater technical maturity in the AI space, but often lack the healthcare-specific knowhow to woo provider and payer customers. 

Because of this disconnect, investors are going to become even more diligent in assessing companies for their viability in the health IT environment, the report continues. Companies looking for funding should consider developing highly detailed, integrated due diligence and post-acquisition playbooks to convince investors that they are a smart bet. 

Startups that can prove their worth are likely to benefit from the return of larger labeled raises and faster-paced merger and acquisition activity, Rock Health predicts. For companies that can’t secure their next series of funding, full sales or partial M&A may both be attractive options for continuing their ability to develop their ideas. 

Overall, 2024 has the potential to change the downward trajectory of health IT funding and investment. If companies can successfully address the acknowledged needs of the market, power through ongoing economic barriers, and convince investors of their long-term worth, they are likely to find more available funding on the other side to further their missions and find a place in the digital healthcare ecosystem. 

Jennifer Bresnick is a journalist and freelance content creator with a decade of experience in the health IT industry.  Her work has focused on leveraging innovative technology tools to create value, improve health equity, and achieve the promises of the learning health system.  She can be reached at jennifer@inklesscreative.com.