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The New Tech Stack for Virtual-First Care
- The digital health sector experienced a record-breaking year regarding the number of new companies, funding levels, patient utilization, and revenue growth.
- The market is transitioning from startups selling solutions to incumbents to an explosion of "full-stack" virtual clinics competing directly with traditional providers for patients.
- Most digital health companies have chosen to build their technology stacks from the ground up rather than licensing existing off-the-shelf systems, which are often criticized for poor user experience and incompatibility with modern business models.
- Legacy healthcare IT systems were built for fee-for-service models with limited interoperability and did not prioritize patients as end-users.
- The core promise of digital health is delivering high-quality care at a fraction of the cost and at a significantly higher scale than historical incumbents.
- This efficiency is intended to be achieved by replacing human labor and inefficient legacy IT with modern technology and AI.
- A primary risk identified is that digital health companies are currently reinvesting cost savings into redundantly developing similar operating system components across isolated "walled gardens."
- The market has reached a tipping point where demand is sufficient to support dedicated infrastructure providers that abstract out layers of technology, similar to the roles played by Plaid, Stripe, and AWS.
- Emerging components of the new tech stack for virtual care fall into three specific categories:
- Clinical Operations: Includes care coordination, virtual provider networks, and ancillary services such as labs, pharmacy, and home health.
- Back-office Administration: Covers revenue cycle management, credentialing, and supply chain use cases.
- Front-office Administration: Focuses on customer engagement, scheduling, registration, and patient acquisition.
- Digital health companies are driving business model evolution toward risk-bearing, recurring revenue, cash pay, and membership-based approaches rather than traditional fee-for-service models.
- Specific capabilities enabling these models include actuarial-as-a-service offerings (e.g., Cerebrae) to support sophisticated risk analytics and underwriting.
- Successful health tech providers are increasingly operating as full-stack service providers with both digital and physical components, such as:
- Sitka, which manages a virtual multi-specialty medical group to facilitate e-consults.
- WorkPath, which deploys physical phlebotomists for decentralized sample collection.
- Industry consolidation is anticipated where winners will expand service areas beyond their initial focus, exemplified by TruPill expanding from pharmacy into telehealth and lab services.
- Characteristics of future market winners include:
- Focusing on high-volume transaction areas to engender customer stickiness (e.g., Ribbon Health integrating into billions of financial and referral transactions).
- Connecting multiple stakeholders to generate network effects where integration has historically been difficult (e.g., Eligible connecting providers and payers for automated financial clearance).
- Developing an executable path to sell to legacy incumbents as they adopt virtual-first care models (e.g., Wheel expanding from digital health startups to traditional providers and payers).
- The quality bar for healthcare products is expected to rise as digital health buyers, often being world-class technologists themselves, reject the poor user experience, performance, and limited API availability of legacy systems.
- This shift is predicted to start within the digital health ecosystem before seeping into traditional care delivery organizations as they modernize their business practices.