Investors seek to hold digital health companies accountable

Investors have poured a record amount of money into digital health technology in 2021. Although 2022 has not kept pace, the market is still buoyant.

Hemant Tanezha, managing partner at venture capital firm General Catalyst, has been at the forefront of this activity. General Catalyst closed nine industry-leading investment deals in the first quarter of 2022 and 37 overall in 2021, according to Digital Health & Business Technology’s quarterly financing and M&A data, which is 17 more than the second-most active company.

As tech companies rapidly expand into the healthcare industry, Taneja fears that the old Silicon Valley adage will corrupt the industry: “Bad things often happen in every industry due to the “move fast and break things” mindset. ”

“Healthcare is a huge market,” he said. “We don’t have to be obsessed with growth at any cost.”

General Catalyst created a health insurance fund to show that they are serious about responsible investment. The Fund finances companies that have a positive impact in terms of costs and results. In August 2021, the company named former Merck CEO Kenneth Fraser as chairman of a $600 million fund to give it a level of instant credibility.

“For all of these companies, we’re not just thinking about financial performance, but impact metrics,” Taneja said. “Are they really bending the curve? Do they make care proactive? Are they doing health equity? We want to provide leadership and management from this perspective to understand the long-term impact of our business.”

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Focus on mental health

Medical ethicists are increasingly concerned that the hyper-growth mentality of venture capital cannot coexist with patient safety and quality care, especially in the field of mental health.

“When you start a startup, you have to generate income, I mean that’s a fact,” said Nicole Martinez-Martin, assistant professor of biomedical ethics at Stanford Medicine. “But sometimes it can raise concerns about whether the business models will be in the best interest of the patient.”

Potential culture clashes are always an issue between start-ups and mental health institutions, she says, as medicine has already established principles of accountability for safety, efficiency and confidentiality.

“Some startups don’t necessarily have a set of practices that go hand in hand with ethical principles designed to benefit the patient,” she said. “He’s still developing.”

Few areas of digital health have received as much funding as mental health startups, which received $5.1 billion last year, according to Rock Health. As new technologies become more entrenched, rules and restrictions are needed, according to Craig Klugman, a professor of bioethics and the humanities in health sciences at DePaul University in Chicago.

“From an ethical standpoint, the worst thing we can do is hurt someone, and since we’re dealing with mental health issues, it’s not that hard to hurt a person if they’re steered in the wrong direction,” Klugman said.

He said regulation should ensure that companies meet standards of care, don’t make misleading claims about its effectiveness, and don’t take on too many patients in the name of scalability. But with licensing, mental health regulations are mostly kept by state agencies with no federal oversight. There is some federal oversight in regards to mental health digital therapy as the Food and Drug Administration approves several decisions. But the agency has not approved the vast majority of mental health startups in the market.

“The FDA doesn’t have oversight, so we need Congress to pass legislation if we want a regulated space,” Klugman said. “If you want an unregulated space, do nothing. But in an unregulated space, there are no safeguards to prevent harm to people.”

Federal regulation will be tricky because states operate differently in both mental health and telehealth licensing, said John McKenzie, clinical manager of telebehavior at Dignity Health in San Francisco. That was before the pandemic and that was the case during it as more people used the technology.

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