Q&A: General Catalyst on AI and digital health funding in 2024

Digital health stakeholders need to renew their focus on getting back to the basics, such as improving care access, outcomes, cost and workforce retention, says Holly Maloney, managing director at General Catalyst. 

Maloney joined MobiHealthNews to discuss the most noteworthy events of 2023, AI use in healthcare and projections for digital health funding in 2024. 

MobiHealthNews: What are some of your biggest takeaways from 2023?

Holly Maloney: 2023 was an exciting year. I think that one of the big takeaways for me was that we actually have to focus on getting back to the basics. You know, as we think about just sort of the fundamentals within healthcare, there’s still so much that needs to be fixed. I think we have to have a new renewed appreciation for and focus on the fundamentals.

So that’s access. How are we actually going to most effectively engage and treat people and families that have the least resources. Outcomes. So, digital health companies are going to start to have the number of years under their belts, where they’re going to have to start proving outcomes are at least just as good as, if not hopefully better than, alternative approaches. You know, the cost reduction problem is still front and center. 

McKinsey recently came out with some facts related to the fact that systems face a 200-basis point gap between reimbursement rates and cost inflation. And that, you know, employers are expected to face rising premiums well above the typical 4%. And so, you know, we need to tackle that problem head-on.

And then lastly, it is sort of empowering providers. In a similar study, we could see a shortage of 200,000 to 450,000 nurses by the year 2025, sort of under the current course and speed. And so, you know, while I think there’s been sort of a proliferation of, you know, new companies started, and obviously, you know, there’s been a lot of funding in the space in years prior, we still have to just get back to the basics. Build with those fundamentals in mind because without solving those fundamentals, the innovation around the edges isn’t going to matter as much.

MHN: Do you think AI has a place in that?

Maloney: I do.

MHN: Where do you anticipate AI really helping with going back to the basics?

Maloney: Yeah. AI is going to help in multiple ways. Obviously, as we think about the renewed focus on the administrative overhang as it just relates to the cost structure of delivering care within the health system, I have no doubt that AI will start to be more helpful at scale because I think it’s a problem that’s been talked about and some of the earliest iterations of AI have been focused on the non-clinical use cases. So, certainly, that should help to move the needle at some point once these companies get to greater scale and adoption is more broadly seen. I have no doubt that we will get there.

But outside of the administrative automation piece, there’s obviously the clinical empowerment piece of how are we going to provide tooling and resources to providers so that they can focus on what they’re here to do, which is delivering the highest quality care to patients and delivering the best outcomes in the lowest cost environment.

I talked about the digital health companies being at a scale where outcomes and cost reduction and proving those out is going to be meaningful and helpful.

With tech-enabled service companies, AI can play a really important role in their continued progress and viability towards, you know, being public companies and showing real revenue growth and attractive margin profiles so that we can have more public companies and greater access to pools of capitals for these businesses over time.

MHN: So you see AI making waves in healthcare where it can assist with the administrative burden healthcare providers face but also help companies realize how they can scale?

Maloney: Absolutely. And I guess the last thing I would say is that I think AI could make real progress around the march toward truly personalized solutions. We’ve talked about personalization in healthcare for quite a while, but we haven’t really gotten there. And so I think we saw this flurry of kind of consumer healthcare applications that didn’t go as far and really reach their full potential. And so I think we’ll see sort of a reignition of consumer health applications that have truly personalized experiences.

MHN: Where do you see digital health funding going within 2024?

Maloney: I think that for the funding environment next year because there are still so many unsolved problems in healthcare, we’re still going to see a pretty healthy pace of investing at the early stages.

I think that founders are still really driven to the mission. So I think there’s still going to be waves of really exceptional founders wanting to start companies in healthcare. And, you know, therefore, I think there will be a healthy pace of funding at the early stages. There may be fewer funds participating because, you know, we saw a meaningful amount of tourism capital in healthcare during COVID, but I think the pacing will be healthy.

And then at the later stages, while it may sound obvious that there will be a flight to quality, I’m actually optimistic that the number of companies that fall into that quality category is maybe higher than people may assume it is from where we sit today, just because of how some of these business models are transforming, and just the realization of how large these market opportunities really are.

I do think there will be a meaningful amount of funding used to fund creative consolidation, where the combination of entities meaningfully exceeds the potential on a standalone basis of the sum of the parts. For some of the consolidation, especially as you think about, let’s say, a merger of equals kind of scenario, it doesn’t necessarily mean failure, right? It may just mean that the gravitational pull from a commercial standpoint of the joint offering just makes a tremendous amount of sense. And that’s where we gain tremendous insight from our 20 health system partners as to what is really compelling from a go-to-market cycle timeline perspective: where do budgets really sit today? That could influence thinking around companies that logically should come together because, again, there’s valuable technology and valuable problems to be solved, but the joint value proposition is gonna get a greater commercial sense of urgency and therefore greater value creation for everyone, you know, employees and shareholders and the like.

MHN: General Catalyst announced it intends to purchase a healthcare system, which will allow it to garner even more insight, right?

Maloney: The commitment to transformation was really noteworthy from 2023. Often, when the perception is that times are getting tough in an industry because budgets are challenged and the funding environment is unknown, making the commitment to long-term transformation is critical so that people know that the funding is here to support innovation over the long term. We’re really excited about what we’ll learn, and the potential around HATCo, and having Marc Harrison’s tremendous leadership and the team underneath him. I think 2024 is going to be a really exciting year.

MHN: Is there anything else you would like to add that has not been covered?

Maloney: Maybe just another surprise from the year was just the mass rise in the adoption of GLP-1s. Just as I think about the number of companies within the health tech ecosystem that have been influenced one way or another by a single drug introduction, I’ve certainly never seen anything like it. Again, these are just the touchpoints. Like if you were to add up all the companies that have seen a meaningful change in their business in one way or another due to the introduction of GLP-1s, I think it’s quite staggering.

And I think we’re only in the very early days of understanding the potential impacts around other condition sets. Therefore, one thing I’m really focused on for 2024 is trying to figure out, as we think about these tremendous drug pipelines as they relate to specialty drugs, how they effectively get priced. And how does access really work when the math equation becomes really hard for insurers and for self-insured employers? So, a lot of work to be done there. You know, again, all for really exciting reasons of benefiting the lives of so many. But, you know, the math equation will break at some point if we don’t rethink the pricing and funding mechanisms.

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