Digital Health: The Transformation of a 3 Trillion Dollar Industry
This is the first post in a 3-part series that highlights our passion for digital health and our conviction in backing entrepreneurs who are transforming the industry.
Healthcare continues to be the top financial concern for Americans and is consistently one of the biggest issues that people worry about. Healthcare is a massive and complex industry made up of a web of providers, payers, regulators and vendors. It is also in the middle of a huge transformation. Changes in technology, regulation and consumer behavior have combined to bring about huge advances in the industry. Crucially, entrepreneurs are at the forefront of this innovation and such opportunity has led to digital health receiving over $17B in investments over the last few years.
Despite this progress, healthcare has often been in the spotlight for the wrong reasons recently. The negative news around Theranos and other healthcare startups has led to claims of hype and failed promises. Concerns about rising premiums and insurance companies exiting healthcare exchanges has led to people in some places worry more about costs than about access.
But these events tell only part of the story. It is important, as consumers, creators, investors and practitioners, to better understand the industry as a whole, the challenges and the opportunities it presents.
A 3 Trillion Dollar Industry
The Healthcare industry is an aggregation of sectors that treat patients with curative, preventive, rehabilitative and palliative care. In 2014, $3 Trillion was spent on healthcare in the United States, which amounts to 17.5% of the GDP. The sector accounted for 9% of US employment in 2015 and often is the largest industry in many communities. Even in San Francisco, at the heart of Silicon Valley, healthcare contributes more to the economy than the tech sector. 82% of adults in the U.S. have interacted with a healthcare professional over the last year.
Healthcare will also be the largest employment sector in the United States during the next decade, overtaking the government and other service sectors. This growth is evident in the chart below, where almost 2 million jobs were created in healthcare, while the rest of the economy shrank. A number of state and local economies are dependent on this sector.
Costs
As discussed above, Healthcare is truly an enormous industry that impacts everyone, personally and/or professionally. One of the biggest concerns about the sector is runaway costs. The industry is projected to be 20% of the GDP by 2025. That is an additional $2.5 trillion increase in annual costs over the next 10 years. The United States spends more on health care than any other country. The annual per capita healthcare costs in the US are higher than the per capita costs of other nations, especially as a person ages.
This would be acceptable or even appropriate if the American public were leading healthier and longer lives. But even that is not the case. The average life expectancy in America is lower than that in countries which spend far less per person.
Obviously, the charts above show a very simplified picture of what is happening and there are good reasons why costs in the US are so high including rise in disease prevalence (obesity, stress), changes in thresholds for treatment, longer life spans, and innovations in treatment. But, there are also deep structural problems in the system that need to be addressed in order to better manage these costs and provide affordable care.