In this episode of the McKinsey on Start-ups podcast, Daniel Eisenberg speaks with McKinsey partners Jennifer Rost and Tobias Silberzahn about the current state of digital health solutions and tools. An edited transcript of their conversation follows.
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Vital signs: The growing impact of digital health innovation
Daniel Eisenberg: Hello and welcome to McKinsey on Start-ups, I’m Daniel Eisenberg.
In our last episode, we spoke to the co-founder and CEO of Sidekick Health, a start-up that is working to radically transform patient care and disease management with digital care and therapeutic tools. Today we take a broader, macro view at the state of digital health innovation, speaking with two McKinsey partners, Jenny Rost and Tobias Silberzahn.
Jenny Rost is based in Washington, DC and a partner in McKinsey’s healthcare practice. She focuses on innovations in virtual health and care delivery models to improve health care outcomes, quality, and efficiency.
Tobias Silberzahn is based in Berlin and a partner in McKinsey’s pharmaceutical and medical products practice. He leads McKinsey’s Global Health/Tech Network and CEO Roundtable with over 600 health/tech companies. He focuses on healthcare innovation and serves digital health, medical device, and pharmaceutical companies, as well as ministries of health.
Jenny, Tobias, thanks so much for joining us today.
Jenny Rost: Thanks for having us.
Tobias Silberzahn: Great to be here. Thank you.
Daniel Eisenberg: Let’s start with an overview of the digital health sector. How do you segment the space? What are some of the most promising segments? And just as important, how much financial value do you see it potentially creating in terms of health system cost savings? Tobias, if you want to start.
Tobias Silberzahn: Yes, happy to. We typically break down digital health into about 25 categories. Out of these, ten are patient-facing, such as online appointment booking, telemedicine, symptom checking, et cetera, while about 13 are in the background, such as clinical decision support tools for doctors. Two have become critical to many countries’ health systems—electronic patient records and e-prescriptions.
To help assess the impact of digital health, we sought to quantify the value that each of those segments brings to a country or a health system. We analyzed more than 500 research papers, looking at how these different segments could add value to a health system, how they could help doctors, how they could save money for insurers. We found that digital health across these 25 categories could save quite a lot of money for health systems, pretty much equivalent to 10 to 15 percent of current healthcare spending, depending on which country we look at.
So if I take my home country, Germany, as an example, with total healthcare spending of $290 to $300 billion, we would be talking about $30 to $35 billion in annual savings that digital health could drive.
One example that I’m very excited about is patient remote monitoring, where you enable doctors to really look at their patients’ vital signs offline, several times a day if needed. For example, in a COVID-19 setting that would mean that patients would submit their breathlessness, their body temperature, their blood oxygen saturation levels about three times a day. And the doctor could then monitor these patients and look after them online.
That kind of patient remote monitoring could be done, of course, for oncology patients. It could be done for asthma patients, for diabetes patients, et cetera. But this digital health category alone would save € 3.3 billion for the German health system.
I’m very excited that there are savings from digital health on the health systems side, but it also is really positive on the patient and the doctor side. During some of the pilot projects for COVID-19 patient remote monitoring in Germany, in the UK, several doctors said, “Can I use that for all my patients, for my chronic disease patients?” And a lot of the patients said, “It actually feels good that a doctor is sort of watching over me and looking at my values when I’m here at home, in quarantine or isolation.”
Daniel Eisenberg: Jenny, in terms of the potential financial value, promising use cases, what are the tailwinds that you’re seeing driving growth in the space?
Jenny Rost: COVID-19 really has been an unlock for virtual or digital health. A lot of the technology for telehealth and even some remote monitoring has existed for quite a while. But it was largely used in very limited circumstances, a primary example being what we call virtual urgent care where you have a telehealth visit with any doctor available through that platform for a one-time visit to address an immediate need.
We’ve seen that grow also during COVID-19. But we’ve seen much more consumer adoption overall. We’ve seen much more provider adoption of telehealth and other virtual health modalities because of the realities of COVID, of not wanting to go out if you didn’t have to, particularly where you could be exposed to people who are sick.
What we’re seeing going forward is both much more sustained interest from consumers and providers in continuing to use telehealth and a lot more innovation in the models. We’re seeing virtual care move from more of this on-demand urgent care to full virtual primary care practices or specialist models, particularly for behavioral health. And to Tobias’s point, we’re seeing a lot more opportunities to really integrate telehealth in those video visits with remote monitoring, with digital patient engagement, and digital therapeutics tools—to really provide a much more continuous patient experience and really innovate care models.
We did some analysis that suggested that about a quarter trillion dollars of current US healthcare spending for outpatient services could be moved to virtual. That comes to be about 35 percent of all outpatient office and home health visits.
In terms of where the savings comes from, there’s some more near-term opportunities for things like just moving care to more efficient sites of care. So if you can do a virtual visit with a doctor for $50 instead of going to the emergency room and having a $1,000-plus visit, there’s clear near-term savings there.
The longer-term opportunity really, though, is in bringing together these modalities of care, the data, in an integrated experience to help clinicians help patients manage more chronic conditions and improve outcomes overall.
Daniel Eisenberg: Yes, the rising cost of healthcare globally is clearly a major driver of innovation. Tobias, how much do we know yet about the ability of digital health to improve patient outcomes.
Tobias Silberzahn: This is a great question because it brings together all the healthcare stakeholders within the healthcare industry
When we look at patient experience in digital health, the app store economy is quite telling. For several of these digital health applications, you actually find in many cases a strong correlation between user satisfaction ratings and the volume of downloads. For some diseases like diabetes, the two to three highest-rated digital health apps and solutions have dramatically higher downloads than the rest of the apps, often combined.
Leading the health care innovation program within McKinsey Germany, where we focus on prevention topics such as sleep, nutrition, fitness, and stress management, I personally test a lot of digital health solutions. I’m pretty much our chief guinea pig in this.
And what’s very important for me is looking at a new solution and asking, what is the return on engagement of this solution? And this is a term that Bettina Ryll, who leads the Melanoma Patient Network Europe, has used, and I love it.
Because in other words, how many inputs do I as the patient need to make? And what are the useful outputs that I receive? Many digital health solutions still have quite a misbalance, which usually means that people don’t use them for a very long time.
Another big topic here is convenience, where I believe the healthcare industry can still can learn a lot from other industries, especially consumer-facing industries. For example, there’s quite some interest in healthcare businesses from telecommunications companies, mobile phone companies, and other consumer companies. And there, the mindset is fascinating compared with some of the more traditional health care players. There is a lot more focus on convenience. There is a lot more focus on patient journeys and speed. Jenny, do you want to add something?
Daniel Eisenberg: Yes, Jenny I’d love to hear your thoughts on levels of adoption, and what you think about consumers’ likelihood of sticking with virtual health as much in a post-pandemic era and how we see the trend evolving.
Jenny Rost: We’ve been tracking this quite a lot with our consumer health insight surveys throughout COVID-19. As expected, last spring there was a huge spike in use of virtual care. Since then, we’ve seen it play out differently for different types of care.
For example, the highest sustained interest in using virtual care going forward has been for behavioral health, with 60 percent plus of respondents intending to do so. By comparison, primary care spiked to around 40 percent plus in May and June, and since then has been leveling out somewhere in the 20 percent plus plus range.
So it’s really going to depend a lot on the types of care people are seeking, and also what providers continue to do. One of the big questions in the US is whether reimbursement will stay at parity, which it has moved to for Medicare during COVID-19, and which many private payers also moved to, or how that reimbursement trend will continue over time.
As we look at consumers, most people have been pretty satisfied with their experience. Seventy-two percent of consumers were very satisfied, and overall 94 percent were very or moderately satisfied with their experience. And those who had used telehealth before were 1.5 times more likely to use it again.
One of the biggest factors in adoption we’re seeing is a lot of people are having their virtual visits with a provider that they know and trust. In addition, a lot of it going forward will depend on how easy it is to engage? Is it cumbersome? Is it just a click of a button? And so continuing on Tobias’s point, convenience is definitely going to be a factor going forward.
Daniel Eisenberg: Tobias, when it comes to the providers—physicians, hospitals, health care systems—what is their feeling about the value of virtual health offerings? Is it purely a question of dollars and cents, reimbursement rates? Are there any issues about feeling disintermediated? Or maybe it increases the direct connection with the patient?
Tobias Silberzahn: Many of them actually see it as an opportunity. And I mean an opportunity in terms of improving health outcomes, improving health and well-being for their patients or their insured population, and also improving patient satisfaction.
If we take the example of health insurers, then they can actually orchestrate quite a lot of these digital health offerings into sort of broader ecosystems of offerings that actually make sense together instead of being just a collection of solutions. And that’s when we get back to the patient journey, where we then say, what is a helpful patient journey for a young mother? Or what is a helpful patient journey for a diabetes patient?
The real opportunity there is that digital health solutions can stitch together quite a few of those classic medical interventions that have been delivered by hospitals or that have been delivered by general practitioners, and actually act a bit like the glue that that guides these patients through their health-related journey.
So that could mean that one says, “What are the ten most frequent touchpoints that, in our example, a diabetes patient goes through? And how can we make these as convenient and as smooth as possible?” And another factor where digital health can actually play a role is by using gamification nudging, cognitive behavioral therapy type components, to help people with their behavior change (see/listen to previous McKinsey on Start-ups podcast episode, “Can Gamification Help Patients Take Better Care of Themselves?”.)
Because that has been a big problem in the past. Some of the numbers have shown that patients may spend, depending on which country we look at, between 8 to 15 minutes with a doctor. I would say I am a pretty motivated patient in terms of my health, but I cannot sustainably change my behavior for the better after just seeing a doctor for 10 minutes, maybe once in a quarter or once in a year.
That’s where I think the opportunity lies, and that’s where quite a lot of the hospitals, health insurers, and healthcare companies see the opportunity, where digital health is helping to stitch things together and to help people with sustainable behavior change to increase their health and well-being.
Jenny Rost: Just to add, we’ve also seen some health systems moving to much more innovative models as well, delivering more care, even acute care, in an at-home setting, leveraging a lot of the digital innovations Tobias referenced.
Daniel Eisenberg: Certainly behavior is a key component, especially in chronic disease management, which accounts for such a huge portion of health costs and also health impacts. Jenny, to what extent do you think virtual health can help achieve greater health equity for underserved communities that have typically had problems getting access to the healthcare they need?
Jenny Rost: It’s a really great question. I think there’s both some real opportunities but also some challenges.
One of the most basic challenges is just access to broadband, and particularly in rural areas. So can you even access the infrastructure? Some of the populations that could most benefit may not have access to smartphones or have data plans to really take advantage of virtual care. You also have to think about whether digital health solutions are being offered in languages to be accessible to all communities.
Having said that, if we can address those issues, digital health and virtual health really do have an opportunity to improve access, especially where there are shortages of certain providers in some communities, like a big shortage of behavioral health providers in the US, as one example. So I’d say there is a lot of potential, but a lot of work to do to make sure we address the equity side.
Daniel Eisenberg: And Tobias, what are the headwinds outside of patient pain points? How big a challenge to growth are things like cybersecurity, privacy, interoperability, and regulation?
Tobias Silberzahn: I think there are quite a lot of different areas that impact adoption of digital health in a country.
Then there is of course the whole technical piece that we discussed briefly earlier. If there are electronic health records in that country that work very well, and you alluded to interoperability and data exchange, that can be a massive enabler combined with e-prescriptions. E-prescriptions are a bit like the glue between virtual or in-person care and then the digital applications that happen afterwards. And finally, there is a lot of stakeholder adoption to be considered: Patients, payers, providers.
That has been shown by a lot of the Scandinavian countries, which have created a vibrant innovation ecosystem that then also helped with adoption by the doctors in the hospitals’ outpatient settings or by the patients.
I recently heard of a digital health solution in Stockholm that very quickly became adopted by more than 1 million users. But that was a very concerted effort in that innovation ecosystem. I think for some countries getting a lot of these factors right can be hard work. It is a combination of the software factors, the technological factors, and then the overarching regulation.
Daniel Eisenberg: Jenny, obviously the US’s healthcare system is very different from Europe’s. So how does the development of the virtual health ecosystem, especially for start-ups in the US, differ? And where do you see the biggest opportunities for adoption and innovation in the US?
Jenny Rost: There’s lots of areas. It’s growing remarkably fast across a whole range of types of solutions, from the virtual practices that we were describing before, platforms and digital pharmacy solutions, remote monitoring, digital therapeutics, et cetera. We’re seeing lots of players in this space, and a lot of development here.
I think the big challenge is right now, there’s not a central ecosystem they all plug into. So as payers are thinking about these solutions and hearing from these start-ups, they’re trying to figure out how to not just have a bunch of different point solutions for their members. Or similarly, providers are thinking about how to not just have a bunch of point systems that don’t talk to each other.
That’s the biggest challenge really, how do you integrate the information so that the technology solutions, the providers, the payers, they can all actually talk to each other and work in a coordinated manner to actually improve patients’ health?
Daniel Eisenberg: Jenny, just a quick follow-up. Do we have a sense of how much more challenging this complicated system is for start-ups trying to get into the space?
Jenny Rost: Yes, I think there are challenges across the front. There’s certainly a lot of investment in this space, a lot of activity and interest. Just in the first half of 2020, there was more than $5 billion of VC and PE investments in start-ups in digital health models compared to $2 billion the year before. We’re also seeing more established players like payers making co-investments to try and make sure they’re bringing the best innovations into their systems.
Daniel Eisenberg: Tobias, how do you think about the potential of end-to-end ecosystems in Europe and getting beyond a traditional approach to healthcare?
Tobias Silberzahn: I see striking differences across different countries and continents. There is activity now going on in certain ecosystems to combine what in the past used to be physician-driven services, primary care-driven services, that have been delivered by a doctor, and then pharmacy services that have been delivered by pharmacies.
I don’t know the exact number, but in Germany or some other European countries, these services have been separated by regulation or by law sometimes for hundreds of years. I think even in the Medieval ages, there was a formal separation between a pharmacist and a doctor.
And now, we are actually seeing that some of these things are actually coming together, which opens a lot of opportunity for patients. We see primary care and some pharmacy services being combined into ecosystems in the US. We see that also in Europe, and in Asia, in some of the Chinese emerging ecosystems. For example, in some of the ecosystems in China, it doesn’t seem to be a big problem to do both health insurance services and physician services.
But it also can be quite difficult for some countries to do that, depending on their regulations and how jobs are defined. If you look at some of the European countries, for instance, health insurance services and physician services are pretty much two completely different industries. And a health insurer now starting to provide physician services, that has sparked debate in quite a few of the European countries.
Daniel Eisenberg: Jenny, do the business models you’re seeing from different start-ups in virtual health vary much?
Jenny Rost: Yes. Some of the ones I’m most excited about are around incorporating behavioral science to help engage individuals to stay on their care plans, to manage their health and wellnesses.
I think that’s really the big nut to crack, to manage care outside of your clinician or appointments. So there’s a lot of companies in the space developing these offerings and then trying to integrate them with some more of the clinical ones, integrate with remote monitoring, with the virtual visits. In the US, we’re starting to see a lot more providers who are taking financial risk, and therefore have really strong incentives to improve their patients’ health outcomes and manage medical costs. Some innovative providers are really thinking about how to integrate remote monitoring and telehealth into your care team.
Daniel Eisenberg: Just to clarify, when you talk about taking financial risk, is that doctors setting up their own private practices, not being part of bigger hospital organizations or health system organizations, so more of their own money is at stake?
Jenny Rost: No, it’s taking the medical risk from the insurance company. So physicians receive a portion of the premium from the insurance company and then manage the patient’s health and medical costs within that amount as opposed to a fee for service payment.
Daniel Eisenberg: Tobias, from your end in Europe, are there different business models and innovations you’re seeing from promising start-ups that you think have the most potential?
Tobias Silberzahn: There is still quite a lot of experimentation on the business model side, especially in these countries that don’t have a national reimbursement process in place yet. There we see pretty much everything from B2C or subscription models for consumers directly to monthly fees for doctors, especially in the online appointment booking space. And then there are also various leasing models geared towards hospitals.
One interesting opportunity for many of the digital health companies out there right now is the partnership space. As an entrepreneur in the space, you could say, “We can provide our digital health solutions either directly to consumers or focus directly on physicians, outpatients, and hospitals.” But you could also say, “are there actually partnership models for some of those health ecosystems that are emerging or that are already out there?” And that is an interesting topic because it almost seems like there is currently a battle of platforms going on in healthcare. Lots of companies are saying that they are building a platform and that their platform should be center stage, spider in the web. But typically in other industries when the battle of platforms is over, there are usually not that many platforms left, right?
So for digital health companies, it can actually be quite an interesting opportunity to say, “Can I actually do partnerships with some of those ecosystems?” In quite a few cases, that makes sense for the organizations building the ecosystems because they can’t build everything on their own. We talked earlier about 25 different digital health categories. There is often a high degree of interest to use white-label or generic versions of certain digital health solutions for such ecosystems.
Daniel Eisenberg: Among the big players, payers and providers, how much interest is there in trying to develop their own digital health innovations versus working with start-ups?
Jenny Rost: Yeah, we’re seeing a lot of models here. In some cases, payers are building big digital shops and bringing in lots of talent from tech companies to do so. In others, they are either acquiring smaller companies or doing partnerships, joint ventures, with start-ups. And even some of the large ones are taking many different approaches, building some solutions themselves but then also looking at working with start-ups, making investments in them, for others. It really is a bit of a Wild West as everyone, to Tobias’s point, is trying to build solutions and position themselves at the center of this platform or ecosystem.
Daniel Eisenberg: Just going back to one thing we were talking about a little earlier Tobias, have we already started to see the potential this has for not just cost savings but for actually improving health outcomes, especially when it comes to chronic disease?
Tobias Silberzahn: Yes, when we looked at the evidence that is out there for digital health, recently, we found that about 80 percent of the papers that examined digital health quantitatively came to a positive conclusion, showing an actual improved patient outcome. (And that doesn’t mean that 20 percent were negative. Some of them were simply inconclusive.)
That could be that patients are able to manage their blood glucose and their diabetes in a better way, or that the desired weight loss was achieved. It could be that depression symptoms have improved due to cognitive behavioral therapy, as well as also cardiological improvements, both in terms of heart attacks as well as atrial fibrillation and diseases like that.
Another thing that I just want to mention is that it opens up a completely different and, in my opinion, a very exciting additional field. With the data being collected and interpreted, you actually can then via digital health move into areas such as disease prevention.
Take me as an example. If I have wearable patient remote monitoring, there are already some universities and also some digital health companies working on algorithms to be able to say, “If Tobias continues in the way that he currently does with, let’s say, bad sleep, cardiological features, overweight, et cetera, what is the likelihood that he will have diabetes type 2 or cardiovascular problems in five years?”
Being aware that my current lifestyle would mean that there is an 80 percent likelihood of my getting diabetes in five to ten years would of course then be an additional motivator for both my family, myself, and my physician to actually move towards behavior change.
Daniel Eisenberg: I’ve just recently read an article about sports medicine starting to use AI to predict injuries for their players. So that’s a fascinating space. Jenny, I think we’re getting close to the end of the episode. Do you have anything you wanted to add, anything else you feel we haven’t covered?
Jenny Rost: Yeah, it’s interesting. We’ve actually put together a case library of about 400 impact examples where digital health solutions have demonstrated real impact on health outcomes and quality improvements.
One tangible example is we have seen particularly strong evidence in things like remote monitoring for patients after they have heart attacks, with many studies showing that it can prevent hospital readmissions and improve outcomes.
Similarly, digital therapeutics and behavior apps, combined with things like coaching and glucose monitoring, have shown great potential to really help diabetes patients manage the condition and improve outcomes. Behavioral health, overall, is one area where we see incredible sustained interest in using digital solutions for positive outcomes in terms of preventing hospital admissions.
Those are a few of the areas I’d highlight where there’s some real momentum.
Daniel Eisenberg: And Tobias, any concluding thoughts you’d like to leave us with?
Tobias Silberzahn: Yes, I think we looked at the opportunity and the potential for digital health quite a bit. And I’m very excited about that as a citizen and patient who is using it myself, but also for the broader health system.
I just want to close with some of the bigger-picture things that ideally need to be in place in a health system for all these positive outcomes to happen.
We alluded to it briefly earlier. There is of course the cybersecurity component. There is then the health data component, where ideally the patient is in the driver’s seat in terms of who is seeing the data, how the data is being used, and how everything is coming together.
In that sense, I just want to stress that that’s a bit of the foundation that ideally should be in place to actually make this an overall positive experience, that if we talk again in ten years or so, we can really say that this has improved health and well-being for both the citizens as well as the country as a whole.
Daniel Eisenberg: Well, I think that is a good note on which to end. I know we’ve gone quite long, and this has been a great discussion on such an important topic. I want to thank Jenny Rost and Tobias Silberzahn of McKinsey for joining us. And I want to thank you, our listeners, for listening to McKinsey on Start-ups. We hope you’ll return for future episodes.