Digital Health Investment Isn’t Happening Where You Might Expect

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Metro areas known for tech startups, not healthcare, are leading innovation that could ultimately lower medical costs.

Venture capital investment in digital health is happening outside traditional U.S. healthcare hubs, which bodes well for reducing medical costs and empowering patients, according to a new Brookings Institution report.

The digital health sector improves healthcare equipment and treatment efficiency using information technology, and it’s based mostly in metro areas seen as favorable to startups—and a few that aren’t.

STEM workers—science, technology, engineering and math—not necessarily healthcare workers, abound in those areas and possess the technical skills necessary to research and develop innovative new health products.

The city with the largest share of venture capital funding, San Francisco, understandably leads the pack on digital health funding. But the five largest metro areas for the sector only represented 54 percent of its funding between 2009 and 2014, compared to 64 percent for all venture capital funding.

That means digital health funding is more geographically dispersed, according to the Brookings report:

To be sure, the major VC hubs like California, Boston, and New York also generate the most digital health venture capital per worker. However, relatively high rates of digital health investment are also spread throughout the Rocky Mountain, Sun Belt, Midwest, and Southeast regions.

Among the top 10 metro areas for digital health, Boston, Washington, D.C., Dallas and Atlanta boasted a higher percentage of digital health venture capital than total venture capital.

Metro areas not typically viewed as venture capital hotspots—San Luis Obispo, California; Worcester, Massachusetts; New Haven, Connecticut; and Salt Lake City, Utah—made the top 10 for digital health funding per worker.

Housing a major hospital, medical school or healthcare provider was not an indicator of a metro area’s strong digital health climate but rather computer systems design, engineering services and research and development services.

Demand for U.S. healthcare workers will grow at more than double the rate of the rest of the economy, according to the U.S. Department of Labor, and poor health outcomes drive up already wasteful costs. U.S. Census Bureau statistics show 31 percent of employees at the average physician’s office are administrative, not medical.

Emerging technologies will cut down on administrative tasks and lessen demand for those employees, allowing more money to be put toward preventative testing, personalized care and fitness apps among other data-driven digital health developments.

Perhaps that’s why $15.4 billion in venture capital was spent on digital health deals the last six years, as Brookings found, and the sector is outpacing the rest of the ecosystem.

Dave Nyczepir is News Editor for Government Executive’s Route Fifty.

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