--- title: Early-stage medtech venture investment is up, driven by digitally-enabled diagnostics. But is the market ready? description: In my role with the Center for Health Solutions, I spend a fair amount of time researching technology and exploring the impact new medical devices could have on the health care sector. I generally don’t get much first-hand experience with medical devices. That recently changed. image: https://blog.themedtechconference.com/hubfs/Deloitte%20Guest%20Blog%20Feb.png --- [![The Medtech Conference](https://blog.themedtechconference.com/hs-fs/hubfs/Medtech%20Logo.png?width=120&height=59&name=Medtech%20Logo.png "The Medtech Conference")](https://www.themedtechconference.com/) [![MTC2017_BlogHeader_1030x130v3ALT.jpg](https://blog.themedtechconference.com/hs-fs/hubfs/MTC2017_BlogHeader_1030x130v3ALT.jpg?width=1030&name=MTC2017_BlogHeader_1030x130v3ALT.jpg "MTC2017_BlogHeader_1030x130v3ALT.jpg")](https://blog.themedtechconference.com)     # Early-stage medtech venture investment is up, driven by digitally-enabled diagnostics. But is the market ready? Posted by [Sonal Shah | Deloitte Center for Health Solutions](https://blog.themedtechconference.com/author/sonal-shah-deloitte-center-for-health-solutions) on February 26, 2018 - [Tweet](https://twitter.com/share) *![Deloitte Guest Blog Feb.png](https://blog.themedtechconference.com/hs-fs/hubfs/Deloitte%20Guest%20Blog%20Feb.png?width=672&height=281&name=Deloitte%20Guest%20Blog%20Feb.png)* *This post is brought to you by Deloitte’s “[A view from the Center](http://blogs.deloitte.com/centerforhealthsolutions/)” Life Sciences and Health Care blog* In my role with the Center for Health Solutions, I spend a fair amount of time researching technology and exploring the impact new medical devices could have on the health care sector. I generally don’t get much first-hand experience with medical devices. That recently changed. When I told my primary care doctor about some odd sensations I had been feeling in my chest, he suggested a remote monitoring device that plugs right into my smartphone. Anytime I experienced this feeling in my chest, no matter where I was, I could put my fingers on the device and it would transmit an EKG reading directly to my doctor. He could then track patterns and get to the bottom of my symptoms. This type of remote monitoring is far more effective at diagnosing arrhythmia than having a patient travel to a doctor’s office periodically for an EKG test—not to mention the time and expense this device could save both the doctor and the patient. Given its potential to more accurately diagnose patients and improve health outcomes, it is not surprising that digitally-enabled diagnostics like this one have been attracting venture capital investments. **Venture capitalists are increasingly interested in digitally-enabled diagnostics ** Last September, we [published a report](https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/medtech-innovation-investments.html?id=us:2el:3pr:chs3911:awa:chs:092717) with AdvaMed about the decline of venture capital investments in medical technology, and the potential impact on device manufacturers.  Analysis of 2017 data shows encouraging signs of a reversal of this long-standing trend. Total venture investment in medtech increased nearly 60 percent from $5.8 billion to $9.0 billion.i The nature of early-stage deals suggests this reversal might be driven in-part by interest in digitally-enabled devices. In our report, we focused on the decline specifically in Series A investments—the first round of financing raised by new companies. Series A investments can be critical to transforming new ideas into products and moving start-up teams out of garages and into real offices. This is where medtech entrepreneurs told us they were struggling the most, and it is where we have seen a drop in proportional venture investment over the past decade (from 19 percent in 2006 to 10 percent in 2016). But last year, medtech Series A investment actually increased 30 percent from $602 million in 2016 to $792 million in 2017. ii This surpasses the previous record of $778 million in 2008, but as a percentage of total investment, Series A remained flat at 9 percent.iii A convergence between traditional medical devices and digital health technologies appears to be happening now, according to an analysis of 2017 Series A venture investment data. And investors are specifically interested in digitally-enabled diagnostics. This single biggest driver for the increase in ***medtech*** Series A investments were deals for *in-vitro* diagnostics ($118 million).iv  Some of these deals were for genomics companies, but many were for digital health companies that are focusing on digitally-enabled diagnostics tools. Coincidently, the second largest category of ***digital health*** Series A investment in 2017 was for digitally-enabled diagnostics at $122 million (close behind digital products to improve the clinical workflow at $135 million).v This is a shift from 2016, when on-demand health care services (e.g., telemedicine) received the highest amount of Series A digital health investment ($213 million).vi  It is worth noting that there is some overlap between category definitions in both data sources used, and that some deals appear in both. **Reimbursement could still be a challenge** Many reimbursement hurdles still need to be overcome, despite the new capabilities that these digitally-enabled devices and diagnostics can deliver. Venture investors emphasized this point during our research last year. New products are not likely to be adopted in the market without a clear reimbursement pathway, which can negatively impact the return for venture investments. It is often difficult for newer, more expensive technologies to be adopted under the existing fee-for-service reimbursement model. Some devices are paid for under a procedure code that includes the costs of the device, the procedure, and other medical services required for treatment. In this scenario, there might be little incentive for hospitals or physicians to use an expensive new technology…even if it is better. **Value-based care could provide new opportunities for digitally-enabled devices** Value-based care could give physicians more flexibility when it comes to applying innovative tools and digital solutions. That could lead to lower care costs and improved patient outcomes. Technologies that can shift care to lower-cost settings, allow for earlier intervention, and generate data that demonstrates better outcomes would all likely be welcome under a value-based payment model, even if not directly reimbursable themselves. Early on, innovators should develop a sophisticated understanding of how their customers define value, and tailor research plans to generate evidence that supports that definition. AdvaMed and Deloitte’s [Value Framework](https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/value-framework.html) might be a good place to start. The assessment framework includes categories that go beyond traditional clinical efficacy to include patient-focused considerations. It also evaluates a technology’s impact on care delivery effectiveness and efficiency under new value-based payment models. Demonstrating value in these categories might be the key to gaining reimbursement for digitally-enabled devices. Now, getting back to my mysterious chest pains. It turns out I just have occasional heartburn. But my doctor’s enthusiasm about this new technology gave me a unique perspective into the impact such remote monitoring devices could have on health care delivery. The EKG smartphone plug-in that my physician recommended would cost me about $100 upfront, and I would need to pay a vendor for ongoing service. I might consider purchasing it if I develop a life-threatening heart condition. But how long will it be until my insurance covers part of the cost, and recognizes it as part of the standard of care? iGlobal Data, “Medical Intelligence Deals Database,” https://medical.globaldata.com/DealsSearch.aspx, accessed January 29, 2018 ii Ibid iii Ibid iv Ibid v Rock Health, “Digital Health Funding Database,” https://rockhealth.com/data/funding-raw-data/, accessed January 29, 2018 vi Ibid Topics: [Insider](https://blog.themedtechconference.com/topic/insider), [Digital](https://blog.themedtechconference.com/topic/digital) #### Written by [Sonal Shah | Deloitte Center for Health Solutions](https://blog.themedtechconference.com/author/sonal-shah-deloitte-center-for-health-solutions) Sonal Shah is a senior manager at the Deloitte Center for Health Solutions, where she leads research projects on emerging trends, challenges, and opportunities in health care. Sonal’s research is focused on R&D and innovation, value-based care, and the impact of health care reform to life sciences companies. Sonal has a MBA in Health Care Management from the Wharton School of Business, and a Doctor of Pharmacy from Rutgers University. ### Join The MedTech Conference Insiders ### Interested in submitting a guest post? 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