Your 2024 Legal Vision Board: Trends and Opportunities for Digital Health Innovators
What can digital health innovators and investors anticipate for the industry in 2024?
We asked our team to share their insights on healthcare innovation, new regulations, and trends we expect to impact your business this year.
As a nationally recognized law firm exclusively dedicated to advancing the future of healthcare, Nixon Gwilt Law attorneys think like the innovators they serve. Novel and disruptive healthcare companies seek our guidance to break new ground, navigate the regulatory gray zones that come with innovating in healthcare, and manage risks while seizing opportunities on the path to long-term growth.
This year, we’re predicting continued evolution in AI, increased market consolidation, and new reimbursement opportunities for digital therapeutics, among other exciting developments. Read on to find out what else is on our Legal Vision Board for 2024!
The Evolving Trend: AI
Founding Partner Rebecca Gwilt foresees an evolution of LLM-driven digital health tools, including a movement toward replacing human medical decision-making. “I think it's going to start with behavioral health—’virtual therapists’ that are actually algorithms,” she says.
Speaking of LLMs, Rebecca thinks “ChatGPT is going to be used as the base LLM model for many new companies. A close second would be Anthropic.” She says companies should be careful to read and comply with the contract terms of these LLM vendors, as they specifically address healthcare applications.
Rebecca adds that companies in this space must understand their LLM model and its limitations. Companies will also need to understand whether the FDA will consider their model to be software as a medical device (SaMD) that is subject to the FD&C Act.
Managing Partner Carrie Nixon also anticipates more innovations involving SaMD, including those that utilize LLMs. Look for software platforms that facilitate care management services like Chronic Care Management, Remote Monitoring, and Behavioral Health Integration to begin incorporating enhanced clinical decision support in preparation for a broader shift towards value-based arrangements. Keep an eye out for more software applications that accurately collect and analyze patient physiologic data using a laptop or smartphone camera—bypassing the need for any hardware device.
Rebecca predicts that this evolution will prompt regulators at multiple federal and state agencies to begin legislating and regulating the use of AI in healthcare. New regulatory rules will likely include broad consumer protections that may require companies to rethink their business models and workflows or invest in additional processes and controls to meet new requirements.
Remember – laws and regulations often lag behind technological advances, so you’ll want a seasoned healthcare innovation attorney to help assess and mitigate risk. (We know a few!)
For more on AI, check out our podcast episode on Practical Applications of AI in Healthcare with Joseph Zabinski, PhD, of OM1.
The Perennial Trend: Weight Loss
You may not realize it, but you probably know someone taking a GLP-1 prescription (glucagon-like peptide-1 receptor agonists like Ozempic and semaglutide) to shed pounds. What started as a drug to help patients with Type 2 diabetes is now the preferred weight loss aid of many celebrities, influencers, and everyday people.
Rebecca says, “New and existing companies will offer GLP-1 prescriptions for weight loss. The field is already saturated, so we will see companies exit as leaders emerge. Competition will drive down consumer prices but drive up insurance costs (especially for employers). This may trigger a regulatory intervention as costs for these drugs start to hit bottom lines.”
The Startup Trend: Compliance and Profit
“We will continue to see venture-backed companies close up shop,” Rebecca says, “but innovation in the space will not slow. It may accelerate!”
Rebecca predicts that a new crop of startups will prioritize profit earlier in the process and have more realistic valuations. “The size of a pre-seed round will normalize, and we'll see far fewer $10M+ seed rounds.”
At the same time, Carrie expects funding to early and growth-stage companies to increase significantly from 2023, when we saw more limited investments as the market attempted to correct for the over-inflated valuations of years prior. But she thinks many investors learned lessons from the past three years. As a result, we are likely to see that investors have higher expectations around compliance; they will expect early-stage companies to build compliance into their business models sooner rather than later, and their due diligence prior to investing will reflect this.
The Inevitable Trend: Medicare and Commercial Payer Audits
Potentially driving the increased focus on compliance, Carrie notes a significant increase in audit activity during the second half of 2023, particularly around services provided by virtual care management/remote monitoring companies and virtual-first telehealth companies. She believes this audit activity will continue to increase in 2024 and urges digital health companies to get their compliance ducks in a row.
Now is the time to consider investing in a compliance assessment to evaluate your customer/patient intake and consent workflows, staffing and licensure, billing and reimbursement, fee arrangements for fraud and abuse triggers, marketing, and more.
Has the government already come knocking with questions about your company’s practices? Contact us for assistance in responding as soon as possible.
The Upward Trend: Increased M&A Activity
Over the past quarter, we've seen a spike in due diligence inquiries – both sell-side and buy-side – that shows no sign of slowing. According to Partner Kaitlyn O’Connor, this indicates an overall more mature digital health industry and an upward trend in M&A activity that is likely to continue throughout the year. She predicts private equity firms will acquire mature healthcare startups and take a more hands-on approach than traditional venture capitalists to accelerate growth and profitability. But, she notes, “a more mature industry means higher compliance expectations. Buy-side and sell-side diligence support will be imperative for long-term success.”
On a similar note, Carrie predicts that “point solution fatigue” will lead to roll-ups of digital health point solutions into more comprehensive, one-stop-shop platforms. Single-point solutions will be scooped up or commoditized by larger care management companies, EHRs, and managed care plans wanting to provide a broader set of services to patients.
Carrie expects that increased M&A activity in the care management sector will lead to something else – more interest in value-based arrangements between digital health companies, payors, and providers like those made possible by the (relatively) new Value-Based Enterprise safe harbors. These safe harbors were introduced in 2020 – a time when the entire healthcare ecosystem was consumed with combatting the COVID-19 pandemic. Now that the Public Health Emergency is behind us, payors, providers, and innovators are taking a fresh look at the opportunities created by the VBE safe harbors. Offering comprehensive care management solutions that work together will lead to better health outcomes and lower costs, and payors will reward the solutions and providers that achieve this.
Listen to our podcast episode on Leveraging Value-Based Enterprises to Create Business Model Flexibilities with Luis Argueso of InHealth Advisors.
The Trends that are Here to Stay
While market consolidation may increase access to valuable healthcare technology for the masses, that doesn’t mean the industry will ignore individual needs.
As Rebecca notes, “The consumerization of healthcare is in full swing.” New companies that can tailor healthcare services and treatments to individuals’ specific and targeted needs will continue to gain traction. Carrie agrees and predicts that consumers will begin to prefer more personalized, coordinated healthcare options.
The downside of all this personalized care and coordination? Rebecca says, “The higher price of consumer goods caused by inflation and increased interest rates will continue to put pressure on our pocketbooks, impacting individual budgets and ability to pay for ‘nice to have’ healthcare solutions.”
Despite consumerization and industry maturation, access to behavioral health services is still lacking for many patients in need.
Senior Counsel Reema Taneja predicts an even greater focus on virtual behavioral health services to help address this gap. She says, “There is still a significant shortage of behavioral health providers, but we're continuing to see the emergence of tele-behavioral platforms and remote services increasing access for underserved populations. I think that presence will continue to increase!”
For more on behavioral health’s future, listen to our podcast episode, AI’s Role for Clinicians and Patients in Behavioral Health, with Pablo Pantaleoni of LifeStance Health.
A New DTx Reimbursement Trend?
Carrie is not quite ready to call it a trend, but she is definitely hoping for a new benefit category for Medicare reimbursement of Digital Therapeutics (DTx) interventions, pointing to CMS’s explicit Request For Information on the topic in its proposed 2024 Medicare Physician Fee Schedule rule. (We wrote about new Medicare coverage for emerging DTx technologies here.)
Kaitlyn adds that a new benefit category for DTx would be beneficial for healthcare XR companies and providers that leverage their technology. The extended reality (XR) industry is gearing up to make a big impact in healthcare, but companies and providers in the space do not currently have access to one of the main growth drivers that other sectors enjoy: insurance coverage. Kaitlyn says CMS can promote provider adoption of and patient access to valuable healthcare XR solutions by adopting specific reimbursement for digital therapeutics, a category that many XR platforms likely fall under.
Why These Insights Matter
We work with some of the smartest people in the world on a daily basis. You’re changing the world of healthcare!
Even so, gaining a peek into what we’re seeing on a macro level in the industry can help you better understand your company’s risks and opportunities. And whether your company is at the idea stage, maturity, or somewhere in between, knowing what’s ahead leads to more savvy business decisions.
We hope you’ve found these insights helpful in anticipating your company’s needs this year. As always, we’re looking out for you today and tomorrow because we want you to revolutionize how we all access, receive, and experience healthcare.
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Happy New Year!