4 Ways Investors Think the Health Tech World Will Change in 2024

4 Ways Investors Think the Health Tech World Will Change in 2024


At this year’s HLTH conference in Las Vegas, Bessemer Venture Partners released a report that analyzed the digital health sector’s performance over the past five years and offered words of wisdom for the next cohort of startups seeking to build resilient business models that can deliver long-term value.

During an interview at the conference on Sunday, the two authors of the report — Bessemer investors Sofia Guerra and Steve Kraus — discussed how they came up with their four predictions about where the digital health world is headed in 2024.

“Services-as-Software” will emerge as a new category of healthcare AI 

As generative AI and LLMs get more advanced, a new category of AI tools are emerging that deliver a service as the final product rather than providing a workflow tool where the end user completes an action. This new trend flips the SaaS model on its head, Guerra pointed out.

“SaaS isn’t going anywhere, by the way. This is a new category that’s emerging specifically for AI companies. When you think about the output of an algorithm, it’s not going to be a workflow tool that a user is interacting with to enable them to do work on the software — it’s going to be the work itself,” she said.

For instance, some generative AI companies will likely emerge that sell prior authorization or clinical trial participant identification as the output of their software, Guerra explained. These companies will be selling services, but the services will be provided all by technology — there are “very little people involved,” she explained. 

In other words, with a Saas model, a person is in the loop using the software to make a job easier. With a services-as-a-software model, the person lets the software do the job for them.

“Our thesis is that you’re able to tap into business process outsourcing-type markets, where there’s people likely in the Philippines and India doing a lot of that work, but now you can enable it using AI,” Guerra added.

Guerra and Kraus pointed to SmarterDx, which provides clinical review and quality audit of medical claims, and Abridge, which is developing software for transcription and clinical note generation, as two examples of Bessemer portfolio companies in the emerging services-as-software space.

Healthcare payment companies will have to align incentives between providers and payers

There are a lot of companies on the market that focus on healthcare revenue cycle management — but incentives are still misaligned between payers and providers, and both parties are still plagued by payment inefficiencies. As a result, the market is rife with duplicate systems, and providers and health plans still struggle with manual processes and bloated administrative costs.

“I think the holy grail really comes down to becoming the interstitial tissue between the payer and the provider — not designing a solution for a provider and one for a payer. That’s like a game of cat and mouse,” Guerra explained.

She said there is a massive opportunity for software to connect the administrative processes of payers and providers, giving way to a more efficient healthcare payment system. For startups to succeed in building this software, they have to follow the money and align incentives between the two parties.

Bessemer is looking for companies that can harmonize the payment process between the two stakeholders and eliminate duplicative, antagonistic systems for things like prior authorization, claims adjudication and quality audits, Guerra noted.

Some examples of prior authorization companies seeking to foster a better payment relationship between providers and payers include Cohere Health and Verata Health, which was a Bessemer portfolio company until Olive acquired it in 2020. These companies used evidence-based protocols to automatically authorize medical services on behalf of health plans, which in turn accelerates operations for providers.

If you want to sell tech to providers, you may need to rethink your distribution model

The report highlighted indirect monetization as a new distribution advantage emerging in the digital health world. Some startups are providing their software for free, shrinking their sales cycles and allowing them to utilize indirect monetization strategies early on.

“One of the biggest challenges in health tech is distribution,” Kraus said. “It’s really challenging to sell to health systems. Companies are trying to find pockets of spend that health systems already have to automate and make more efficient. It’s not like they’re creating a new spend — they’re just trying to use modern technology to make it cheaper, better, faster.”

For example, Bessemer portfolio company House Rx, which aims to make specialty medication more affordable and accessible, provides technology to practices and profits from specialty pharmacy prescriptions through distribution agreements with drugmakers. Additionally, Verse Medical and Doximity are two examples of companies using indirect monetization strategies that aren’t in Bessemer’s portfolio.

Contingency-based pricing is often easier for health systems to swallow than upfront fees, given the financial pressures providers are facing right now, Krause pointed out. The aforementioned SmarterDx is an example of a startup that uses this distribution model.

“They will look at a hospital’s charts and say, ‘Hey, we think you’re missing some clinical documentation here. And by the way, if we identify $10 million, we’re going to take 10% — versus charging some kind of SaaS fee, which has to be approved upfront,” Kraus explained. “Especially in these tough times — when everybody is contracting with health systems that are having huge operating losses, and payers are having challenges too — thinking about distribution or pricing models that make it easier to sell into the system is going to be important for entrepreneurs.”

The biopharma value chain must become more efficient

Biopharma has had a strong market performance in the past few years, but the industry is beginning to face some serious challenges. Many of these companies are focusing on therapies that serve niche populations, such as precision oncology drugs, so R&D costs are rising while sales forecasts are dwindling. 

Additionally, the Medicare drug price negotiation program is putting new pressures on pharmaceutical executive teams, prompting them to use AI to make the value chain more efficient, Guerra said.

Bessemer is watching startups that sell technology to biopharma research teams to enable more efficient target discovery, such as Sphinx Bio and Bessemer portfolio companies Watershed and Peptone. The venture fund is also excited about startups that facilitate faster and more efficient clinical trials, like Faro Health, Lokavant, readout.ai and portfolio company Mural Health, according to the report.

Photo: rudall30, Getty Images



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