Healthcare CIO survey reveals a tale of two cities for innovation

Dreamit Ventures surveyed 14 health system CIOs and innovation leaders in 4Q 2021 to understand how healthcare organizations are adapting to the new normal of a persistent pandemic. Participants included innovation leaders from systems ranging in size from 250 beds to over 1000. Notable systems surveyed include Children’s Hospital of Los Angeles, Moffitt Cancer Center, Atrium, and Children’s Hospital of Philadelphia, among others. The survey was geographically diverse and reflects some meaningful changes in how healthcare systems now engage with startups. 

As the Covid-19 pandemic continues to strain healthcare organizations across the country, enterprise health leaders indicated they are seeking innovative solutions to address pain points exacerbated by the crisis as well as new models of care delivery. This includes doubling down on improving patient experience and access to virtual health along with solutions to reduce widespread clinician burnout and provider shortages. However, only solutions with demonstrable ROI that integrate into the EHR and existing workflows are getting serious consideration. 

“Solutions that create a better and more engaging consumer experience are more important than ever before,” said Todd Dunn, vice president of innovation at Atrium Health. “However, they must deliver measurable business and clinical outcomes. The burden of proof has never been higher.”  

Despite tougher criteria for adoption, record-breaking levels of investment are flowing into digital health companies. According to CBInsights, U.S. funding for healthtech startups reached $37.9 billion, the highest on record. Globally, digital health funding was at $57.2 billion with a 3X median late stage deal valuation increase and shorter average time between growth stage fundraises.  

But can these aggressively funded startups deliver on the rapid growth assumptions that align with this level of funding? Only time will tell, but any experienced healthtech investor knows that “rapidly scaling” is an oxymoron when selling to enterprise health systems, providers, and payers. 

There are many positive signals. IT budgets are gradually being restored. Whereas 2020 was characterized by frozen and slashed IT budgets, 30% of health systems surveyed saw health technology budget increases in 2021 as compared with 5% in our 2020 survey. Whereas 25% of respondents in 2020 reported frozen budgets, only one system reported having its IT budget newly frozen in 2021. It stands to reason that larger budgets will favorably impact startups. 

From 2020 to 2021, the areas that saw the most significant uptick of interest were mental and behavioral health (50% to 92%), operational efficiency (64% to 92%), and provider workflow and burnout (20% to 62%). The emergence of social determinants of health and hospital-at-home also represent areas of expanding interest from healthcare organizations. Our experience from our national network of healthcare providers suggests that new challenges have created a strong appetite for innovation. The outlook is positive for platforms that solve many emerging “hair on fire” issues.

However, the added challenge for startups going into 2022 are human resource and IT bandwidth constraints. 80% of those surveyed report that IT costs, capacity constraints, and other EMR integration issues present challenges in working with healthtech startups. 

“Bandwidth for a timely implementation remains our greatest challenge to working with startups,” said the Innovation Director of a large integrated health system in the Mid-Atlantic.

“It is especially challenging to launch pilots right now given the intense burden of burnout that healthcare staff is facing as we approach year three of the pandemic,” said an innovation leader at a major children’s hospital in the Northeast. “And this in conjunction with our ongoing staffing shortages makes engaging with new technology solutions even more challenging.” 

Across the board, CIOs report a need to balance challenges they face versus risks associated with partnering with a startup.

“We are very interested in working with startups, but we also need to think about long term planning,” said a senior innovation executive at a midsize integrated health system in the Mid-Atlantic. “Startups present a high level of risk that makes it challenging to ensure long term plans will work and that the solutions will meet our needs.”

As the pandemic enters its third year, our survey suggests a strong future for digital health companies that address urgent problems, deliver provable ROI, and improve provider workflows. Motivation to address these challenges is at an all time high.But valuations are frothy and it’s safe to say that many startups just will not make the cut given the expectations from health system CIOs. In a few months, it may well feel like the best of times and the worst of times. 

Photo: Khanisorn Chaokla, Getty Images