2023 Forecast for Digital Health Startups and Telemedicine Law

10 January 2023 Health Care Law Today Blog
Author(s): Nathaniel M. Lacktman

With 2022 closed, there is growing anticipation (trepidation?) about what is in store for digital health in the new year. Will venture funding trickle or will 2023 see more liquidity in the markets?  What legal and policy changes can we expect to see?  And how will the end of the Public Health Emergency (PHE) waivers affect telemedicine services and patient care?

In a recent episode of the Slice of Healthcare podcast, Nathaniel Lacktman sat with host Jared Taylor.  Lacktman is Chair of Foley & Lardner’s national Telemedicine and Digital Health Industry Team, and a member of the ATA Board of Directors. They discussed the current state of affairs and what’s coming around the corner, including how to build sustainable telemedicine models, what venture capital firms will expect from digital health startups, and the legal and regulatory changes coming in 2023.

Lacktman said the digital health industry has “moved from a stage of growth-only to sustainability.” Venture firms do not expect startups to be profitable on day one, but they are seeking a direct path to profitability.  

Remember: venture funds typically have a 10-12 year lifespan, with a two-four year deployment schedule.  They have fiduciary and contractual obligations to deploy the money raised from limited partners for the purpose of investing in telemedicine and digital health companies.  “There is a bunch of dry powder (uncalled capital) remaining that must be deployed,” said Lacktman of the billions of dollars raised in the last three years. He continued, “Although venture seems like it moves really fast, and it has in these last few years, the lifecycle of a venture capital investment is quite long and the investors’ money highly illiquid. The limited partners have a different sense of time and horizon, and the venture fund managers have a different sense of time and horizon. Despite the pressure investors can apply, the people with the most urgency are often the founders themselves.”  Ultimately, there is money out there – previously raised and earmarked for investment in digital health – which should instill comfort for startups. There is plenty of fuel out there to fire further growth.

When asked about a potential downturn in the telemedicine industry following the expiration of the PHE waivers, Lacktman said, “We cannot ignore the reality that if you terminate Medicare coverage of certain services, it will inhibit doctors from offering those services.” For example, audio-only phone calls are currently covered under the PHE waivers, but if discontinued like the Centers for Medicare & Medicaid Service (CMS) has proposed, there will be a cohort of people who will not get care. But the recent federal omnibus bill signed by President Biden and supported by ATA Action brought temporary reprieve, as many Medicare telehealth waivers (including coverage for audio-only) will now be extended until the end of 2024.

The pandemic and the PHE did not create the telemedicine industry, but it did accelerate the pace that this technology was already being adopted – and rapidly. We have been operating under so-called temporary waivers for the last three years, many of which now feel fully-baked into the normal course of medical practice.  These fundamental changes are not going to end just because a waiver expires.

Outside of Medicare coverage, we could see more activity around state medical licensing. Although most states have already eliminated their interstate license waivers, there could be more activity on state-by-state agreements for continuity of care exceptions for follow-up care.

Another area to watch is how the Drug Enforcement Administration (DEA) will handle controlled substance prescribing via telemedicine under the Ryan Haight Act. There is a subset of patients who rely on controlled substance prescribing for important medication-assisted therapy. It is incumbent on the DEA to make a change for those patients who rely on this service.

Only time will tell what happens from here, but there is no denying the telemedicine industry continues to grow and thrive.

Listen to the full Slice of Healthcare podcast episode here or read the full transcript here.

Want to Learn More?

For more information on telemedicine, telehealth, virtual care, remote patient monitoring, digital health, and other health innovations, including the team, publications, and representative experience, visit Foley’s Telemedicine & Digital Health Industry Team.

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