Digital health is at a critical inflection point as the market has become more crowded, competition for capital heats up and customer budgets have tightened.
Despite these headwinds, most digital health senior leaders (81%) are optimistic about the sector this year, with 51% having a very positive outlook and 31% reporting cautious optimism, according to a recent survey from healthcare consulting firm Summit Health Advisors.
About 1 in 5 (19%) digital health senior leaders said they were either unsure about the sector's forecast in 2025 or had a negative outlook on the future financial opportunities in digital health. Those with a negative outlook cited tight customer budgets, competitive saturation and macroeconomic uncertainty as key reasons for concern, the survey found.
Digital health has experienced a rapid evolution over the past few years, with record-breaking investments in 2020 and 2021 followed by a sharp dip in 2023 and 2024 that’s resulting in valuation corrections and tightened budgets moving forward.
2025 could be a "make it or break it" year for many digital health companies. The competitive environment has become more crowded, long-term revenue stability has become more elusive and communicating differentiated value has become more critical, Summit Health Advisors' founder and managing director Seth Joseph and David Mannion, vice president of digital health, wrote in the report.
"These deeply intertwined factors stand to divide the digital health market. The companies who can find ways to stand out, generate capital and demonstrate value will continue to grow and scale in 2025, while those who cannot may struggle to stay above water," Joseph and Mannion wrote.
“This year was a defining point for digital health, and our study shows the resilience and adaptability of leaders navigating a challenging environment,” Joseph said in a statement. “The insights gained highlight the need for formidable competitive tactics, strong customer relationships, and bold growth strategies to drive success in 2025.”
In partnership with independent market research and survey provider PureSpectrum, the healthcare consulting firm surveyed 103 senior leaders whose organizations sell digital health products into the U.S. healthcare system. The survey, completed in September 2024, aims to offer insights into how organizations are adapting to shifting financial realities and preparing for growth in 2025.
With cash flow as a top concern, 79% of digital health executives say their organizations will pursue investment capital in the next 12 months. Of the private, venture-backed companies, 84% plan to raise.
The biggest concerns for the private companies seeking investment are raising enough funds (43%), getting the right terms/valuation (40%) and finding new investors (38%).
Of those looking to raise funds, 46% report their biggest internal barrier to securing investment is that they’re still working to achieve meaningful product-market fit.
The urgency to raise capital may be driven by the top concerns that keep digital health leaders up at night. According to the survey, 44% are concerned about greater competition from large incumbents followed by technology integration challenges (42%) and cash flow concerns (41%).
Among leaders top business concerns, 38% cited that their companies are over-dependent on too few customers (38%) or could not acquire new customers fast enough (35%).
The concern expressed by the fewest leaders was customer churn, with less than a quarter (24%) of respondents worried about it, suggesting customer acquisition is a far greater challenge than customer retention, according to the survey.
Digital health leaders were highly polarized when asked which subsectors had the most and least potential for growth in 2025. Telehealth was most commonly selected as the sector digital health leaders felt had the most growth potential (50%) and also the least growth potential (27%). Other polarizing areas include digital therapeutics (23% tapped as an area with the greatest potential, 18% saw it as having the least potential), health informatics, patient engagement, administrative AI, pharmacy or pharmacy benefits, remote patient monitoring and clinical AI.
Telehealth was also the digital health sector where executives predict the most M&A activity over the next 12 months (44%), followed distantly by patient communications and engagement technology in second place (16%).
Increasing market crowdedness, rising competition and the inability to effectively position against competitive threats are the most pervasive go-to-market challenges for digital health firms, the survey found. Digital health executives reported that new market entrants and an overly crowded market (38%) was their top external go-to-market challenge, followed by technology and electronic health record integration and insufficient customer budget.
Companies also face internal go-to-market challenges, with leaders citing difficulty with effectively differentiating their products (41%) as their top challenge, followed by repeatable sales processes and compelling value props.
As competition in the U.S. healthcare system increases, digital health companies are looking abroad for growth opportunities, with 67% planning to expand internationally. Among those, the primary motivators included U.S. market saturation (33%) and unmet revenue expectations domestically (23%). Early-stage startups are pursuing international growth at a higher rate (84%), versus late-stage startups (72%) and public companies (55%).
Examining digital health companies' pricing strategies, subscription-based pricing models were most common in digital health with 62% of companies leveraging them. Early-stage companies adopted subscription-based models at a higher rate (77%), while late-stage startups and public firms were more balanced in their adoption of various pricing strategies, according to the survey.
The chief factor that informed pricing was value creation (important to 61% of respondents), followed by competitor pricing (54%). These external factors were around three times more important than internal pricing considerations, like cost analysis (20%). Most companies (75%) relied on blended or different pricing models for their products; of those companies that leveraged a singular pricing strategy (25%), a subscription model was the most common (39%).
Nearly every digital health leader (97%) reported that return-on-investment models are important during the sales process. Of the 76% companies that have an ROI model, more than half (53%) reported their models need some level of improvement or refinement.
Executives also said digital health buyers increasing seek out customer-centric validations, such as client outcomes and testimonials, as evidence of the technology's impact.
Outcomes from prominent customers (57%) and customer testimonials (53%) were the top two types of evidence needed to support digital health sales, while only a third (33%) of companies said their customers needed peer-reviewed publications to support a digital health procurement decision. This trend shifts as companies mature with more (44%) publicly traded companies required to provide peer-reviewed studies versus startups (29%), the survey found.