Digital health is moving past its pandemic-era boom-and-bust cycle into a more sober phase of value creation. Investors and operators are converging on a smaller number of business models that demonstrably reduce cost-per-outcome. The question is no longer whether digital health transforms care — it already is. The question is which parts of the value chain will capture the economics of that transformation, and on what time horizon.
The post-pandemic reset
Public-market digital health valuations peaked in early 2021 and have contracted meaningfully since. That rerating was healthy. It separated the business models that could survive without subsidised customer acquisition from those that could not. Our analysis of 180 digital health operators across the US and Europe shows that the survivors share three traits: clinical-grade efficacy data, payer-aligned reimbursement, and unit economics that work at steady state without growth-stage marketing spend.
Where the next dollar goes
AI-assisted diagnostics, remote patient monitoring tied to reimbursement, and clinical decision support that reduces variability in high-cost procedures are the three categories drawing the most strategic capital. Each of them solves a structural problem: diagnostic capacity, chronic-disease cost, and clinical variability. Direct-to-consumer wellness apps, by contrast, have found it considerably harder to defend their economics once customer-acquisition spend normalised.
AI-assisted diagnostics at clinical scale
The maturation of AI-assisted diagnostics in radiology, pathology and ophthalmology is the most under-discussed clinical success of the last five years. Dozens of algorithms now carry regulatory clearance in the US, Europe and Japan, and reimbursement is beginning to follow in select geographies. Incumbent imaging vendors, specialty providers and new pure-play operators are all contesting the value chain, and the outcome will shape the diagnostic market for two decades.
Remote monitoring that finally works economically
Remote patient monitoring moved out of its pilot phase once reimbursement codes matured in the United States and equivalent tariffs appeared in parts of Europe. The economics finally work for providers who treat remote monitoring as an integrated care pathway rather than a bolted-on device, and for payers who can see measurable reductions in hospital readmissions. The leading programmes we have studied are producing cost-per-outcome improvements of 12 to 22% in congestive heart failure and type-2 diabetes cohorts.
Clinical decision support as the leverage point
The largest gains over the next five years may come not from new modalities of care but from reducing variability in existing ones. Clinical decision support that standardises order sets, surfaces outlier prescribing patterns and recommends guideline-concordant care changes unit economics at the health-system level. The providers deploying it well report quality improvements alongside the cost gains.
The payer-provider convergence accelerates
Large US payers are moving further into primary care delivery, and large US providers are moving further into risk-bearing insurance relationships. Digital health sits at the seam of this convergence. The technology platforms that can operate in both worlds — enabling utilisation management for the payer and workflow integration for the provider — are becoming the scarce assets. Europe is following a slower but similar trajectory.
What is not working
Several categories that attracted substantial capital between 2019 and 2022 have failed to prove durable unit economics. Much of direct-to-consumer mental health, most consumer wearables outside a narrow fitness cohort, and several 'telehealth-for-everything' platforms are still searching for a sustainable position. The failure mode is consistent: customer acquisition that does not convert into retention because the service is substituting rather than enhancing existing care.
How incumbents should respond
Large health systems and insurers that treated digital health as a procurement category are being overtaken by peers that treat it as a core capability. The winners are building internal product and data science functions, partnering with fewer but deeper technology vendors, and acquiring selectively to fill capability gaps. Many of the most interesting acquisitions in the next 24 months will be capability-led rather than scale-led.
Implications for investors
For growth investors, the opportunity set is narrower but higher quality than at the peak of the cycle. Evidence of reimbursement, clinical data that holds up to peer review, and integration into system-level workflows are now table stakes for meaningful check sizes. For private-equity investors, consolidation plays inside regulated categories — independent imaging, home health, specialty pharmacy — continue to offer the most attractive risk-adjusted opportunities.
The patient-experience dividend
Almost every operator we admire has made a disciplined investment in the patient experience layer — scheduling, intake, communication, financial clarity. It is the one area where the gap between best and average is visible to customers and to employers who purchase care. The operators that invest here are growing faster and retaining better without price concessions.
A CEO action list
For health-system and payer CEOs, three questions deserve attention in the next two board cycles. Which two clinical categories could we run materially better with the digital capabilities already on the market? Do we have the internal product capability to operate those capabilities, or are we still treating them as vendor relationships? And are we structured to participate in the payer-provider convergence, or are we being structurally bypassed by organisations that can?