Investors eye holding digital health companies accountable


Investors poured a record amount of money into digital health technology in 2021. While 2022 hasn’t maintained the same pace, the market is still vibrant.

Hemant Taneja, managing partner at venture capital firm General Catalyst, has been at the center of this activity. According to Digital Health & Business Technology’s quarterly funding and M&A data, General Catalyst had an industry-leading nine investment deals in Q1 2022 and 37 overall in 2021, 17 more than the second-most-active firm.

As tech companies scale up rapidly in healthcare, Taneja said he’s wary that an old Silicon Valley saying will corrupt the industry: “Bad things happen in every industry often because of the mindset of ‘move fast and break things.’ ”

“Healthcare is a massive market,” he said. “We don’t need to be obsessed with growth at all costs.”

General Catalyst has created a health assurance fund to show it is serious about responsible investment. The fund finances companies making a positive impact with cost and outcomes. The company brought on former Merck CEO Kenneth Frazier as chairman of the $600 million fund in August 2021 to give it a level of instant credibility.

“For all these companies, we’re not just thinking about financial metrics but impact metrics,” Taneja said. “Are they really bending the curve? Are they making care proactive? Are they addressing health equity? We want to provide leadership and governance from that standpoint to understand the long-term effects of our businesses.”

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Spotlight on mental health

Medical ethicists are increasingly concerned that the hyper-growth mentality of venture capital cannot coexist with patient safety and quality care, especially in the mental health arena.

“In having a startup, you have to generate revenue, I mean that’s a fact,” said Nicole Martinez-Martin, associate professor of biomedical ethics at Stanford Medicine. “But sometimes that can raise concerns whether business models will align with what’s in a patient’s best interest.”

A potential clash of cultures is always an issue between startups and the mental health establishment since medicine already has established principles for accountability in addressing safety, effectiveness and confidentiality, she said.

“At some of the startups, there aren’t necessarily a set of practices that go hand in hand with ethical principles meant to benefit the patient,” she said. “It’s still evolving.”

Few areas of digital health have received as much funding as mental health startups, which saw $5.1 billion in investments last year, according to Rock Health. As emerging tech becomes more ingrained, regulations and guardrails are needed, said Craig Klugman, professor of bioethics and health humanities at DePaul University in Chicago.

“Ethically, the worst thing we could do is harm someone and because we’re dealing with mental health issues, it’s not that hard to harm a person if you send them in the wrong direction,” Klugman said.

Regulation needs to ensure companies are following standards of care, not making misleading claims about its efficacy and taking on too many patients in the name of scalability, he said. But with licensure, mental health regulations are largely contained within state agencies, with no federal oversight. With digital mental health therapeutics, there is some federal oversight as the Food and Drug Administration approves a few solutions. But the agency hasn’t approved the large majority of mental health startups in the market.

“The FDA has no oversight, so we need Congress to pass a law if we want a regulated space,” Klugman said. “If you want an unregulated space, don’t do anything. But an unregulated space has no safeguards to prevent harm to people.”

Federal regulation would be challenging because states operate very differently in both mental health and telehealth licensing, said John Mackenzie, telebehavioral clinical manager at Dignity Health in San Francisco. This was true before the pandemic and it has been true during it, as more people have used the technology.



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