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Digital Health has big buzz this year. For example, it was a hot topic at both the Consumer Electronics Show (“CES”) and the more-serious JP Morgan Healthcare Conference. (“Digital Health” refers to products and businesses that apply modern digital technologies — the web, mobile, the cloud, miniature sensors — to healthcare.) There has been good buzz before, but now there is solid reason to think that digital health will have impact. At a high level U.S. healthcare faces three big problems: high prices, poor care coordination, and an onslaught of chronic disease. Digital health can address all three problems.

In a series of posts on U.S. health care costs two years ago, I analyzed the principal drivers of the “health care cost gap”: the difference between the $7,800 per capita (1) that the U.S. spends on health care versus ~$3,300 per capita spent by peer countries that have equally effective health care systems (2). As percentage of the total U.S. health care spending, the biggest cost gap drivers are:

  • High prices for medical services in the U.S.: 19%
  • Over-utilization of advanced medical services: 11%.

In addition, the U.S. is facing an onslaught of chronic diseases: diabetes, heart disease, dementia, etc. These are “lifestyle” diseases: partly caused by lifestyle choices we all make. We are not necessarily worse off than peer countries; the U.S. compares well on smoking prevalence but poorly on obesity versus European countries, for example. However, bringing lifestyle diseases under control would have a big impact on health care spending, not to mention health itself. Toby Cosgrove, the CEO of Cleveland Clinic, reckons that behavior (i.e., lifestyle diseases) accounts for about 40% of premature deaths in the U.S. (3). Smoking alone drives about 5% of U.S. healthcare spending and diabetes, for which obesity is a major risk factor, drives another 7% (4).

These percentages add up to 42% of the $2.8 trillion U.S. healthcare bill. There’s quite a bit of overlap between the categories. However, it’s reasonable to think that something like half a trillion dollars ($1,600 annually per capital) could be saved if we tamed these problems. That’s worth shooting for.

Here’s the exciting part: Digital Health gives us leverage on each of these problems.

High Prices. In the world of business, the “standard of care” for a bout of high prices is an effective market, fostering price competition, which health care largely lacks. Digital Health is a powerful tool for “marketization” of health care. Digital Health companies like CastLight, Pokitdok, Vitals, and ZocDoc are making options, prices, and quality metrics visible to consumers, and making it easier to book an appointment with an alternative provider (6). At the same time Americans are becoming much more exposed to the cost of health care. The health care exchanges, on which 25% of Americans are expected to buy insurance by 2020, are training Americans to be health care consumers, and the skin-in-the game motivates them to act like consumers.

Poor Care Coordination (a major cause of over-utilization and bad outcomes) is a complex problem with roots in bad incentives, the U.S. health care culture, and lack of visibility into the totality of a patient’s care. Incentives are changing fast, and health care leaders are speaking out. These two forces together will begin to reshape the culture, hopefully. Digital Health is a powerful tool to address the third part of the problem: visibility of all the information affecting patient care. This has three big pieces: 1) making the information digital and structured; 2) connecting all of the isolated health care information systems; and 3) applying “big data” techniques to information in “de-identified” form to enable population management (5) and deeper insights into cause and effect. The move to Electronic Medical Records is now past the half-way point, but the systems are not compatible and interconnected [of course]. Numerous Digital Health companies, both established and start-up, are aiming to build a “healthcare cloud” that links these island systems, e.g.: AllScripts, AthenaHealth. And a number of companies are attacking the problem of generating big-data insights from healthcare data, e.g.: Practice Fusion. But this will take time, as discerning cause and effect from human health data is very tricky, and privacy issues will arise and must be addressed thoughtfully.

Lifestyle Diseases can be cut back by education and motivation, as the U.S. campaign against smoking shows. Diabetes, heart disease, and dementia, the chronic diseases that threaten to bury the U.S. health care system, can all be reduced significantly by healthier living: healthy food, moderate exercise, and well-controlled alcohol use. Digital Health helps in two ways. It makes in-depth information readily available; one doctor told me that WebMD is what he learned in medical school, but better presented. And, the combination of wearable sensors and smart phones creates personalized feedback on health parameters that is surprisingly effective in changing behavior. Smart web services, like ShareCare, reinforce this. Interest in “quantified self” was formerly associated with health nuts and gadget guys, but now it looks to be going mainstream. And we are just beginning to see the potential of wearable sensors: the tricorder is not far away.

In venture capital, we always ask: “where’s the pain that your product takes away, and who cares?” In U.S. healthcare the pain (literally) is huge, and everyone cares. Relieving some of that pain makes the prospect of Digital Health exciting.


  1. In 2008 dollars.
  2. Source: Why Are U.S. Health Care Costs So High?
  3. From Dr. Cosgrove’s remarks at the 2014 J.P. Morgan Healthcare conference.
  4. Source: Health Care Costs: The Art of the Practical.
  5. “Population management” means analysis of effectiveness and cost of different approaches to health care for an entire population, versus for each patient individually, which has been the dominant perspective in the past. Many believe this view of healthcare will unlock big opportunities to improve both outcomes and cost/effectiveness.
  6. Disclosure: New Atlantic Ventures, in which I am a partner, has an investment in Pokitdok.

Author: Todd Hixon. This article originally appeared on Forbes.com.