The COVID-19 pandemic once drove a rapid surge in the adoption of medical technology in the United States, reshaping the foundation of healthcare operations and delivery. However, as 2022 drew to a close, factors such as cooling digital health funding and declining virtual care usage indicated that the pace of technology adoption was slowing. Additionally, a series of cyberattacks and concerns over the privacy of sensitive medical data highlighted the risks associated with new technology applications.

Despite this, experts remain optimistic about the prospects for technology to improve U.S. healthcare in 2023.

Industry stakeholders predict that this year could become a turning point for practical applications of artificial intelligence, with expectations of higher standards for health data privacy and cybersecurity. Although investors are more cautious, startups can still secure funding this year, and the telehealth industry, as it is used more frequently in care delivery, will be held to higher clinical standards.

Digital health returns to basics

Experts predict that after a market correction following record digital health funding, health tech will return to basics this year, with investors prioritizing safety over risk.

Jonathan Yong, an analyst at Credit Suisse, said digital health funding may still decline slightly compared to previous years, but funding levels should stabilize in 2023. As venture capitalists become more selective due to lower valuations compared to peaks over the past two years, companies with a clear path to profitability or that are already profitable will attract the most attention.

"While growth remains important, there needs to be a stronger balance between growth and a path to profitability," Yong said. "Venture capitalists will be more selective in their investment choices."

Stephanie Davis, an analyst at SVB Securities, believes this trend will favor public companies with a stable track record, mature business models, steady growth trajectories, and reasonable valuations. Davis mentioned that such companies include data analytics firm Health Catalyst, patient admission software provider Phreesia, revenue cycle management company R1 RCM, and electronic medical records companies such as Veradigm (formerly Allscripts) and Nextgen.

Yong said mental health and behavioral health should continue to be key funding areas. Although there are already many companies in this field, employers and payers "are still looking for help," he added.

After the Supreme Court overturned Roe v. Wade last summer in Dobbs v. Jackson Women's Health Organization, attention on women's health has risen, and family planning and femtech are also expected to attract investment.

Experts believe that healthcare companies will adopt tools at a slower pace than last year, as payers and providers are forced to choose partners more carefully amid financial pressures and a market flooded with point solution companies.

Yong said payers may allocate resources to physician enablement and care coordination capabilities. Meanwhile, providers will invest in tools that reduce administrative burdens on clinical staff and improve revenue cycle management.

Davis noted that the biggest near-term opportunity for digital health companies comes from provider budgets, as hospitals and physician networks continue to adopt digital health technologies to streamline operations in a difficult macroeconomic environment, including data and analytics strategies and patient engagement products.

Despite opportunities, this year is expected to remain difficult for digital health startups. Experts say continued layoffs and consolidation are likely as point solution companies find it harder to operate independently. Additionally, companies deciding to raise funds in 2023 may have to accept down rounds, and as time goes on and higher interest rates pressure valuations, fundraising may become more difficult.

"I've heard a lot of quiet down rounds recently," Davis said. "I think companies doing down rounds are being very prudent in doing so."

Telehealth shifts to 'higher-value' care

Research shows that telehealth usage has been declining since peaking in the spring of 2020. However, some telehealth experts predict that digitally delivered healthcare will continue to grow, with usage shifting from urgent care visits that popularized the model to virtual care for chronic needs.

Roy Schoenberg, CEO of Boston-based telehealth company Amwell, said the decline in consumer telehealth usage "has been offset by a huge increase in clinicians using telehealth," such as consulting specialists at other systems, providing care for chemotherapy patients, or following up with patients post-surgery.

Schoenberg said Amwell is seeing weekly increases in clinicians using telehealth for this kind of "higher-value" chronic and longitudinal care, and the resulting volume is expected to continue rising in 2023.

"Telehealth is increasingly being used for 'the bulk of healthcare, which is chronic patient care, longitudinal patient care, rather than the occasional flu, which is a very small part of healthcare,'" Schoenberg said. "Looking ahead to 2023, I actually see a bull market for telehealth, driven by clinicians reimagining how they deliver patient care."

Jason Gorevic, CEO of Teladoc Health, said virtual care will increasingly follow the same clinical standards as in-person care, with greater emphasis on quality and safety this year. Telehealth standards sparked controversy last year, with some companies accused of operating like "pill mills,"leading to regulatory scrutiny。

Additionally, experts say economic pressures and changing consumer expectations will lead to a reduction in the number of digital health point solutions on the market. Gorevic noted he would not be surprised if half of them are acquired or shut down entirely by this time next year.

2023 will also be a reckoning year for care navigators. These services educate patients about medical decisions or connect them with providers, but do not provide actual healthcare.

"Employers are taking note, and we expect a shift in purchasing habits this year," Gorevic said in emailed comments. "Employers will look for vendors that 'solve the need rather than direct the problem elsewhere.'"

A turning point for artificial intelligence

The healthcare industry has long focused on the potential of artificial intelligence, but adoption of such tools in practical applications has been slow. The number of randomized controlled trials and actual use of AI in healthcare settings remains small, but Michael Howell, chief clinical officer at Google, predicts that this year may begin to see more evidence to promote adoption.

"I think in 2023 we will see some high-quality evidence emerge about the impact of AI and machine learning on real health outcomes and healthcare processes," Howell said. "The question I get asked often: 'Will AI replace doctors and nurses?' No. But will it begin to augment and support them? I think we will start to see real examples."

The U.S. Food and Drug Administration (FDA) has been acceleratingapproval of medical AI tools, having authorized over 520 devices as of November.

Experts predict that as more devices are approved, more providers will integrate AI into their operations for revenue cycle management, clinical decision support, and patient engagement.

According to areportby digital consulting firm West Monroe, payers will also seek to leverage technology to improve efficiency and find new ways to use the data they collect, as healthcare organizations grapple with a widening gap between consumer expectations and the reality of the healthcare experience, as well as competition from new market entrants like Amazon and Walmart.

Healthcare companies take cybersecurity and privacy seriously

Chris Bowen, founder and chief information security officer of data security company ClearData, said that as healthcare organizations continue to adopt technology, the attack surface will expand, increasing the need to secure the network environment.

For example, according to a recent study,the number of ransomware attacks on hospitals more than doubled between 2016 and 2021. Researchers estimate that over 42 million patient records were exposed during that five-year period.

Bowen predicts that due to the frequency of incidents, healthcare organizations will increase cybersecurity budgets, in some cases by more than 15% compared to 2022. Federal law enforcement agencies may also become more aggressive in combating cyberattacks, especially ransomware.

Additionally, Bowen said that as biometric and AI-driven medical technologies become more prevalent, policymakers may take data protection laws more seriously. The lack of comprehensive federal data privacy legislation is seen as a major oversight in today's digital age, and HIPAA privacy legislation has clear gaps in the data it protects.

"It's troubling that mobile app creators can collect health-related data without federal data protection," Bowen said.

Google's Howell also believes that as the national privacy discussion triggered by the overturning of Roe v. Wade continues into 2023, data protection and trust will be crucial this year. Following that ruling, many period-tracking apps, data brokers, and tech companies like Apple and Google—often under regulatory and public pressure—took steps to strengthen privacy and security protocols.

Howell said companies operating in the healthcare industry will continue to work to ensure patient data security and build trust with patients who are cautious about the collection and use of sensitive medical data.

"We will continue to focus on these aspects," Howell said.