When Germany passed its Digital Health Care Act in late 2019, it was hailed as a catalyst for Europe’s largest healthcare market to become a leader in digitisation. Some claimed Germany would be the future of digital health tools.
Two years in, it's time to take stock: Can the future really be found in Germany?
The state of play: mixed success
The act was supposed to encourage doctors and patients to adopt digital technologies more widely by enabling patients to reimburse costs related to digital health apps under their state health insurance. It was also supposed to encourage entrepreneurs to build apps for the German market.
As of January, however, only 28 health apps are listed on the DiGA Directory of healthcare products. Absolute prescription figures are tiny (ca. 45,000) compared to the more than 440m traditional drug and medical aid prescriptions that are typically written per year.
In other words, on average, 26 times more traditional prescriptions are being written in a single day than health apps are prescribing in a whole year. It turns out that being prescribable doesn't mean being prescribed.
Securing market access is always a challenge in healthcare. But it's arguably even more complicated with digital health.
Apps, unlike pharmaceutical pills or medical implants, depend much more on users' willingness to engage with the tool actively and repeatedly (rather than merely swallowing a tablet, for example) as well as for clinicians to integrate insights from the apps into their workflow.
It turns out that being prescribable doesn't mean being prescribed
Furthermore, many companies withdrew their applications for the new reimbursement scheme or were rejected. This was mainly because they could not meet the requirements for clinical studies, and many doctors and insurers were reluctant to support tools that were considered to have weak evidence.
And it remains unclear how lucrative this new reimbursement scheme can be in the long run because current prices are often seen as disproportionately high compared with "offline" comparables.
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More importantly, there’s a deeper, more consequential problem with the Digital Health Care Act's approach. It is biased towards patient-facing health apps, which are pretty clearly defined as a “digital assistant” if they meet certain criteria.
There are increasingly sophisticated digital health apps. But many currently in use go little beyond documenting basic health data collected via questionnaires and using that data to tailor the app's content to each user. The real future of healthcare, however, lies in the convergence of sensors, implantables, remote patient monitoring, AI, bioengineering and other more accelerating technologies which the German regulators have largely overlooked in their incentives strategy.
This is not to say that consumer-facing digital health apps are not important, but they can only be a part of the wider arsenal of modern healthcare.
A deeper problem: disincentivising international investment
But there’s a deeper problem behind a lack of adoption in Germany. The Digital Health Care Act risks incentivising domestic entrepreneurs to overfit their tools to the German market — further alienating international investors already cool on European healthtech.
Europeans forget that the region’s healthcare markets are too small, disconnected and regulated to allow startups to get to the scale that excites international investors.
A real quote from an international investor last year: "If they truly are so great... then why on earth are they based in Germany?"
Even if France and others follow Germany’s lead with similar legislation, the dynamic won’t change. International investors will still struggle to get genuinely excited
And another: "I only invest in double-digit billion opportunities. The problem with many European entrepreneurs is that they think too small. They tend to narrow their focus to their home country or the EU. But these are comparatively small markets, and scaling within them is challenging."
Plus, there's a lack of talent with adequate medical and regulatory knowledge. Growth capital to supercharge the startups is often missing. Even if France and others follow Germany’s lead with similar legislation, the dynamic won’t change. International investors will still struggle to get genuinely excited.
One critical success factor for startups is focus because, by definition, their resources are scarce. Having to spend years generating evidence and filing documents for approval when digital prescription rates are tiny and the size of the insurance payments remain uncertain comes with unacceptably high opportunity costs. Pan-European harmonisation of digital health that doesn't require country-by-country validation would probably get much more interest from international investors.
So what's the solution?
By and large, the entrepreneurs and investors hunting for very big opportunities will probably still not look to Germany — to them, scalability beats access one single market. The point of venture capital is not to make a startup somewhat cash-flow positive in the first few years: it's to find talent who can build something of incredible value over time. That takes more than a new reimbursement scheme.
So rather than focusing mainly on the end of an innovation's journey (the stage where tech is being used by and paid for by someone), governments should primarily move their focus upstream — when the tools are being invented, funded, and built.
Rather than focusing mainly on the end of an innovation's journey, governments should primarily move their focus upstream
Europe needs more doctors and scientists who are skilled in applying evidence-based healthcare principles in a digital context. It needs AI experts to understand the context of clinical medicine better. It requires public servants and policymakers to assess digital tools to be more tech savvy, investors to be competent in critically appraising healthcare inventions (let's avoid another Theranos) and business people to be able to navigate the complexities and regulations of healthcare systems safely.
Governments could do more to fund professional qualifications in medtech quality management, AI in healthcare and the business of medicine, for example. They could establish grants for clinical effectiveness studies of new healthcare technologies, which institutional and angel investors rarely enjoy funding. This would lead to more independently funded research and extend the competencies of academic researchers.
Create independent funds for clinical trials to validate digital tools, provide generous startup grants for regulatory compliance support and invest in digital upskilling of the healthcare workforce, insurance staff, regulators and all other relevant ecosystem players.
Creating value for the world, not just domestic markets
Once again, Europe's tech ecosystem is guilty of looking to governments and regulators to save the day or give the ecosystem an extra boost. But regulations like the Digital Health Care Act risk creating a planned economy that focuses on one family of technologies and fails to adjust fast enough to emerging technological trends.
Europe needs to think about how its entrepreneurs can create value for the entire world, not just their domestic markets. Reimbursement-focused policymaking like the Digital Health Care Act fosters the latter, not the former.
Thank you to Ali Ciger, Laura Kueng, and Johanna Ludwig for your stellar feedback on the first draft of this article.
Dr Sven Jungmann is a former practising medical doctor and chief medical officer at FoundersLane’s health practice. He sits on the advisory board of two healthcare startups, and has his own startups. Dr Daniel Kraft is a physician-scientist, inventor, entrepreneur, and innovator.