Should You Invest in the Booming Health Data Market? Key Opportunities & Risks Explained

Health data has emerged as a crucial asset, driving decision-making for pharmaceutical companies, insurance providers, and healthcare systems. Misdiagnoses contribute to hundreds of thousands of preventable deaths annually, according to research from Stanford and Johns Hopkins universities. 

The financial repercussions are equally staggering, with a 2019 study in the Journal of the American Medical Association estimating that up to $935 billion is wasted each year due to overtreatment, administrative inefficiencies, and inconsistent pricing.

The Health Data Market is Expanding

Despite the abundance of health data, accessing it remains a significant challenge. While databases like Athenahealth and Epic Systems aim for interoperability, outdated systems often hinder seamless information flow between patients, healthcare providers, and insurers. Instead of modern technology, many rely on antiquated methods, such as fax machines, to relay critical health information.

However, user-generated health data from wearable devices and mobile health applications presents a more accessible and analyzable source of health metrics. The rise of artificial intelligence (AI) and machine learning further enhances diagnostic capabilities. For instance, Temple Hospital in Philadelphia employs AI to efficiently scan and diagnose blood clots, showcasing the potential of technology in healthcare.

According to MarketsandMarkets, the health data market is projected to double in size over the next five years, reaching an estimated $900 million by 2028. This rapid growth opens the door to three key investment opportunities.

1. Raw Data Collectors

Several innovative companies are creating platforms that empower both large healthcare entities and individual users to share their health statistics. For example, Evidation incentivizes users to anonymously share data from wearables and health apps in exchange for points redeemable for rewards. Similarly, Sweatcoin has ventured into the cryptocurrency space, allowing users to earn digital assets alongside health data.

Another noteworthy player, JennyCo, has developed a tokenized health data exchange. Users can upload detailed health information, such as DNA test results, in return for personalized wellness insights generated by AI. This model also allows users to lease their data anonymously to businesses or research organizations, providing a new revenue stream for participants.

As data interoperability improves, these platforms could revolutionize the way health information is shared and utilized. Jay Krishnan, a partner at McKinsey & Company, emphasizes the importance of data security and the need for ethical governance in health data management.

2. Proprietary Data-Analysis Tools

Collecting raw health data is just the beginning; unlocking its value requires robust analysis tools. Startups focused on developing proprietary algorithms are essential to this effort. For example, Clarify Health combines its own datasets with advanced analytics to deliver AI-powered predictions and clinical insights. 

Additionally, major tech players like Google and Amazon are investing heavily in health data analytics, indicating a significant trend toward integrating technology with healthcare services. Investors can capitalize on these developments by partnering with startups or engaging with venture capital funds specializing in digital health.

3. Big Healthcare

Established healthcare companies, including pharmaceutical manufacturers and insurance providers, are increasingly building in-house data science capabilities. This approach offers a less risky alternative to investing in startups. By leveraging real-world health data, these organizations can enhance drug efficacy and expedite market entry. For instance, AstraZeneca’s real-world evidence study on diabetes treatments illustrates how data can complement traditional clinical trials.

The integration of AI and electronic health records could yield significant cost savings, with a McKinsey and Harvard University report estimating a potential reduction of $360 billion in healthcare costs annually.

Weighing the Risks

While the advancements in healthcare technology hold great promise, they are not without risks. AI, for instance, may generate unreliable results, as evidenced by IBM’s Watson Health, which struggled to deliver accurate oncological recommendations due to insufficient data. Blockchain technology, although heralded for its potential to enhance data security and interoperability, remains largely untested at scale.

As health data becomes increasingly valuable, it also attracts malicious actors. The 2014 Anthem breach, which compromised up to 80 million records, serves as a stark reminder of the vulnerabilities within health data systems. Additionally, concerns about data privacy persist, with algorithms capable of re-identifying individuals from anonymized datasets.

Conclusion

As health data continues to grow in significance, stakeholders must navigate a complex landscape filled with both opportunities and challenges. Investors should conduct thorough due diligence to ensure that companies prioritizing health data management have robust ethical frameworks and effective governance structures in place.

In a sector that comprises 18% of the U.S. gross domestic product and continues to evolve, understanding the dynamics of the health data market will be crucial for anyone looking to invest in the future of healthcare. With careful consideration and strategic investments, stakeholders can help shape a more efficient and effective healthcare system for all.