By David Shaywitz, MD

Rock Health recently released a decidedly mixed report on the current state of Digital Health investing, as the data suggest many investors continue to tentatively explore the sector, but most have yet to make a serious commitment.

Overall, VC funding for digital health increased significantly over the past year, from just under $1B in 2011 to about $1.4B in 2012; 20% of this total was associated with just five deals: two raises for transparency companies, Castlight (targeting employees with high deductible plans looking to manage their costs) and GoHealth (targeting consumers contemplating purchase of health insurance); two raises for referral companies, Care.com (helps consumers find the right caregiver – defined broadly, as needs addressed include eldercare, child tutoring, babysitting, and pet care) and BestDoctors (helps employees find the right doctor), and one deal for 23andMe (a pioneering consumer genetics company).

Not surprisingly, the largest thematic area of investment ($237M) was “health consumer engagement,” comprised of companies that – like the first four above – help consumers or employees with healthcare purchases.   “Personal health tools and tracking,” the second leading category, captured $143M in funding last year.  “EMR/EHR” ($108M) and “hospital administration” ($78M) rounded out the list; the last two numbers seem shockingly low given the apparent size of these markets, and suggest both areas may be perceived as  firmly owned by incumbent players, and prohibitively difficult for new participants to enter.

Athenahealth’s just-announced acquisition of Epocrates highlights the competitive pressures even existing EMR companies face as they struggle for traction in an environment that seems to be increasingly dominated by a few large players, most notably Epic. “Our biggest obstacle,” Athenahealth CEO Jonathan Bush told Bloomberg Businessweek, “is that 70% of doctors don’t even know we exist.”  In contrast, I’ve suggested that a category I’d broadly define as EMR adjacencies may be primed for growth, as VC’s Stephen Kraus and Ambar Bhattacharyya have also discussed recently in this intelligent post.  The related area of care transitions is also attracting considerable entrepreneurial interest, including current Rock Health portfolio companies WellFrame and OpenPlacement, and TechStars alum Careport; it remains to be seen whether a robust business model will emerge here.

Rock Health’s analysis of deals revealed that while 179 different organizations participated in at least one significant ($2M or greater) digital health financing in 2012, the vast majority were single investments; only a handful of organizations invested in three or more digital health companies.  This could be because most investors are only willing to dip their toe in, but not make a serious commitment (especially common among traditional tech-oriented investors); in other cases, a commitment to the sector might exist, but suitable investments could not be found (something I’ve heard from several seasoned healthcare VCs).  Or, it could simply reflect where some funds are in their investment cycle.

The most active 2012 investors (3+ digital health investments) break out into two general groups, strategic and traditional.  The strategics include a telecommunication company, Qualcomm; the insurer, BlueCross BlueShield;  Merck, surprisingly the only biopharma venture group represented in the “active investor” category;  and West Health, a non-profit focused on reducing the cost of healthcare, funded by entrepreneur-philanthropists Gary and Mary West.

The most active traditional VCs include Aberdare Ventures, which has emerged as a highly respected player in the space (partner Darren Hite seems to be emerging as a crowd favorite); NEA, a behemoth (closing a $2.6B fund last July) with long-standing interests in healthcare, life-science, and technology; and Khosla Ventures, reflecting Vinod’s much-discussed commitment to this area.  Council Capital, a Tennessee-based private equity firm, rounded out Rock Health’s list of most active digital health investors.

One conclusion emerging from the investor data is that there certainly doesn’t seem to be a single dominant investment firm in this space, or even a handful that stand out significantly above the others.  This was reinforced in my mind by an informal, non-scientific survey I recently conducted among a handful of digital health thought leaders, asking who they would designate as the most important digital health investors.  The result was a striking lack of any consensus, and no firm emerged as particularly dominant.  The distinction “most impactful digital health VC” is clearly up for grabs.  I suspect that a few good exits could change the investor landscape appreciably – and intensify the competition.   Easier said than done, of course, as “a few good exits” is not a sure thing – a lesson many life science venture firms, in particular, have learned through bitter experience.

Perhaps the most striking, and disheartening, findings in the 2012 Rock Health report involved the digital health companies themselves.  The typical digital health CEO, it turns out, looks (to my eyes, anyway) a lot like a typical tech CEO – a male with a bachelors or MBA.  Only 7% of digital health CEOs are women, and only 5% of digital health CEOs are MDs; other essential clinical professionals, such as RNs, don’t appear to be represented at all.  (In contrast, about a third of practicing physicians, and about half of current med school graduates are women – and both fractions are on the rise.)   Furthermore, while there seem to be a number of job opportunities now available in digital health, according to the Rock Health Report, the two leading categories are “engineering/IT” (33%) and “business/ops” (32%), again a breakdown that seems grossly similar to what you’d expect from a tech startup, but perhaps not what you might look for in a health company.

Concluding Thoughts:

The view of digital health that emerges from the latest Rock Health report is an industry that’s looking a lot like a (complex) subcategory of traditional tech.  This will certainly get us more consumer-facing wellness products, such as diet apps and activity monitors, that tend to amuse for a few weeks but generally have little sustained health impact (see this savvy, critical assessment from AllThingsDigital’s Bonnie Cha).

The current thinking in digital health may also be fine for producing the next generation of scheduling software and rating platforms that may help us identify and take advantage of existing medical treatments in a cost-effective fashion, enabling us to optimize what I’ve described as “attained health” – see here, here, and here.

But at least for the moment, digital health investments seem to fall far short of delivering innovations that meaningfully push the diagnostic and therapeutic frontier.  The road from data to clinical impact, as Tory Wolff and I recently discussed, is long and difficult; just as life scientists learned that a gene sequence is not a drug, data scientists are discovering that information is not a cure.

Yet, improved treatments must remain the ultimate goal of digital health; we must aspire to leave our children with something more than just the best practices of today.

David Shaywitz is co-founder of the Center for Assessment Technology and Continuous Health (CATCH) in Boston.  He is a strategist at a biopharmaceutical company in South San Francisco. You can follow him at his personal website. This post originally appeared in Forbes.