Overall digital health funding in Q2 2020 was $2.4 billion, 33% higher than the quarterly average for the prior three years. (Graphic: Chris Nicholls)

With doctors' offices closed due to COVID-19 or open but patients reluctant to be seen in person for fear of infection, the demand for digital health care has never been greater — a fact that is not lost on investors. Despite the overall economic uncertainty brought on by the pandemic, digital health care companies in the U.S. are on pace to have their best funding year ever.

According to a new study by Rock Health, digital health companies raised $5.4 billion in venture funding through the first half of 2020, which projects out to $10.2 billion for the full year, according to the study. The previous high for the first six months of any year was $4.2 billion in 2019. For the study, Rock Health spoke with leading health care companies and investors at prominent health care-focused venture funds.

Related: 2019 on track for record number of health care startup deals

Most of the investments came during what was a surprising May and June. Rock Heath had predicted a slowdown in digital health investing in Q1 due to the pandemic, and that held true through April. But a rally by the public markets lessened the possibility of another recession, digital health requirements were loosened, and a surge in demand for digital health solutions contributed to the late reversal.

Overall digital health funding in Q2 2020 was $2.4 billion, 33% higher than the quarterly average for the prior three years.

Behavioral health and telemedicine win big

The COVID-19 pandemic has caused instability in every aspect of our lives, and maybe more in our mental health than others. The Rock Health report cited a recent survey by Mental Health America that nearly 100,000 Americans have reported anxiety or depression as a result of the pandemic. And investors took note of this impact.

The first half of 2020 saw roughly the same amount of funding that the behavioral health segment received in any other full year, according to the report at $588 million (total behavioral health funding in the prior three years: $539 million in 2019; $658 million in 2018; $273 million in 2017). The majority of funding in this segment in H1 of 2020 has gone to digital behavioral health companies that provide either remote treatment for acute and chronic conditions or digital therapeutics.

Telemedicine companies raised $926 million through June. Patients are increasingly comfortable with telemedicine, surveys show. In addition, some of the barriers to telemedicine have been removed or reduced due the pandemic, such as reimbursement, licensure and provider adoption. Add in the looming threat of a second wave of the pandemic, and telemedicine companies are that much more attractive to investors.

What's next?

The uncertainty surrounding COVID-19 and the almost daily change in plans for opening up businesses and schools around the country have made predicting what the rest of 2020 holds for investors difficult, to say the least. But Rock Health took a stab at it:

• Economic conditions won't play as a large role in the digital health industry as in other sectors of the economy, and in fact may drive investor interest in digital health care.
• Startups who sell to providers and employers may not fare as well as established digital health companies, especially if the economy experiences further instability as a result of a major downturn.

Steve Salkin is a managing editor for BenefitsPRO parent company ALM.

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