By CLAUDE.AI trying to write like me MATTHEW HOLT
I finally did what I’ve wanted to do for a while and had an AI ingest everything I wrote on The Health Care Blog. Since there are 20 years of my posts interspersed across hundreds of guest posts, it wasn’t as easy as I expected. But in three days I finally got to about 500 articles I wrote and asked Claude to assimilate my style. Then I gave it three decent-sized prompts that I had previously used on LinkedIn or in a Slack message and this popped up.—Everything below is AI without editing or repetition. And it’s about 60% of my tone and maybe 75% of my opinion.. Quite surprising–Matthew Holt
The private AI bubble faces the reality of digital public health
So Garner Health just raised $118 million at a $1.35 billion valuationand Talkiatry raised $210 million. In the meantime, you can buy both. Talkspace (market cap ~$640 million) and Best Help—Teladoc’s entire mental health division which once generated more than a billion in revenue, for less than a billion dollars combined, given Teladoc’s current market capitalization is $953 million..
Something doesn’t add up here, and it’s not the math.
We’re seeing a fascinating divergence between what private market investors believe digital health companies are worth and what public market investors are actually willing to pay for them. And in the middle is the latest gold rush: AI-powered revenue cycle management.
Let’s start with Garner. I like what they’re trying to do: use massive claims data sets to steer people toward higher quality doctors with financial incentives. It’s smart. But 12% cost savings in the first year? The Health Rosetta group claims they can get their members much better results. Direct primary care groups working with employers are reporting higher numbers without needing a $1.35 billion valuation to do so. And they don’t have a medical group like Inclusive Health to support them.
So why the massive valuation? Because “powered by AI,” “big data,” and “320 million patient records” sound great on a presentation deck. Never mind that the actual savings demonstrated are less impressive than what consultants have been achieving for a decade.
Then there’s Talkiatry, which just raised $210 million—on top of them Previous Series C of $130 million. Good for them, they’ve built something real: over 800 employed psychiatrists providing real care with decent outcome data. But here’s what I can’t understand: Why are all the major mental health companies still raising hundreds of millions in private markets when literally no one has come out?
Talkspace is trading with a market capitalization of $640 million. Teladoc owns BetterHelpwhich peaked at over $1 billion in revenue and now it’s in the dumpster, crawling down Teladoc’s market capitalization is less than $1 billion in total. Where is the Lyra IPO? Brightline’s departure? The Spring Health or Headspace Liquidity Event? They don’t exist.
The public markets are basically shouting, “We don’t think digital health companies are worth what venture capitalists think they’re worth.” And yet, private money continues to flow.
Now let’s talk about where the really stupid money goes: RCM AI. we have it Previous raised $64 million in total to help payers process prior authorizations faster, and an entire ecosystem of companies conducting massive rounds to help providers fight those denials. As I’ve written elsewhere, we’ve gone from the smartest people in the world getting consumers to click on ads to half of them trying to get 5% more payer revenue from providers, while the other half are creating AI to help payers stop them.
This is the silliest arms race in healthcare technology. We’re automating trading over crumbs instead of fixing the system that creates the waste in the first place. But VCs love it because there’s a clear value proposition: “We’ll get you an additional X million dollars in refunds,” or “We’ll save you Y millions of dollars in denied claims.” Never mind that we’re spending billions to develop technology that makes a fundamentally broken payment system a little more efficient at breaking.
Meanwhile, in the public markets, current digital health companies with current revenues and customers are trading at valuations that suggest investors think they’re going to zero. Teladoc’s market capitalization is $953 million.. they did it $2.53 billion in revenue last year. That’s a price-to-sales ratio of 0.37 times. BetterHelp alone was making over a billion before the bottom fell.
The divergence is becoming absurd. Private companies with unproven business models and uncertain paths to profitability are achieving sky-high valuations. Public companies with real revenues, real customers, and real operations trade as if they were distressed assets.
So what’s going on here? Some things:
First, private market investors bet on potential, while public market investors value reality. Potential sounds better in a conference room than on an earnings call.
Second, we are in an AI bubble. Apply “AI-powered” to anything related to healthcare and you can suddenly increase by multiples that make no sense. It doesn’t matter whether AI is actually doing something useful or simply glorifying the automation of existing processes.
Third, the exit window for digital health has been closed for years. The rise and fall of SPACs taught us that half-heartedly taking digital health companies public ends badly. So private companies continue to raise private money because it’s the only money available, creating a massive disconnect in valuations.
Fourth, and this is the one no one wants to talk about: many of these companies may not be worth what venture capitalists are paying for them. Mental health companies continue to raise money because they can, not because they have proven to be a path to sustainable profitability. RCM companies are raising money by promising to extract value from a broken system rather than fix it.
Here’s my prediction: we’re going to see a reckoning. Either these private valuations will drop to adapt to the reality of the public market, or we will see a wave of declines and closures. Public markets aren’t wrong about digital health: They’re appropriately skeptical of companies that haven’t proven they can make money at scale.
And the AI RCM gold rush? That will end when someone realizes that we are spending billions to automate discussions about money instead of spending billions to reduce the total cost of care. Because at the end of the day, every dollar these companies “save” or “recover” is a dollar that should not have been in dispute in the first place.
Smarter investors should look at public market valuations and ask themselves: If real digital health companies with real revenue can’t get the respect of public investors, why do we value private companies as if they would be worth 10 times more when they finally try to exit?
Unless, of course, no one is planning outings anymore. In which case, we’re not building companies: we’re building very expensive scientific projects funded by LPs who seemingly have infinite patience and capital to spend.
I’ve been covering this industry long enough to know how this movie ends. And spoiler alert: This isn’t a bunch of unicorn IPOs.
Claude is an intelligent chatbot created by Anthropic. Matthew Holt expected to replace him soon
