A new report reveals how digital health companies are attempting to take advantage of market shifts to get ahead of competitors.

Investments in digital health didn’t slow down at the start of the year in the face of volatile market conditions. On the contrary, they picked up pace as companies sought opportunities to "leapfrog" amid uncertainty, according to a report by Rock Health.

The research found that both startups and large players are utilizing various strategies to improve their positioning in the venture capital landscape, resulting in increased funding overall and larger late-stage funding rounds.

Through the first three months of 2025, digital health startups raised $3 billion across 122 deals, compared to $2.7 billion raised across 133 deals over the same period last year and $1.8 billion raised across 118 deals in the fourth quarter of 2024.

The average deal size jumped from $15.5 million in the fourth quarter of last year to $24.4 million in the first quarter, continuing seasonal patterns from previous years of first quarter totals beating fourth quarter numbers, the report stated.

Last year's 'David and Goliath' dynamic remained in the first quarter, with startups contributing to deal volume while large companies fueled deal size.

Dealmaking through the first three months was largely driven by earlier-stage funding. Seed, Series A, and Series B rounds made up 83% of labelled deals in the quarter, just a tick below 2024's 86%.

However, the quarter also featured a boom in late-stage funding rounds. The median Series D+ round size was $105 million, which almost doubled the $55 million across 2024 and marked the first time Rock Health tracked that figure above $100 million since 2021.

Companies of all sizes are pursuing different approaches to leverage market shifts, the report highlighted.

One of those strategies for companies is to add new healthcare features to their offerings through mergers and acquisitions. Of the 46 M&A deals Rock Health tracked in the first quarter, 67% involved digital health startups acquiring other digital health startups, compared to 53% across 2024.

"Tapestry weaving spikes when acquisition targets are cheaper and acquirers have cash on hand," the report's authors wrote.

Another approach companies are turning to is creating modular tech stacks to have more flexibility around their technology, allowing organizations to pivot as solutions like generative AI continue to evolve.

Meanwhile, channel partnerships are providing both smaller digital health startups and larger players a way of reaching consumers. Examples of this in the first quarter included Eli Lilly's LillyDirect adding partners and Amazon's Health Benefits Connector bolstering its network, Rock Health noted.

The final strategy the report called out was large companies engaging with startup competitors that are trying to be disruptors in their space.

"Instead of viewing innovators as outright competitors, these engagements position large enterprises as partners, investors, or future acquirers of potential rivals," the authors wrote.

Erik Wexler, the health system's new leader, told employees that steps are being taken to weather financial turmoil.

As it continues its steep climb out of the red to pursue financial sustainability, Providence is taking action to cut costs in several areas.

The Renton, Washington-based hospital operator is implementing a freeze on nonclinical hires, with president and CEO Erik Wexler telling employees in a memo that the organization is working to overcome challenges impacting the bottom line.

Those issues include low reimbursement rates from payers, elevated labor and supply costs, and fallout from last year's CrowdStrike outage and January's Los Angeles wildfires, according to Wexler.

"Over the last three months, the economic headwinds have shifted rapidly, forming a perfect storm that threatens our financial sustainability and, therefore, our ability to carry out our mission," he wrote. "We are being called to respond to the times to ensure the ministry thrives under a new reality of significantly reduced reimbursement and higher costs."

Along with pausing hiring for nonclinical positions, Providence is also restricting nonessential travel, filing lawsuits against insurers over payment delays and claims denials, and seeking out partnerships such as the joint venture with Compassus.

The moves are in addition to steps Providence has already taken to lower expenses, including ending major league sports sponsorships and spinning off its investment arm, Providence Ventures, to include other partners, Wexler highlighted.

Since taking over as CEO in January, Wexler has targeted leadership reorganization as well. Since the end of last year, 46 leadership roles were eliminated, Wexler said, while an Office of Transformation was formed to oversee technology solutions shortly after his appointment.

The changes were meant to build on the progress Providence has made in its effort to reach profitability. The system nearly halved its losses in 2024, finishing the year with an operating loss of $644 million, compared to $1.17 billion in 2023.

However, Wexler warned that 2025 is bringing its own set of roadblocks, like cuts to Medicare and Medicaid that have reduced Providence's funding by $500 million, with another $1 billion expected to be lost through additional potential cuts.

"[We] were making significant progress getting our costs in line with our revenue, and we were on track to finally break even this year," Wexler wrote. "But just as we were nearing that goal, the external economic conditions in 2025 took a sudden turn."

Providence isn't the only major health system that has turned to layoffs and hiring freezes to bring down costs. Mass General Brigham, for example, announced in February that it would conduct the largest layoffs in its history to close an anticipated budget gap of $250 million over the next two years.

Rural providers especially need to be proactive in addressing physician turnover, says this incoming hospital leader.

Though succession planning is often considered in relation to the C-suite, it's also a term providers should be emphasizing for replacing departing physicians.

Particularly for rural hospitals, the impact of losing physicians can be devastating, potentially leading to a shuttering of services and a loss of care. As more physicians leave their organization, retire, or exit the industry, providers must take the long view in building up a pipeline of candidates.

That's where Cole Stockton has placed much of his focus after taking over the reins of Highpoint Health – Riverview and Highpoint Health – Trousdale. Stockton, who was appointed CEO of the Tennessee-based hospitals in February, recognizes the challenges that are specific to rural providers and the importance of physician continuity in the communities they serve.

"When you look at rural communities and rural hospitals, what you see a lot of times is you have a provider that's been in that community and has been a staple for that area for long periods of time," Stockton told HealthLeaders. "Often, you'll see that they tend to get closer to retirement and you really have to start thinking about and planning ahead for what that succession plan looks like.

"A lot of those providers also wear many hats, so many are primary care providers, they're OB providers, they can even dabble in general surgery at times. That generation, they're multifaceted in their skillset, which is really, really impressive, but you have to start thinking about what that succession plan looks like and dive deep into the provider recruitment side."

When physician retention drops, it can lead to care deserts in rural areas. For example, research by healthcare advisory firm Chartis found that between 2011 and 2023, 293 rural hospitals stopped providing obstetrics, representing 24% of the country's rural OB units.

"It is a common thing for when providers do roll off, it is very easy for a service to fall by the wayside if you don't look at trying to recruit somebody else," Stockton said.

Pictured: Cole Stockton, CEO, Highpoint Health – Riverview and Highpoint Health – Trousdale.

Rural hospitals face an uphill climb and are often at a disadvantage in comparison to larger hospitals in urban areas, but CEOs like Stockton can still improve the sustainability of their organizations by strengthening workforce strategies.

It starts with being proactive, according to Stockton. By identifying if physicians will roll off in the next five or 10 years, providers can get ahead of the problem instead of having to play catch-up when the time comes for a physician to leave.

Even in cases where ending a service line is unavoidable, leaders can find ways to fill in the gaps.

"If we are going to look to draw down that service line, maybe it's a mid-level model where we have telemedicine capabilities with an actual MD provider," Stockton said. "There's different ways you can be creative, but it starts with being proactive with your planning and also tapping into the resources that you have within your organization like we have."

Stockton's hospitals have a luxury that many rural providers aren't afforded by being jointly owned by Lifepoint Health and Ascension Saint Thomas as part of their joint venture.

Through its connections, the Riverview and Trousdale hospitals can offer telemedicine and leverage technology, while also utilizing Ascension's providers for outreach to clinics, Stockton highlighted.

Making use of every resource is a must for rural CEOs, but even when hospitals can't rely on affiliations with larger health systems, there are other strategies they can employ to fortify recruitment and retention efforts.

One of those strategies for Stockton at his hospitals is to address workplace safety and culture. The Riverview and Trousdale locations use Lifepoint's Culture of Safety and Engagement (CoSE) survey, designed to help leaders understand how they can create a better working environment for staff.

"We have our CoSE survey, that Lifepoint provides to all our facilities, so staff can showcase and share a lot of their positives, but also some of the negatives and things that they want us to work on as a hospital administration team," Stockton said.

After all, ensuring a steady stream of providers isn't just about bringing enough physicians through the door, but also about keeping them satisfied enough to stay.

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