The COVID-19 pandemic has triggered a series of cascading changes in the healthcare sector, with the digital health industry being the most profoundly impacted. As COVID-19 transformed technology from a "luxury" that helped patients receive treatment outside hospitals or clinics into a "necessity," this emerging industry accelerated rapidly.

Experts say this momentum carried into 2021 and may even strengthen further, leading to major shifts in the delivery and operation of healthcare services. According to consulting firm Frost & Sullivan, global healthcare industry revenue is projected to exceed $2.6 trillion by 2025, up from $2 trillion last year, with much of that growth driven by artificial intelligence and telehealth.

As the U.S. continues to grapple with the pandemic, a significant portion of that growth is likely to occur. With the increasing prevalence of technology and data sharing, healthcare will likely shift toward a more predictive rather than reactive model. Virtual care will continue to encroach on traditionally analog care delivery, spawning new care models, while companies increase investments in cybersecurity.

This is a period of historic volatility with few sure bets. But here's what experts are preparing for in digital health this year.

Healthcare continues to become more predictive

Healthcare will become more proactive as it moves toward a more predictive direction, said Thomas Kiesau, director and digital health lead at consulting firm The Chartis Group.

Consumer-grade and clinical-grade connected devices will become more common, helping physicians obtain real-time patient data to better monitor their health, making interventions more "timely and context-aware," Kiesau said.

With the proliferation of wearables, AI is a key aspect of this change. For years, proponents of AI technology have touted its potential to transform healthcare functions, from clinical trials and drug discovery to back-office administrative processes and complex disease diagnosis.

Recently, investment in AI has surged. With the advent of cloud technology enabling organizations to ingest and analyze vast amounts of data, AI could help generate significant insights in care while saving the industry substantial money. According to a2019 Optum survey, senior healthcare executives plan to invest nearly $40 million in AI-related projects over the next five years, up from an estimated $32.7 million in 2018.

However, this year the industry may also face greater backlash against algorithms that were used in 2020 to prioritize vaccine and hospital resource allocation, especially in hospitals hard-hit by COVID-19. In such a critical public health period, the widespread use of AI to decide who gets what resources has raised legitimate but thorny questions about how machines make decisions and whether those decisions align with the best interests of patient care.

In 2021, the industry may see further regulation of AI in medical use, especially in clinical settings, to address issues such as data bias, difficulties in scaling algorithms across different environments, explainability of AI decision-making processes, and attribution of responsibility.

"If AI makes a mistake, who is responsible?" said Karen Howard, director of science, technology assessment, and analytics at the Government Accountability Office, during a late-January webinar on AI policymaking.

Just days before President Joe Biden's inauguration, the outgoing Trump administration established a new office to oversee AI research and policymaking, while the U.S. Food and Drug Administration (FDA)issued an action planto improve oversight of medical AI. Although these initiatives came from the outgoing administration, they may signal Washington's intent to strengthen regulation of this emerging industry, even as HHS also proposed in January to permanently exempt some products that use AI to diagnose diseases from medical images from FDA review.

This is a thorny issue that may gain more attention this year as predictive tools become more common in the healthcare industry.

Telehealth continues to snowball

Last year, the virtual care industry experienced unprecedented growth as COVID-19 drove patients to seek healthcare access from home. Experts say growth may continue or even accelerate in 2021 as virtual care options expand and further integrate with in-person care.

Automated screening, triage, and routine care use cases will continue to move beyond simple urgent care and prescription refills, which once defined telehealth. According to Tim Epple, a principal at Avalere, this will be most evident in areas such as virtual diagnostics, patient-reported outcome applications, and digital home care platforms.

"Healthcare will become largely virtualized," said Chandni Mathur, senior industry analyst at Frost & Sullivan. "New business models will emerge to support this paradigm shift."

Telehealth companies have moved beyond direct-to-consumer models, and even some of the newest startups have signed coverage agreements with major payers and employers and established provider partnerships with health systems, integrating into the traditional delivery ecosystem. Increased acceptance of virtual care may also lead to more comprehensive value-based models, as payers and providers seek to bundle services for specific patient populations, such as end-to-end care for chronic disease patients.

"Value-based payment models could create lasting financial incentives for virtual care," said Nathan Markward, chief research scientist at Avalere.

The widespread adoption of telehealth has been largely enabled by new regulatory flexibilities, especially Medicare coverage, which is currently only temporary during the public health emergency. It remains unclear how much of this will persist beyond COVID-19, although technology advocates are betting that some degree of increased access will be retained. But the groundwork has been laid for broader, more pervasive changes in healthcare delivery that will be difficult to reverse, especially in 2021.

Virtual care will also continue to increase access to and interest in previously niche areas such as women's health and remote mental health. Last year was a bumper year for both sectors, with equity financing in mental health hitting record highs in the fourth quarter and women's health companies reporting record deal numbers,according to CB Insights data. Both sectors also reported a high number of early-stage deals in the fourth quarter, indicating that the industry is poised for further snowball growth even after thepandemic is brought under control.

As funding continues to flow into these areas this year, more startups will emerge, and existing players will increasingly turn to M&A to capture greater market share.

"The consolidation we saw in mental health in 2020 will continue into next year, but I think we'll also see new trends," said Trip Hofer, CEO of virtual behavioral health startup AbleTo. "With so much investment capital flooding the market, we can expect some organizations to rise and fall if they fail to generate expected returns."

As technology advances, hospital-at-home will also become more realistic. New non-clinical care settings will emerge, further accelerating the trend catalyzed by COVID-19, although this does not mean the end of acute hospital care for high-acuity cases, said Kiesau of The Chartis Group.

Just as providers seek to invest in health technology to reduce costs and reach patients at home, telehealth companies may even look to acquire in-person care assets, including primary care clinics, ambulatory surgery centers, and more, to smooth online-to-offline handoffs in high-patient-density areas, predicted Nikhil Krishnan, founder of healthcare newsletter Out-Of-Pocket.

"Telehealth companies will race to build online-to-offline handoffs faster than hospitals can build telehealth workflows," Krishnan said.

As data is unleashed, cybersecurity becomes a top priority

Experts predict that due to increased technology use and data sharing, coupled with ongoing vaccine rollout efforts and remote work, cybersecurity will become a greater focus for healthcare companies in 2021.

In the past three years, the fourth quarter of 2020 was thesecond-largest funding quarterfor health cybersecurity companies, according to CB Insights data. According to HHS data, data breaches reported by the U.S. healthcare sector nearly tripled last year, as malicious actors targeted an industry struggling to respond to COVID-19.

These concerns carry into 2021, especially as the U.S. rushes to shore up fragile vaccine supply chains, Experian researchers said. Additionally, most COVID-19 contact tracing apps—designed to track and reduce virus spread and requiring widespread use to be effective—did not adopt sufficient security protections, making it easy for hackers to access private information.

Attackers may exploit vaccines for large-scale phishing in 2021, as the public seeks information and updates on distribution, predicted James Carder, chief security officer at security firm LogRhythm.

The rise of telehealth has also led to more cyberattacks. Telehealth providers reported a significant increase in targeted attacks last year as adoption soared, including a 30% increase in the number of cybersecurity findings per domain,according to Security Scorecard。

The healthcare industry is still recovering from a September ransomware attack on major hospital operator UHS that crippled IT systems across all 400 of its U.S. facilities. Hospitals were forced to divert ambulances to other locations and rely on backup paper operations, delaying test results and complicating necessary care, although UHS said no patients were affected.

Increased investment in cybersecurity also makes sense because two new HHS rules aimed at driving interoperability in the industry will take effect inApril. They will lead to broader sharing of health data, raising significant privacy and security concerns. Additionally, the Trump administration'sregulatory relaxations finalized at the end of 2020include provisions allowing providers, including hospitals, to share cybersecurity software with each other, meaning the prevalence of such technology safeguards among physicians could increase in 2021.