Pear Therapeutics secured the first FDA clearance for a prescription digital therapeutic. That did not prevent bankruptcy. The product met regulatory standards. The mistake was assuming clearance would translate into payment. It did not. The gap between approval and reimbursement has ended more digital health companies than any product or engineering failure.
The Demo Survives the Boardroom. It Rarely Survives the Clinic.
Most digital health failures are not technology failures. They appear after a successful pilot, when a product that worked in a controlled setting faces the realities of clinical workflow. Competing for attention in a crowded shift, integrating with electronic health records it was never built for, and being adopted by staff who did not choose it—these are the real tests. Workflow integration, not code, is the product. Founders who treat integration as an afterthought consistently underestimate the time and effort required to get paid.
Regulatory Clearance Is Not a Business Model
Pear Therapeutics' collapse is a clear example of a structural trap that still catches many digital health founders. The company built software that met a regulatory milestone. It did not secure a reimbursement pathway to match. US fee-for-service reimbursement is tied to procedure codes, not claims about productivity or outcomes, no matter how strong the evidence. A digital therapeutic without a billing code is unmonetizable from a payer's perspective, regardless of the clinical data.
Babylon Health failed for a different but related reason. The company raised over $1 billion and expanded globally, but built its growth on a subscription model without sustainable reimbursement. Losses mounted, a take-private deal fell through, and bankruptcy followed. Both cases show that clinical value and capital are not enough. If the economics of who pays and under what mechanism are not solved before scaling, the business will not last.
The Bar Keeps Rising, Not Falling
Founders expecting reimbursement to get easier are misreading the trend. Clinical evidence requirements are rising in every major market. Regulatory and coverage bodies now expect randomized controlled trial data or strong real-world evidence before expanding coverage. Companies that skipped evidence generation in earlier years are now at a disadvantage against those that invested early, despite the cost.
The funding data reflects this shift directly. The median digital health funding round now sits meaningfully below the average, a gap that signals a market concentrating capital in a smaller set of companies with mature clinical adoption, payer or employer distribution, and workflow integration. The median digital health round is now well below the average, signaling that capital is concentrating in a smaller set of companies with mature clinical adoption, payer or employer distribution, and workflow integration. Early-stage, less-validated companies are left competing for fewer, smaller checks. Capital is not leaving digital health. It is consolidating around companies that solved reimbursement and integration first. Durable companies in this environment are not moving faster than their predecessors. They are sequencing differently, spending early-stage time embedded directly with clinical users rather than iterating in isolation, negotiating a reimbursement pathway before finalizing a pricing model rather than after, and treating a first enterprise health system deal as the beginning of a multi-year integration relationship rather than a quarter's sales target to close and move past.
That sequencing looks unglamorous and slow at the seed and Series A stage, precisely when investor pressure to show rapid growth is highest. It is also the only sequencing that reliably works, based on the pattern of who survives to scale.
The Strategic Implication for Founders and Investors
For founders and investors, the failure pattern is now clear enough that it should not be seen as unpredictable. A working product, a successful pilot, and even regulatory clearance do not prove scalability. What does is a defined reimbursement pathway, proven workflow integration, and distribution that reaches the actual payers, not just end users. Companies building in the opposite order are heading for the same outcome as Pear Therapeutics and Babylon Health.
If reimbursement readiness is not a primary criterion in digital health partnerships, the risk is higher than many recognize. Companies that survive to scale solve reimbursement and integration before pursuing growth. The rest are repeating a pattern that is now too well documented to ignore.
