Mapping the Digital Health S-Curve: Where the Infrastructure for Future Care is Being Built

The digital health sector has clearly crossed a critical inflection point. What began as a pandemic emergency measure is now being built into the foundational infrastructure of future care. This shift is the core of the investment thesis. The market is moving from the early adoption phase, where virtual visits were a temporary fix, to the steep part of the S-curve, where these technologies become embedded in the standard delivery of chronic disease management and preventive care.

The numbers illustrate an exponential trajectory. The global digital therapeutics market, a key infrastructure layer for treating conditions like diabetes and mental health disorders, is forecast to grow at a CAGR of 20.97% from 2026 to 2035. More broadly, the telemedicine and digital health market is projected to expand at a CAGR of 13.21% from 2025 to 2031. These aren't just steady increases; they represent the kind of compound growth that defines a paradigm shift. The market is expected to more than double in size within the next half-decade, driven by powerful, structural forces.

The primary driver is the rising global burden of chronic disease. Conditions like diabetes, cardiovascular issues, and mental health disorders require ongoing management, a perfect fit for digital tools. At the same time, the proven effectiveness and high satisfaction of virtual care have removed a major adoption barrier. Both patients and clinicians report high satisfaction with telehealth, and concerns that it would simply add cost to the system have not materialized. This validation is critical. It transforms digital health from a novel convenience into a trusted, scalable solution for managing the most common and costly health challenges.

The bottom line is that we are witnessing the construction of the rails for the next healthcare paradigm. The pandemic provided the initial spark, but the sustained growth is being fueled by a fundamental need. Companies building the underlying platforms-whether for remote monitoring, AI-driven diagnostics, or integrated care coordination-are positioning themselves at the infrastructure layer of this new system. Their growth is no longer tied to a crisis; it is tied to the long-term, exponential adoption required to manage a chronic disease epidemic.

The Infrastructure Layer: Building the Rails for Connected Care

The exponential adoption of digital health is not happening by accident. It is being enabled by a stack of foundational technologies and platforms that form the essential infrastructure layer. This is where the real investment opportunity lies-not in individual apps, but in the systems that make scalable, connected care possible. The dominance of prescription digital therapeutics (PDTs) as a product type is a clear signal that the market is maturing beyond simple video visits. In 2025, the PDT segment held a 29.40% market share, driven by the rising incidence of chronic diseases. This isn't just a niche category; it represents a shift toward clinically validated, reimbursable software as medicine, a critical step for mainstream integration.

The growth of this infrastructure is powered by several key technological drivers. First is the integration of AI and machine learning, which moves platforms from passive tools to active clinical partners. Second is the expansion of IoT and remote patient monitoring, generating the real-time data streams needed for chronic disease management. Third is the underlying robust digital infrastructure and smartphone penetration, which ensures ubiquitous access. Together, these forces create the conditions for the market's projected CAGR of 13.21% in the broader telemedicine space.

Major players are enhancing their platforms to own more of this stack. Teladoc Health and Philips Healthcare are embedding AI-driven clinical decision support into their offerings, aiming to orchestrate the full continuum of care from diagnosis to outcomes analytics. This is about moving from a simple video call to a managed care ecosystem. At the same time, critical digital networks are being built to connect the system. Platforms like Doximity, with its network of over 80% of U.S. physicians, and Zocdoc, which helps millions of patients find and book care, are creating the essential digital highways for patient and provider flow. They are the foundational rails that enable the rest of the infrastructure to function at scale.

The bottom line is that we are seeing the construction of a new healthcare operating system. The exponential growth trajectory depends entirely on this underlying infrastructure becoming more robust, interoperable, and pervasive. Companies that provide the AI engines, the connectivity layers, and the trusted professional networks are not just participants; they are building the fundamental rails for the next paradigm of care.

Financial & Strategic Implications: Maturity, Capital Access, and Consolidation

As the digital health sector matures, its financial and strategic landscape is shifting. The initial phase of venture-funded experimentation is giving way to a new imperative: scaling the foundational infrastructure. This requires a different kind of capital and a more sophisticated playbook, leading to a clear bifurcation between companies building the rails and those providing commoditized services.

The most visible trend is the migration of mature startups to public markets. Venture-backed firms like Hims, GoodRx, and Noom are no longer content with private funding rounds. As noted, many seek an exit through an IPO or SPAC, with a significant number of digital health IPOs occurring in 2021 alone. Their goal is straightforward: to unlock access to the deep pools of capital needed for nationwide expansion, platform integration, and sustained R&D. This public market access provides the liquidity for early investors and the financial heft to compete in a consolidating industry.

Yet, this sector-wide growth masks a critical divergence. While the broader digital health market expands, the underlying Medical Info Systems industry faces "dull near-term prospects." This contrast is the strategic fault line. The industry's growth is driven by the adoption of core technologies like AI, but the companies selling the software and hardware for electronic health records and workflow automation are often seen as commoditized providers. Their revenue comes from recurring service contracts, a stable but less glamorous model. The investment opportunity now lies in differentiating between these established but stagnant players and the new wave of infrastructure builders-those creating the AI engines, the integrated care platforms, and the professional networks that are truly moving the adoption curve.

This differentiation is fueling a strategic trend toward vertical integration. The goal is to control more of the patient journey, from connection to care to outcome. A prime example is GoodRx's acquisition of HeyDoctor. This move is not about telehealth; it's about creating a comprehensive care platform. By integrating a telehealth service directly into its existing pharmacy benefit ecosystem, GoodRx aims to capture a larger share of the patient's healthcare spend and data flow. It's a classic infrastructure play, building a more complete and sticky solution that can command higher value.

The bottom line is that financial maturity is driving strategic consolidation. Companies are using public markets to raise capital, but they are deploying it to build vertically integrated platforms. The winners will be those that can move beyond selling software or facilitating visits, and instead own the data, the clinical workflow, and the patient relationship within the new digital care paradigm. The era of pure-play digital health services is ending; the era of integrated infrastructure is beginning.

Catalysts, Risks, and What to Watch

The sector's next phase hinges on a few critical catalysts and risks that will determine whether adoption accelerates or stumbles. The most significant forward-looking event is policy permanence. The American Hospital Association has made a clear call for Congress to permanently adopt expanded access to telehealth, citing the need to preserve access and support further reform. This is the foundational catalyst. Without legislative action to codify pandemic-era flexibilities-like removing geographic restrictions and allowing audio-only visits-widespread adoption could face a sudden headwind. The industry's exponential growth depends on regulatory certainty that these services are here to stay.

Yet, even with policy stability, several operational risks remain. The first is integration and technology. Survey data reveals that 91% of telehealth professionals report experiencing technical difficulties at least occasionally. While reliability is a top priority, with call quality cited as the most important factor in platform choice, the underlying infrastructure must become more robust. Faulty foundations will undermine even the best clinical tools. The second major risk is patient engagement. This is the industry's #1 challenge and future priority. A lack of awareness, limited access to technology, and trust issues are cited as key barriers. If patients don't use the platforms consistently, the value of the entire digital care ecosystem diminishes.

The key watch item for the coming years is the adoption of AI-driven diagnostic tools and workflow automation. This is where the infrastructure layer will see its next leap in value. The market for AI in healthcare is projected to grow at a CAGR of 38.6% from 2025 to 2030. This isn't just about smarter chatbots; it's about embedding AI into electronic health records and diagnostic systems to improve accuracy and reduce administrative burden. Companies that successfully integrate these tools into the clinical workflow will move beyond being connectivity providers to becoming essential partners in care delivery. Their growth will be exponential, tied directly to the adoption rate of these advanced capabilities.

The bottom line is that the sector is transitioning from a focus on access to a focus on quality and efficiency. The catalyst of policy permanence is necessary but not sufficient. The winners will be those that can navigate the technical and engagement risks while leading the charge in AI integration. This is the next phase of the S-curve, where the rails are built, and the trains begin to run on them.