Companies in health tech, or the converging technology and health care and life sciences industry, face unique accounting challenges—particularly in the areas of capitalized software and revenue recognition. Deloitte explains.
A year ago, our annual insights report revealed a fast-growing health tech sector. As it did for all industries, the COVID-19 pandemic created an unprecedented crisis for the health care industry. It triggered rapid and large-scale responses such as a reliance on virtual care delivery, an increased focus on mental health and well-being, and a push for quicker drug and vaccine candidate discoveries. Health tech innovators were critical to this response.
At the intersection of health care and technology, health tech innovators have a unique place in the future of health, but they face some challenges. These include demonstrating effectiveness and market opportunity beyond pilots, managing sales cycles and capital, and navigating regulations to sustain and thrive in this future.
Investors, especially corporate venture capitalists (CVCs), can support the innovators and the industry in general. Innovators could bring transformative business models and a consumer-centric approach. However, it is imperative for investors, including industry incumbents, to coach innovators and support them with industry and regulatory expertise, in addition to capital, to accelerate toward the future of health together.
Special-purpose acquisition companies
COVID-19 and market volatility have prompted many companies to go public through deals involving a special-purpose acquisition company (SPAC) rather than through traditional initial public offerings (IPOs). Health tech companies are following this trend, actively taking advantage of these SPACs to reach the public markets.
See the full guide to learn more about special-purpose acquisition companies.
Capitalized software
Health tech companies often rely on the development of proprietary software to serve their customers and clients. In determining which authoritative guidance to apply to the capitalization of software, a company should consider how it plans to offer its software solutions to its customers.
See the full guide to learn more about accounting guidance for internal- and external-use capitalized software, cloud computing arrangements, and more.
Revenue recognition for health tech companies
The variety of solutions offered by health tech companies is staggering and many health tech companies provide their products or services by using two primary service offerings:
- Software-as-a-service (SaaS)
- On-premises perpetual or subscription licenses
See the full guide for accounting guidance on applying revenue recognition to common arrangements in the health tech industry, including contracting, pricing and modifications.
Costs of obtaining a contract
Read more for comprehensive guidance on accounting for the costs of obtaining a contract within the scope of ASC 606.
See the full guide to learn more about costs of obtaining a contract.
Life Sciences Industry
We also encourage you to review Deloitte’s Life Sciences Industry Accounting Guide, which includes additional guidance relevant to health tech companies.
Special thanks to the following who contributed to the success of this report:
Joseph Bakutes, Michael Bedard, Bill Love, Victoria Boegh, Joanne O’Brien, Mark Hindes, Nicola Lostumbo, Krystal Kort, and Amanda Palzer
About the author: Peter Micca, Deloitte & Touche LLP, is a partner with 30 years of experience serving a broad array of clients in all sectors of the health care, technology, and life sciences industries.
