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Health Care Information Technology: Venture's New Darling?
by Anne DeGheest
21 July 2011

As traditional venture-like returns are harder to generate from drug development and medtech plays, some frustrated VCs see new opportunities in health care information technology, an area many have traditionally avoided by Paul Bonanos, Start-Up 06/01/2011 

 "....With health care costs spiraling upwards, VCs see an opportunity to create businesses via IT to cut costs out of the health care system. Government initiatives such as the Affordable Care Act and the HITECH Act are galvanizing a tech-ready industry that has been slow to adopt new procedures and may provide VCs with potential new buyers for their fledgling companies.

...These new initiatives have become catalysts for VCs, who see emerging business models in data analytics and transparency, electronic medical records, and secure communications.  Down the road, VCs may look more broadly at new web and mobile technologies aimed at the consumer. While proven in the tech world, these new technologies are just beginning to exert their influence in the health care arena, and the business model remains unproven...

...The National Venture Capital Association pegs health care IT investment at $445 million in 2010, the highest annual total since the dot-com boom era and nearly double the 2009 take. In addition to Milestone, smaller and mid-sized firms such as Cardinal Partners and HealthTech Capital have emerged as specialists that devote most - or all - of their resources to health care IT. And accelerators, modeled on those that have incubated numerous social media success stories, have formed as dedicated health care innovation engines. Traditional VCs such as Venrock, Excel Venture Management, and Morgenthaler Ventures are starting to get in on the act, too...  

New Provider Models, New Consumer Decisions 
...The Affordable Care Act will also upend the way costs are distributed within the health care system, potentially opening the door not only to communications and data analytics companies, but also to new modes of thinking that encourage self-care. One key change lies in a shift in payor models from pay-for-service to pay-for-outcomes, giving health providers a lump sum to cover a patient's treatment that must be divided up among various caregivers. Among its many provisions, the ACA established the Patient-Centered Outcome Research Institute, a non-governmental body that analyzes performance of treatments in creating outcomes for patients. Medicare is permitted to take its analysis into consideration when determining what it will pay for, and private organizations are expected to follow Medicare's lead. In parallel, providers have begun organizing into Accountable Care Organizations, or ACOs, which share costs - and in return share savings - by taking collective financial responsibility for care to a group of patients. ACOs are due to go live in 2012. While ACOs' intent is clear, the practical economics surrounding them have yet to be worked out - opening an opportunity for tech providers... Longtime health care IT investor Anne DeGheest of early-stage and angel investment firm HealthTech Capital and mentoring organization MedStars says data analytics and dashboard tools that give providers a way to determine who gets what share of the lump-sum payments will soon be necessary.


Acquisitive companies such as Aetna Inc. have taken the lead in this area, buying out companies such as Medicity Inc. of Salt Lake City and ActiveHealth Management Inc. of New York, even though as DeGheest cautions "ACOs are not fully defined yet." Indeed, in her opinion, the market is still a long way from maturing. Meanwhile, MedVentive Inc. of Waltham, MA, had effectively been operating as an ACO since the late 1990s, with roots as the provider service network of the Boston-area CareGroup network of hospitals and physicians. Now, the company has morphed into a vendor of clinical integration and patient population management software, as well as financial risk management software. Excel Venture Management partner Enrico Petrillo, MD, whose firm co-led MedVentive's $10 million Series C in April 2010 alongside Clarian Health Ventures and Core Capital Partners, says the ACA provided a "huge boost" that will continue to drive ACO adoption. "Both payors and providers understand that ACOs will be a central player in the health care system," he says. The new fee-for-outcome model also encourages hospitals to give patients home-care and self-care options, because multiple procedures within the hospital are now bundled into a single cost rather than billed individually. Moreover, hospital readmissions are no longer linked to additional payments. "The nature of demand has changed away from in-person visits," says Kocher. Fortunately for both providers and patients, the trends toward home care, self-care and wellness in general coincide with a relatively prepared populace - in part thanks to its receptiveness to new technologies, which are easy to use and increasingly affordable. In particular, the massive adoption of smart phones and other hand-held devices equipped with sensors has put wireless reporting capabilities into tens of millions of pockets, revolutionizing doctor-payment communications and encouraging adherence and compliance with treatments...

...As DeGheest notes, consumer habits and patient behavior are extremely difficult to change, even with potentially life-changing or life-saving capabilities built into the phones many of us already carry. To overcome this, many new health apps are built with social networking capabilities integrated to stimulate peer support and community-building. The "gamification" of apps - the application of game dynamics such as points and rewards to encourage continued participation - is also widely touted as a way to encourage adoption. "The tool kit we have now is much broader than it was two years ago," DeGheest says...

tagsTopics: HealthTech Capital, Entrepreneur

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