By Lisa Suennen
First Posted at Venture Valkyrie on 4/17/2013
Hello all. Every year for the last five years Psilos Group, the investment firm for which I work, writes and disseminates a white paper which we call our Annual Healthcare Outlook. Today we released our paper for 2013, which is titled: The Affordable Care Act: Catalyzing a Golden Age in Healthcare Investing. The entire Outlook can be downloaded to read in full HERE.
In that my partner, Al Waxman, has authored a nice post summarizing our 2013 Healthcare Outlook, I will let his words tell the story instead of mine today:
Now that President Obama has been reelected and the Supreme Court has upheld the Accountable Care Act, healthcare reform is here to stay. So what does reform mean for healthcare investors? I believe it will usher in a fertile period for innovative, venture-backed companies that can navigate the brave new world of healthcare delivery and management.
The Accountable Care Act’s impact on healthcare IT investing is already being felt. Venture investment in 2013 is showing significant growth from last year. In 2012, according to PricewaterhouseCoopers, the life sciences sector, which includes healthcare IT, accounted for 25% of all venture capital dollars invested. The total came to nearly $1.2 billion in 163 deals, more than double the $480 million in 49 deals in 2011 and almost six times the $211 million in 22 deals in 2010.
Now is the time to make order out of chaos and to set the stage for a next-generation healthcare system that can effectively service our nation. At Psilos Group, we have just released our fifth Healthcare Economics and Innovation Outlook and identified the following four areas as the most promising opportunities for healthcare investors in 2013 and beyond: private health exchanges, consumer-focused insurance programs, 21st Century healthcare technologies, and innovations that reduce error and waste.
Investing In Exchanges
The healthcare insurance marketplace—and the way insurance is bought and sold—is facing massive change. Healthcare insurance exchanges, both public and private, promise to create a more organized and competitive market for buying healthcare insurance, which could moderate price increases that are currently spiraling out of control.
From our perspective, exchanges are an intelligent place to invest. Software and services will power the exchanges. Psilos envisions massive opportunities for technologies that enable operators of both public and private exchanges to build high functioning platforms, including the shopping software, the back-end administrative technology and service products needed to serve tens of millions of people efficiently.
There are also opportunities to invest in the exchanges themselves. One of the first private health exchanges to receive venture funding was Extend Health back in 2007. Psilos was the lead investor in Extend Health, which is currently serving corporate retirees at companies like GE, IBM, and FedEx. Extend Health is an excellent example of how private health insurance exchanges will radically reshape the way Americans shop for health insurance, delivering more personalized plans and services at lower cost to employees and consumers alike.
Investing in the Consumer
As consumers begin to actively engage in the market of buying insurance through healthcare exchanges, they will become far more aware of the impact of healthcare costs on their own pocketbooks. When this happens, we will start to see the impact of the true alignment of financial incentives in the healthcare industry.
Psilos sees significant investment opportunities for insurance and benefit programs and ancillary support programs that encourage consumer awareness, prevention and accountability. On the clinical side, products and services that proactively help consumers take better and more cost-efficient care of themselves and their families, will proliferate.
Companies like SeeChange Health, a PSILOS portfolio company which is now the fastest growing private insurer in California and Colorado, is getting lots of attention. SeeChange was the first independent value-based health insurance company in the nation. SeeChange offers personalized health plans that provide financial and other incentives to encourage individuals to play an active role in their health management and improve their quality of life.
Investing in 21st Century Healthcare Technology