Over past few years, we’ve seen numerous articles about impact of the environment changes on the health of our population. They range from increased rates and severity of respiratory disease to the resurgence of infectious diseases due to increasing temperatures. However, it hadn’t really occurred to me until this weekend while attending a film festival in Colorado (name undisclosed because I don’t want it to get more crowded!) that there were interesting parallels between the environmental and health care reform movements.
And while this should probably not be a surprise given that healthcare and the environment are two of the most “wicked problems” facing our country – tough to describe, multiple causes and not easily solved with one answer – I nevertheless was intrigued by the similarities.
1) Local, local, local– The environmental movement has finally figured out that change will only occur if you make the issues local – it’s not just about the planet but about your backyard. (My father who could not hear me utter the word climate change without breaking into hives or leaving the room, recently told me he thinks “something may be happening because the fish in the river he spends half his days on are starting to die”) Those of us in healthcare have known forever that the organization, delivery and financing of healthcare is local. And while the biggest changes over the past few years have been driven by government policy, the tough part lies ahead and will only be successful because of the actions at the local level.
2) Show me the money- Whether it’s the environment or healthcare – until it impacts the consumer’s bottom line (property damage, rising gas prices, higher out of pocket expenses), it can be tough to get a majority of people to devote their time and energy to change. In healthcare we are still in the early days but are starting to see the impact of people having to pay more out of pocket for their medical care. Time will tell whether the impact is all positive, but at least we are recognizing that financial incentives can play a key role in changing behavior.
Now that President Obama has been re-elected 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 new fertile period for innovative,venture‐backed companies that can navigate the brave new world of healthcare delivery and management.
The Accountable Care Act impact on healthcare IT investing is already being felt.Venture investment in 2013 is showing significant growth from last year. In 2012,according to PWC, a global accounting firm,the life sciences sector which includes healthcare IT accounted for 25 percent of all venture capital dollars invested which totaled 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 and back‐end administrative technology and service products needed to serve tens of millions of people efficiently.
The reality of today’s funding environment for digital health entrepreneurs is that it’s traditional tech investors who have the lion’s share of the money, while most long-time healthcare investors are on the ropes, contending with fleeing LPs and at least the perception of disappointing returns.
While it’s great news that some tech funds seem interested in dipping their toes into the healthcare space, it’s concerning that the investors with the most resources are not necessarily the ones who understand healthcare the best.
Tech investors, in general, are not always comfortable with physicians, and seem much more at home with engineers and developers. These investors also tend to gravitate to businesses selling directly to consumers rather than dealing with the sordid complexities of our current healthcare system.
Many tech investors are also — understandably — drawn to the power of data, and the possibility of analytics, a sensible affinity but one that at times can translate into an excessively reductive view of medicine that fails to capture the maddening but very real ambiguity of medical science, and especially of clinical practice.
With just a couple of weeks to go until we hear from the Supreme Court on the fate of Health Reform, bankers and the investment community are making grand pronouncements that M&A activity is “on hold” until the Court opines.
This is just not true as you will see below.
Here’s an excerpt with an evocative title from PEHub’s coverage of the annual Jeffries Healthcare Conference just this week (emphasis added):
PE-Backed Healthcare M&A on Hold for Election, Supreme Court Decision on Obamacare
Private equity investing in healthcare is on pause this year, according to executives speaking Wednesday on the panel “Financial Sponsors Perspectives on Healthcare Investing.” The industry is waiting to see whether Mitt Romney succeeds in overtaking President Obama. Also, dealmakers wants some clarity on President Obama’s healthcare reform bill….
Healthcare M&A has slowed this year. So far there have been 1,073 global announced M&A deals, valued at $75.3 billion. This compares to 2,729 deals in all of 2011 which totaled roughly $229.6 billion….
“Once we get clarity, and past Obamacare and the presidential election, we will see more deals,” the exec said.
The problem with this is that it might make for good reading or for an “entertaining” panel discussion at an investment banking conference, but it doesn’t reflect reality.