Where is Venture Capital Investing With Healthcare Today-Can Be Risky Business With Long Time Big Commitments
Posted Apr 08 2011 10:55pm
This is an interesting feature from Forbes talking about mostly Health IT investments, and a little about drugs and devices. You can watch the video and listen to what Venrock has to say. One of the companies mentioned is Athenahealth which we are all probably very familiar with being a web based medical record/practice management solution that has done very well. One moment things can be moving along fine and then regulation changes hit. It was just a couple weeks ago I read somewhere that Athena was potentially looking at some big infrastructure upgrades to be compatible with more than one browser and that is not uncommon as there are others in that boat too. Is that cheap to do, not really. So we have some vendors who are looking big investments down the nose to keep the company running.
On the other side of the coin we have the ONC created REC offices which are there to help the physicians get started with medical records along with support and so on. I don’t really think it was a part of the original plan, but now you have contracts between vendors and the centers for cheaper licensing, so a doctor purchasing via a REC center could see maybe 1/3 off the price they could be offered directly and competition is fierce so everyone is inline to get a contract. This is good of course for the doctors with affordability and advice for systems that have been certified, and for vendors that’s another 25k they have to pay for that accreditation. It’s just the way it works. So when investing in the records of the business those are a couple things to be aware of. I particularly liked the part in here where they discussed social networks and trying to apply this to healthcare and every time I read about this topic I have to laugh. Consumers are not totally in the dark and with all the privacy issues looming, model something around Farmville, give me a break. Just because someone is addicted to games on Facebook doesn’t mean they will have any type of similar enthusiasm for medical information or help on Facebook, why? Because it’s not fun. I have seen and researched so many efforts that have tried to make that connection but it doesn’t happen. Just my own personal opinion, I think it’s silly. Healthcare is not a game and consumer know that. During the big healthcare campaign we had some funny stuff on Facebook happen too, this is a good one. Coupons and healthcare really don’t mix well either. You can have virtual games and money on Facebook but virtual health doesn’t fit here.
Technology in healthcare is exploding in every direction and I don’t have a problem with someone trying to make a profit, but I find it disturbing when products that are marketed and sold don’t either show transparency, accuracy and are spun only for profits and forget the “care” part of it. I get solicited all the time just because I do this blog and every day I have to look at what I put out there for readers and there’s a lot that doesn’t make it as again I try to include credible information about products, science breakthroughs, science and so forth that is geared to where the average layman can get something out of it.
Sure as an investor the potential of a game, website or some other social entity will show it’s potential much faster than a lot of healthcare investments by far. There’s a lot of glut with healthcare software with folks writing code just because they can to just see what sticks. That is somewhat annoying as you can’t just go crazy over every little application that is written, especially consumer apps that nobody uses.
I think the companies that do better are the ones who at least make some effort to collaborate with other partners too as there’s no great white hope in healthcare going to show up any time soon, although the lust is still there, but might as well cool your heels and look sensibly at what you see out there. Also included in this article was a short mention of Phreesia, which is also funded by Blue Cross Venture Capital. Most of the health insurance companies have set up their own venture funds anymore too. The Phreesia products are little tablets to where patients can enter information and it is sent either to a text file or integrated into a medical record and they are supported by advertising. So far it looks to be ok, but if the advertising takes over the functional purpose at any time, then it joins the rest of the rank and file with potentially mining and marketing data in essence.
Red Brick is another company here that goes into behavioral analytics and they are somewhat tied in with United with software analytics and they offer companies biometric monitoring devices to use and wellness analytics up the the you know what. Behavioral analytics and predictions are on steroids today and if not implemented correctly, they could fail. Personally I think they are a bit over the head and have seen employees functioning with it at Target and so wrapped up in reporting they didn’t even see me as a customer, so with biometrics something else to think about. One other item to think about is whether or not the company would or does use their software or devices. If not, I would stay clear as it doesn’t speak very highly of their own commitment and belief in their own product.
I would probably not like what they sell as like so many other “innovations” make the users feel bad, so with mobile applications forget the game as consumers know that one. Perhaps one day someone can develop an application that doesn’t make the consumer feel bad or feel this essence of big brother software breathing down their neck. Novelty wears short on many of those types of reporting devices and they fall by the wayside in time.
AirStrip has a good product and I have talked about it on the blog a few times with their mobile application for doctors.
Last but not least you have the mountains of folks into the financial side of all of this and they work with insurers and always have some new latest and greatest algorithm that is guaranteed to get more money for hospitals and doctors. Sure we need some of those out there but the marketing of all of their analytics is over whelming. Many are betting on connecting health records but be wary as health insurers are buying their way into that market and may move right into the heath records for their next area of mergers and acquisitions. The cost of the market with connecting and getting data is expensive for the buyer and I would also look for those owned by insurance companies to begin leaning on the medical record business to contribute to bump up their over all profits too, as that’s the kind of business it is. As the video says, it’s not simple to figure it out sometimes and it’s not cheap or for the weak at heart. BD
While social media hogs the spotlight, health information technology companies are slowly making their way into VC portfolios. Most venture capitalists (77%) expect investments in health IT to increase in 2011, according to a survey by the National Venture Capital Association and Dow Jones VentureSource. VCs invested $460 million in health IT companies in 2010—a 19% increase over 2009. The sector is being energized thanks in large part to government subsidies which reward doctors and hospitals for buying electronic health records (EHRs), provided they follow certain rules.
Of the 100 VCs on the Forbes Midas List , the most active in Health IT investing is Bryan Roberts (#16) of Venrock . His early investments include Athenahealth and RelayHealth (now part of McKesson ). Both are benefiting from EHR adoption. A more recent investment is hot start-up Castlight Health , which has raised more than $80 million since its inception in 2008—one of the biggest investments in a health IT company. Castlight allows consumers to find out how much medical procedures cost. Roberts co-founded it with Giovanni Colella, the founder of RelayHealth, and Todd Park, now CTO of the Department of Health and Human Services. Park is a co-founder of Athenahealth.