Venture capitalists now view health IT as a good bet

Venture capitalists, recognizing that the healthcare industry is under intense pressure to reduce costs, are investing less in medical device, biotech and pharma firms, and more in health IT and other business services that can be used to wring costs out of the system. That's according to an extensive report written by Christopher Weaver for Kaiser Health News and the Washington Post.

Healthcare software companies received $407 million in venture capital in the first three quarters of this year, versus $311 million in all of 2007, before the recession began, the article points out. This is a relatively modest rise, considering the $27 billion the federal government has ponied up to subsidize electronic health record purchasers who qualify for Meaningful Use. According to Weaver, investors are not eager to plow money into any sector that's too dependent on a government program. Nevertheless, he writes, interest in health IT is heating up.

The rising attractiveness of products that may bring down costs stands in stark contrast to the declining interest in sectors that have traditionally driven spending higher. In 2007, investors injected $3.6 billion into 332 biotech and medical device deals in which a price was disclosed. But they funneled only $1.1 billion into 89 such deals from January through October of this year.

Health IT may benefit from the broad view of investors that, whether the health reform law lives or dies, current spending growth is unsustainable and products that can lower costs will be successful. For example, Kleiner Perkins and Camden Partners, the firm of legendary Silicon Valley investor John Doerr, has put $61 million into Essence Group Holding Co., a St. Louis health plan. The investment firm is using Essence as a kind of laboratory to develop software and services to help doctors and insurers reduce costs, according to the article. 

To learn more:
- read the Kaiser Health News article 

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