Affordable Care Act Changes the Paradigm for Healthcare Providers, Investors and Startups, Says MGCS Panel of VCs

Shannon Beeman
May 20, 2016

The 2010 Affordable Care Act is unlikely to be repealed, agreed healthcare venture capital investors who spoke on the Healthcare 2.0 panel at the Michigan Growth Capital Symposium on Tuesday, May 17. During the hour-long discussion, the geographically diverse set of panelists drilled down on the ramifications of Obamacare for healthcare providers, investors and startup companies in their regions.

“The ACA is absolutely changing the paradigm,” said Tom Shehab, M.D., a principal at Arboretum Ventures in Ann Arbor. “Hospital executives feel a little like wagon makers. They must adapt and evolve.” Robert Crutchfield, a general partner at Harbert Venture Partners in Birmingham, Alabama, remarked: “As investors, the challenge is to pick winners.”

Several key drivers are behind the emerging new healthcare landscape. Patients are now more involved in decision-making and paying for their care. The use of information technology, including telemedicine and social media, is rising. The industry is undergoing rapid consolidation. Both the delivery of and payment for healthcare are being revamped in the transition from volume-based to value-based care.

The panelists identified several promising investment areas over the next five years. These include:

  • Population health
  • Predictive analytics software
  • Clinical decision support
  • Provider-directed technology-enabled services

They also flagged several stumbling blocks that are creating challenges for venture capital investors and their portfolio companies. Among these are:

  • Hospital systems’ inertia, preoccupation with electronic medical records and delayed adoption of new technologies
  • Stiff competition among startup companies offering similar or competing technologies
  • Persistence of physician-directed, individualized care
  • Lag in the transition to consumerism and slow consumer adoption of new technologies

The panelists shared various investment approaches designed to increase the odds their portfolio companies will survive and thrive in the current healthcare market:

  • “Our portfolio companies are capital efficiency and try to minimize ‘burn’ until they can see scaling,” said Michael Liang of Baird Capital. “Reimbursements from CMS (Centers for Medicare and Medicaid Services) are taking longer these days.”
  • “We come into deals a little later on, and we try to stay away from technologies and services directly related to reimbursement,” Crutchfield explained.
  • “We look for early- and mid-stage capital-efficient healthcare companies in uncrowded markets and under-ventured geographies,” Dr. Shehab said.

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