Healthcare investors today face a plethora of uncertainties: a global recession, rising healthcare costs, a new presidential administration, a rapidly aging population, and a damaged U.S. healthcare system that increasingly fails to meet the needs of many Americans. At the same time, money is still pouring into the healthcare industry. Even during a recession, people still get sick. Healthcare is one of the few industries that experiences growth during an economic downturn. There are ample opportunities to invest, but concerns about what the future holds may keep wary venture capitalists away.
Healthcare venture capital firm Psilos Group has released their first annual report on the issues that will shape healthcare investing in 2009 and beyond. Psilos expects 2009 to be the start of a 10-year cycle that will transform the American healthcare system. They believe that investment in new medical innovations and business models is critical to addressing America’s healthcare crisis. The report focuses on three areas of opportunity: healthcare services, healthcare information technology, and medical technology.
One study found that America overspends $650 billion annually on healthcare, $476 billion of which comes from excess inpatient and outpatient care expense. The ideal healthcare plan would lower the cost of services for patients while improving the quality of care, providing a strong emphasis on disease prevention and chronic disease management. Health insurance models should address the problems of the uninsured and the underinsured (those who have insurance but avoid getting necessary care due to costs and poor or erroneous care).
Healthcare IT is another area that is primed for investment. According to Psilos, for every $1000 the federal government spends on healthcare, less than $1 is spent on researching electronic medical systems. Inefficiencies in medical record-keeping account for $90 billion in excess healthcare spending annually. In addition, inadequate health IT systems can result in medical errors and patient deaths. The use of electronic medical records may help to reduce costs and save lives.
The medical technology sector has experienced rapid growth in recent years, spurred by an aging population and a demand for minimally invasive treatments. Medical technology companies often require less capital and a shorter product development time than pharmaceutical or biotechnology companies. Their smaller size and niche technology makes them attractive acquisition targets for large corporations such as Johnson & Johnson.
A link to the full report can be found here.