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Investors are betting billions the long-awaited digital shift in healthcare has finally arrived

(Bloomberg) – Investors are investing record amounts in start-ups trying to transform healthcare in the United States at an accelerated pace. Driven by pandemic, private financing of healthcare companies has reached new heights every quarter since the emergence of Covid-19. Investors directed a record $ 6.7 billion to U.S. digital health startups in the first three months of 2021, according to venture capital firm and researcher Rock Health. In 2011, Rock Health tracked $ 1.1 billion invested in digital health for the entire year. The flood of money attracts the attention of new corners. JPMorgan Chase & Co. announced a new venture last week with a branch investment of $ 250 million to transform employer health coverage. Young startups have made giant deals like the $ 500 million that online pharmacy Ro, founded in 2017, raised in March. And venture capital-backed healthcare companies are reaching public markets: insurer Upstart Bright Health Group, founded in 2015, filed an initial public offering last week. links with Dogecoin. Venture capital is no exception – with funds raised $ 32.7 billion in the first quarter, on the verge of breaking last year’s record, according to data from the PitchBook-NVCA Venture Monitor. All that money has to go somewhere. As the pandemic eases in the United States, a growing share of venture capital has decided that the upheaval caused by Covid-19 is accelerating changes already underway in the notoriously inefficient US healthcare sector by $ 4 trillion. healthcare company, the bank abandoned its joint effort with Amazon and Berkshire Hathaway. Still, investors believe the pandemic has catalyzed lasting changes in the way Americans get health care that have been predicted for years. partner of the venture capital firm Bessemer Venture Partners and member of the board of directors of Bright Health. Now he says the industry is catching up. “It happened so fast, and it happened so fast because of Covid,” Kraus said. Moving FastOne is a sign of how fast money is flowing: Healthcare startups are raising new rounds of funding as ink barely dries on their session sheets. Dozens of digital health companies raised more than one round of funding in 2020, according to data compiled for Bloomberg by Rock Health, a rate that was almost unheard of a few years ago. that healthcare is finally ready for the kind of technological change that has long reshaped retail, software and media. Such changes create new fortunes and threaten old business models. Investors are rushing to back companies they hope will become the Amazon, Salesforce, or Facebook of healthcare. Venture capital in healthcare has long focused on the development of new drugs and medical devices. The risky and expensive sector of new drug development continues to capture the lion’s share of healthcare investments, but more and more money is shifted into healthcare software and services. In recent years, funding in these areas has exceeded the amount spent on medical devices, according to data from the PitchBook-NVCA Venture Monitor. As the total amount of venture capital investment has grown over this period, digital health and other service companies are a growing slice of a growing pie. Until recently, many healthcare organizations relied on paper records. Ten years ago, just over a quarter of U.S. hospitals had adopted basic electronic health records that could contain clinician notes, according to federal data. The U.S. government has invested more than $ 35 billion to encourage healthcare providers to keep electronic records, and the industry is moving towards more fluid data exchange between different entities – albeit hesitantly. healthcare companies, ”said Megan Zweig, COO of Rock Health. “It’s easier to start a business today than it was five or 10 years ago.” Other factors are at play. The Affordable Care Act encouraged payment terms intended to tie reimbursements to patients’ health outcomes, not just the volume of care provided. High rates of chronic disease and a rapidly aging population are driving demand for tools that help people manage their health and live independently longer. And people of all ages increasingly expect health care the way they get it now: Thanks to screens on computers and phones Pandemic acceleration These trends were in motion before the pandemic, but Covid-19 broke a major hurdle that deterred some investors. in the health segment: inertia. Potential clients such as insurers, employers, and hospitals tend to be risk averse and adopt sluggishness. Startups that build products for these markets could quickly spend money waiting for organizations to take the risk of trying something new. “You had this problem of slow growing and very expensive,” said Bob Kocher, a Venrock partner and longtime digital company. health investor. “It kept valuations low and scared off a lot of tech investors.” Covid changed that almost overnight, as physical distance forced doctors and hospital systems to switch to remote visits. The pandemic “has compressed into six months, or 10 years of adopting things like virtual care and telemedicine,” Kocher said. Fundraising is also accelerating. Digital health companies are raising more money sooner than ever before. In the first quarter, 17 companies raised rounds of at least $ 100 million, according to data from Rock Health. That’s almost as much as 2018 and 2019 combined. And companies reach this great “mega-reality” moments earlier, on average just five years after their creation. Some of this capital could fuel consolidation in the months and years to come. Zweig of Rock Health said companies that market to employers and health plans hear their potential customers are overwhelmed by the proliferation of “point solutions” – products narrowly targeted for particular medical conditions or types of care, like diabetes or musculoskeletal disorders. broader offerings, she said, and some of the cash landing in startup treasuries will likely be spent on acquiring other startups and assembling larger offerings. give payouts to venture capitalists and have boosted VCs’ confidence in the industry. “For a while there weren’t a lot of exits in digital health and now there are, and investors love the exits,” Zweig said. The last few years have caught the attention of investors by proving how quickly digital health startups can multiply. their money. Over a decade, a digital health startup trying to improve diabetes care has quietly raised around $ 240 million in venture capital. The company, Livongo Health, debuted in 2019 in an IPO that valued it at $ 2.6 billion. The following year, amid the Covid-19 pandemic, it was acquired by Teledoc Health Inc. for nearly $ 13 billion, five times its value when it went public. a lot of money in this area, ”said former Livongo CEO Glen Tullman, who now runs a new company called Transcarent. “These businesses are real.” Frenzied Funding Kraus, who is a member of Rock Health’s investment committee, recognizes that deal negotiation is happening at a breakneck pace. “Are valuations high? For sure. Is the speed of transactions too fast in my mind? Of course, ”he says. “There is a lot of capital looking for businesses.” But he said he didn’t see a bubble in the direction of irrational financing of companies with little sustainable business prospects. Instead, he sees companies with solid ideas looking for real market opportunities in an industry that has long awaited change. Large incumbent companies are increasingly promoting visions of a healthcare future. high technology. Anthem Inc., the nation’s second-largest health insurer, told investors in March not to view it as a health insurer, but as “a digital platform for health,” in the words of the chief executive. General Gail Boudreaux. Cigna Corp. bought telehealth provider MDLive in February, and Walmart Inc. is buying a telehealth company called MeMD. CVS Health Corp. has announced the creation of a new $ 100 million venture capital fund focused on digital health, but it remains to be seen whether the flood of innovations will reduce the fundamental problem of healthcare in the United States: the price . Employers, taxpayers and households collectively spend $ 4 trillion a year, or about 18% of gross domestic product, a much higher share than most rich countries. These inordinate spending does not lead to longer lives or better health compared to countries that spend much less.Investors and entrepreneurs looking to transform healthcare should not underestimate how bad it is. difficult. “Techies who haven’t really spent enough time in the world of health policy say, ‘Oh, we’re just going to show up and find out,'” said Paul Hughes-Cromwick, health policy consultant. in Ann Arbor, Mich. Almost every fundraising startup promises to improve care, lower costs, or both. For new businesses to both make money and reduce overall costs, a reduction in healthcare spending has to come from elsewhere – that is, from someone else’s income stream. Otherwise, innovations may simply add costs to the system and some essential parts of medicine, such as surgeries or physical exams, will not be replaced. “This human interaction will not go away,” said Hughes-Cromwick. “There is kind of a limiting factor for what the technology could do. But I would be foolish to say that it won’t do those things. More stories like this are available at Subscribe now to stay ahead with the most trusted source of business news. © 2021 Bloomberg LP

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