Obamacare causes disruption among some healthcare startups


It did not come easily. But finally, its day has arrived. Enrollment opened in October for the controversial centerpiece of the U.S. Affordable Care Act, which directs individuals without health insurance to find coverage through state-run exchanges.

Undoubtedly, there were roadblocks along the way—from a Supreme Court battle to a federal government shutdown spearheaded by ACA opponents. And certainly, looking at polls that show a large percentage of Americans either wary or disapproving of Obamacare, not everyone is looking forward to the most sweeping aspects of the law taking effect.

But among venture-funded entrepreneurs, it’s standard practice to view change as an opportunity. And, among Obamacare supporters and opponents alike, it’s hard to find anyone arguing against the notion that the U.S. healthcare system could benefit greatly from some major disruption, to rein in spiraling cost increases and to improve quality of care.

“All payers are looking for ways to get higher quality healthcare more efficiently. Obamacare is one way to address that. But even without Obamacare, this movement is taking hold,” said Frank Williams, CEO of Evolent Health, a provider of analytics and workflow tools for healthcare providers and payers that  just closed a $100 million financing round led by TPG Growth.

Evolent is one of at least a half dozen companies providing new platforms and tools for healthcare providers and insurers that have raised large rounds this year. Other large funding recipients include ZeOmega, a developer of healthcare management analytics and workflow automation software, and Practice Fusion, which provides digital health records.

In the broader area of digital health, which includes healthcare-focused software and services as well as biometric devices and diagnostic tools, aggregate venture funding is also up sharply. San Francisco-based healthcare accelerator Rock Health has estimated that venture investors put $1.5 billion into digital health companies in the first three quarters of 2013, up 37% from the same period a year ago.

As for exits, VCs and private equity firms can point to at least a couple of high multiple returns in healthcare software and services investments. BenefitsFocus, a provider of cloud-based benefits software went public in late September and saw shares double in first-day trading. The company, majority-owned by Goldman Sachs and backed by Oak Investment Partners, was recently valued at just over $1 billion.

Extend Health, a provider of supplemental health insurance, also delivered a big return when it sold to Towers Watson last year in a deal valued at $435 million. The sale generated a more than 10X return for backers Revolution LLC and Psilos Group.

This story first appeared in Reuters Venture Capital Journal. Subscribers can read the original story here. To subscribe to VCJ, please email [email protected]

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