Healthcare investment opportunities explode


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The health insurance industry’s 50-year-old legacy business-to-business model is on the brink of irrelevance, with broad implications for venture investors.

In today’s commercial insurance market, health plans mainly sell employer-sponsored group products.

However, the implementation of the Affordable Care Act is rapidly changing this dynamic. The creation of public and private exchanges is steering a massive influx of individual consumers into the healthcare market. Today, insurers must look and act more like business-to-consumer enterprises to compete effectively in this new marketplace.

Yet, many insurers aren’t prepared for these changing dynamics or the possibility that their traditional business models will quickly get supplanted by a more consumer-centric orientation. The upside for venture capitalists is a fantastic new array investment opportunities.

Move to the consumer

This past spring, 9 million new consumers came into the insurance system through federal and state exchanges. We predict that this trend will continue to shift an individual market that had been less than 10 percent of all policies to a 40 percent share over the business planning cycle.

This marketplace transformation will require health plans to overhaul every step of their value chain, from market research, benefits design and network management, to operations, marketing and sales.

To differentiate and compete, insurers need to re-imagine their customers, their products and the way they do business in a burgeoning consumer market.

Technology innovations are rampant

The good news for investors is that new business models that leverage technology will enable the transition to a consumer-based value chain for insurers. This technology includes cloud-based core administration platforms, clinical workflow and decision support tools, as well as mobile and telehealth applications.

We are seeing many excellent investment opportunities including:

  • Software, infrastructure, and services that play an instrumental role in the value chain for the individual insurance market such as customization and ‘e-commerce’ transaction tools.
  • Technology solutions and business models that promote a true payer-provider partnership with an aim of increased consumer engagement and improvement of their “total health.”
  • Automated claims adjudication and payment solutions that will support insurers’ efforts to optimize customer service.
  • Mobile and telecommunication strategies with the potential to reach consumers on their own terms and create value-added interactions.

Investing in the payer value chain

Healthcare investment opportunities that address the new payer value chain abound.

SeeChange Health, one of our investments at the Psilos Group, is leading the way in clinically driven health improvement and consumer engagement as an enterprise service. Another investment, HealthEdge, provides next-generation, business-transforming core administration, claim adjudication and care management technology platforms to the healthcare payer market.

Insurers are faced with the challenge of dramatically revamping their strategy to compete in a market in which the individual consumer’s wants and needs will be paramount.

As investors in the space for more than 16 years, we at Psilos believe that payers that make the shift will thrive in the future and that the result will be a more outcomes-based healthcare system in which the patient is the focal point.

Stephen Krupa is managing member and COO of Psilos. He focuses on identifying investment opportunities in next-generation healthcare services and healthcare IT companies.

Photo illustration from Shutterstock.

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