Wednesday, October 6, 2010

Transforming Healthcare Through IT - VCs and Entrepreneurs Answer the Call

The St. Francis Yacht Club in San Francisco has hosted hundreds of events over the years but nothing like the group we have here today. I am looking out at a room of 150 people at an event called “DC to VC: Investing in Healthcare IT Summit.” Policy leaders have flown from Washington, D.C to meet with venture capitalists, corporate executives, startup founders and CEOs to figure out ways to increase the pace and scale of innovation in healthcare IT.

I am a partner at Morgenthaler Ventures and had a hand in making this event happen. Morgenthaler is a firm with over 40 years of history investing in early-stage IT and healthcare companies. We are investors in a range of sectors including consumer Internet companies such as Siri, Evernote, NexTag and Lending Club to healthcare companies such as Ardian, Satiety, IPC - The Hospitalist Company, and Practice Fusion (the world’s largest cloud-based EMR or electronic medical records company).

Why did we put together an event focused on healthcare IT?

When I began my career in venture, I was encouraged to go after big opportunities.  I saw no opportunity bigger than healthcare.  The sheer amount of money put towards it, and the inefficiencies within the system, make it ripe for disruption and change.

-          In terms of the size of opportunity, 17.6 percent of the US GDP is spent on healthcare ($2 trillion a year), and around $340 billion is spent on administrative costs alone.  And at the same time, while we spend more on healthcare per person than any other country (nearly 3X the average industrialized nation), we rank near the bottom on life expectancy and infant mortality among wealthy nations.
The opportunities and potential for new companies to positively impact not only the cost, but society in general, are immense:
For example, EMRs companies can reduce cost and improve results.
-          195K deaths per year are attributable to preventable hospital medical errors.  Only 1.5% of these hospitals have integrated IT systems.   Only 6.3% of physicians have fully-functional EMR systems in use.   Imagine the errors and inefficiencies if banking systems today were run with pen and paper vs. integrated IT systems.

The impetus for this event began almost a year ago on a call with Wil Yu, Special Assistant, Innovations and Research, at the Office of the National Coordinator for Health IT (or ONC for short).  Wil and I wanted to increase investor interest and activity in healthcare IT by better connecting the policy makers with Silicon Valley investors.

Thus, we set out on a small project with the goal of bringing together about 30 people.
Interest built quickly when we attracted top government policy makers such as Aneesh Chopra, the nation’s first federal Chief Technology Officer; Todd Park, the US Department of Health and Human Services’ CTO and co-founder of athenahealth; and Melinda Buntin, the Director of the Office of Economic Analysis and Modeling at the ONC. With the help of co-organizers, Venrock and SVB, we ended up with more than 170 RSVPs and a waiting list for a venue that could only hold 150 people.

Why the enthusiasm?

VCs and entrepreneurs are answering the call to improve our healthcare system and make good money at the same time. There are many segments within healthcare IT to explore – from business-to-business solutions in data management, analytics, payment and billing to consumer-driven services specializing in the “quantified self” and personalized health.  And, there are varied  business models to consider ranging from traditional SaaS-based structures to creative “Freemium” models offering free services and making money by selling aggregate data (like Practice Fusion).

Importantly, we also have a new vanguard of government leaders who are putting their money where their mouth is: $20 billion to be exact in stimulus programs such as the HITECH Initiative.

The time is now. I believe all the pieces are in place for the healthcare sector to undergo the kind of transformation that financial services went through 15 years ago. Banks, like medical offices and hospitals today, did not have the connectivity to communicate internally or with their customers. They did not have a standard format for exchanging data. Today, some medical offices still organize patient records and prescriptions on paper. That will change. With cloud computing, smartphones, Web technologies that enable sharing on a massive scale, and creative government programs like ‘Open Data’, the healthcare sector will be revamped over the next few years.