In Health Care Investing, Some VCs See Opportunities

A lot has been said about the health care reform shepherded by the Obama Administration and passed by the 111th Congress–both good and bad.

In venture, there is an uncertainty over how the legislation will unfold and which startups will have the best chance of prospering.

Some believe efforts and technologies to migrate retirees to Medicare, to cut overhead and automate insurance sales and to improve patient safety by reducing errors hold the greatest promise.

Startups targeting the newly insured and aiding them to access health care also could succeed.

Stephen Krupa, managing member of Psilos Group is no exception. The venture capitalist (pictured) expects to see more money flowing over the next five or more years into startups offering health care services, and technologies that merge IT and medical organization management.

He is less convinced medical devices companies and diagnostic tools makers will see the same boost. Health care needs to deliver more for less every year, he says. “It’s a long term trend.”

Krupa, who founded Psilos in 1998, says he sees opportunities for products and services that tailor benefits to individuals with particular needs, that reward consumers for healthy behavior and that offer care management efficiencies. A care management effort might use information technologies to improve workflow.

A firm addressing patient safety might use new mobile technologies–-an iPad, for instance–to confirm drug doses.

Already there are some suggestions of a pick up in health care investing related to the reform legislation. In the third quarter, VCs put $128 million in medical services companies, 2.5 times the amount of the previous quarter. The IT services category also was strong, though biotechnology and medical devices slumped.

Will this continue? It is hard to say. At least from today’s vantage point, Krupa thinks it will. “I think these are the areas where VCs will focus,” he says.