Health IT Is the New Black
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courting them aggressively, networking actively with CMS and Office of the National Coordinator for HIT (which didn’t exist back in the 1990s) and adding partners and advisors who know the difference between a claim form and chloroform (note: they can both put you to sleep).
My firm, Psilos Group, which has stalwartly stayed in the HIT investment business throughout the last 13 years, has been contacted by numerous other investment firms looking to learn about the HIT marketplace and partner with us in HIT deals. While I won’t name names, these are primarily venture firms that have made their names in the biotech/medical device world and whose sudden love of HIT might surprise you. I have of late had the unusual honor of being asked to explain to some of my fellow investors what it takes to get in on the HIT action. Strange days indeed.
More important is the evidence of an increasingly robust exit environment for HIT companies. From April 2010 to April 2011, research firm Health Data Management (HDM) tracked 100 HIT acquisitions, compared with 76 during the same period in 2009-2010. And the deals are getting bigger. In the last 18 months, Allscripts bought Eclipsys for $1.2 billion, Aetna bought Medicity for $500 million; Harris Corp. bought Carefx for $155 million and Walgreens even bought ehealth survivor Drugstore.com for $409 million. Optum Health (formerly Ingenix) has been on a buying spree, picking up Axolotl, Picis and QualityMetric (a former Psilos investment), among others. I can assure you that where there are exits, there are investors looking to get in between the buyer’s wallet and the acquisition target.
Notably, companies that have never before set foot into healthcare are looking for assets to buy or with whom to partner to take advantage of the wave of opportunity that has been catalyzed by PPACA and other socioeconomic events. This further stokes the interests of investors looking to put their capital to work in the HIT sector. Ten years ago who would have thought that Best Buy or Dell or even Salesforce.com might have substantial commitments to HIT? Would you have guessed that on your next visit to Costco you could buy a year’s worth of toilet paper, a stadium-sized vat of ketchup and a subscription to the Allscripts EMR? In my opinion it is telling that 38 of the 2011 Fortune 50 companies (America’s top 50 companies by revenue) are in the healthcare business in some significant way. As recently as 2001 there were only 5 companies on the Fortune 50 list that derived all or a substantial amount of their revenue from the healthcare industry.
So are we right back where we started in 1998? I don’t think so. There is a much greater recognition today that HIT products need a serious clinical or administrative value proposition, a clear and recurring revenue model and the ability to demonstrate evidence of real cost-savings. There is a much matured customer base demanding IT solutions to solve the real problems inherent in our teetering healthcare system, not just a bunch of technology looking for a problem to solve. There is also a whole new landscape of legislation and regulation that directly supports the evolution of the HIT marketplace, sometimes with cold hard cash.
Yes, it is possible that there will be too much money chasing after the reincarnated HIT boom and that can lead to a lot of lemons. But is clear there is also going to be ample opportunity to make lemonade (cloud-based lemonade?) by investing in those enterprises that truly understand how the healthcare system works and how to make technology work within it.