Why VCs are investing in value-based care
Remember the headlines about Medicare going from fee-for-service to value-based care?
This week Healthcare Brew published an explanation.
Venture-capital firms are interested in value-based care instead of fee-for-service. Quite possibly for the same reason doctors complain bitterly when they're forced to become hospital employees instead of professional contractors.... and even louder when a VC takes over the hospital.
August 14, 2023 · 3 min read
It’s no secret that the healthcare industry has been pretty slow when it comes to transitioning away from afee-for-servicemodel—just41% of healthcare dollarswent through avalue-based caremodel in 2020.
Pitchbook recentlypredictedthe US would never fully convert to a value-based care model, in which providers are reimbursed based on patient outcomes rather than the quantity of services provided, like in the traditional fee-for-service model. But some venture capitalists (VCs) still think it’s worth it to invest in companies working to make the transition possible.
Adam Fine, founder and managing partner at healthcare-focused venture capital firm Windham Venture Partners, told Healthcare Brew he agrees with Pitchbook’s prediction because it wouldn’t make sense for certain procedures, like cosmetic surgery, to operate under a value-based care model.
“I don’t foresee a time in the future that cosmetic surgeons are going to start taking financial risk on aesthetic outcomes,” Fine said.
But just because it’s unlikely that 100% of the US healthcare system will one day be value-based doesn’t mean the concept should be scrapped entirely, Fine said.
“Just because it’s hard is not a reason not to do it.”
According to Pitchbook, “the [value-based care] transition will continue because the fee-for-service reimbursement model is unsustainable at a macroeconomic level and fundamentally at odds with the values that draw most healthcare professionals to the industry.”
How two VCs decide which value-based companies are worthy of investment.
Krish Ramadurai, a partner at early stage venture capital fund Harmonix, said one of the first things he looks at when deciding whether a value-based care company is worth investing in is if the company has produced a “tangible outcome.”
“Actually being able to use statistics to measure in an evidence-based way how you’re accelerating or proving that outcome—I think that’s the winners in the space,” Ramadurai said.
The companies Harmonix invests in are most often trying to make sense of the healthcare industry’s massive collection ofdata.
“You’ve got this massive trove of data that every institution, provider, payer, patient is sitting on, but nobody’s actually been able to clean it up, tag it, label it, and derive a functional insight quickly and effectively,” Ramadurai said. “How do we consistently take actionable insights out of that data and move the needle on patient outcomes to provide value-based care? That’s been the key bottleneck that we’ve been trying to figure out.”
Companies with founders that have “extensive healthcare experience” are most likely to win over Ramadurai because “they understand how to derive that better, faster, cheaper outcome,” he said.
Fine said that for him to invest in a value-based care company, “there’s got to be a clear, demonstrable value proposition or return on investment (ROI) within a 12- to 18-month period.”
“Customers [are] being bombarded with new solutions and new platforms, and they definitely want to see concrete, real ROI,” Fine said. “We like to see real traction with real, paying customers who are valuing the platform or the service offering.”
Value sounds great, but slapping on a label doesn't mean much. The real question is, "Who decides your care?"
It's not just money. It's about control.
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