Clinical decision support acquisitions accounted for the most merger and acquisition deals in healthcare information management in the second quarter, beating out electronic health record and electronic medical record companies combined. That was just one of the interesting findings of a report from Mercom Capital exploring healthcare IT funding and M&A in the second quarter.
At 39, the second quarter also had most M&A deals in healthcare IT since the third quarter of last year with revenue cycle management, service providers and telemedicine companies among the acquisition targets. Here are some more:
Average venture investments fall. The average venture capital investment in healthcare IT has fallen in the past two years, according to a new report, from a high of $18.6 million in the second quarter of 2010 to $10.5 million in the second quarter of 2012, with the lion’s share going to later-stage companies Castlight Health and Practice Fusion, a free Web-based electronic medical record company.
Dealflow rises. Venture capital firms invested $293 million in 28 deals for the quarter, the highest by size and number since 2010. The Health Information Technology for Economic and Clinical Health Act and its requirements for electronic health record implementation has helped spur dealflow as has the implementation of healthcare information exchange. There’s also this observation from Austin, Texas-based Mercom Capital analyst Raj Prabhu:
“Venture capital firms are interested in the consumer sites that do scheduling/rating/shopping, which is an easy-to-understand model that has had tremendous success in the Web/tech sector. Data availability and how to analyze this data to gain efficiencies is another reason.”
Only two of 61 venture capital investors participated in multiple healthcare IT funding deals. They were Founders Fund and Venrock, with partner Brian Ascher dubbed the dean of healthcare IT in a recent Forbes article. Taking a glass half full view of healthcare IT investment for the first half of 2012, on the other hand, 107 different investors have participated in VC funding rounds — compared with 104 for all of 2011, a contrast Prabhu interprets as a very good sign for the sector.
Most popular M&A deal subsectors. Clinical decision support deals led healthcare information management M&A transactions in the second quarter with six companies trading hands. That was more than electronic health records and electronic medical records combined (four). CDS is a form of artificial intelligence integrated into electronic medical records that can include, for example, point-of-care clinician alerts for drug interactions and allergies. One study has found it can cut down on overprescribing of antibiotics by primary care physicians. Why all the activity? For organizations that have a need for CDS, it is easier to acquire than to build it internally from scratch, according to Prabhu.
What about telemedicine? It had a kid-sized portion of venture capital investment this quarter with three M&A deals, but that’s expected to change as the market matures. “[It] will gain in importance as consumers get comfortable with the widespread use of health IT,” said Prabhu. “As the population gets older and health organizations become better equipped to use telemedicine to treat patients, we will see more activity in this area.”
Reserve your seat now for MedCity CONVERGE, to be held July 9-10 in Philadelphia. Discover strategies, solutions and startups in healthcare innovation. Be a part of this gathering where the entire healthcare ecosystem converges.