If you’re a healthcare IT firm looking for venture capital backing, 2012 was a very good year, particularly if you were offering consumer engagement tools across healthcare social media, mobile health, telehealth and personal health. The number of healthcare IT venture capital deals last year hit 163, amounting to $1.2 billion — more than double 2011’s numbers, according to a new report.
Austin, Texas-based Mercom Capital‘s annual healthcare IT venture funding and M&A report credits the HITECH Act for kick-starting investment in the sector in a trend that looks set to continue in 2013. The company started tracking health IT deals in 2010 and last year’s dealflow was the biggest it has seen in the past three years, according to a summary of the report.
Looking at the health IT subsectors with the most dealflow, practice management solution companies had 14, followed by electronic medical record and electronic health record companies with 13. Clinical decision support and business and clinical intelligence companies had 10 deals each, according to Raj Prabhu, a managing partner with Mercom, in response to emailed questions.
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Although historically business-to-business companies have dominated this sector, last year saw a near equal split between consumer and business to business with practice-centric companies having a slightly higher value at $591 million. Consumer-centric companies had $582 million.
Castlight Health, a healthcare management service for employers and health plans that provides comparative pricing information and co-founded by Todd Park, got the biggest chunk of venture capital investment last year, raising $100 million in a series D financing round. It was followed by the $50 million series C round raised by genetic testing provider 23andMe.
The heady financing year healthcare IT companies experienced contrasted sharply with other sectors. A report tracking venture investment last year by the National Venture Capital Association and PricewaterhouseCoopers noted that 2012, and the fourth quarter in particular, showed a decline in venture investment reflecting a pessimism underscored by the disappointing outcome of the Facebook IPO.
The HITECH Act, part of the American Recovery and Reinvestment Act of 2009, set aside $17 billion for incentive payments to providers who implement a qualifying EHR under either Medicare or Medicaid. The incentives helped fuel providers’ transition from paper to electronic medical records and facilitate interoperability with other systems, giving a boost to companies providing services from electronic medical records to EMR management tools.
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Companies that provide ways to lower healthcare costs like improving remote monitoring to ensure patients take their medication and follow provider instructions to reduce readmissions have also been reasons why investment in this sector has flourished. Hospitals with higher than average readmission rates for certain conditions are being penalized on reimbursements by CMS.
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