Venture capital funding for healthcare IT companies — those selling enterprise software to providers and payers — is slowly picking back up after its low point in the fourth quarter of 2022, according to a new report from Pitchbook.
Healthcare IT companies’ venture fundraising total was $1 billion in the second quarter of this year, down slightly from the $1.3 billion raised in the first quarter. But the second quarter’s funding total was still significantly higher than the mere $451.3 million raised during the fourth quarter of last year.
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One explanation for the increasing investment in health IT is that health systems’ finances are slowly moving out of crisis mode, the report said. Last year was hospitals’ worst financial year in decades, but staff turnover and inflation have been decreasing slightly in recent months. Kaufman Hall’s hospital operating margin index was 1.3% as of July, remaining in positive territory for the fifth month in a row.
Now that hospitals have a little more room to breathe, healthcare leaders are seeking to boost efficiency by investing in new technology, the report pointed out. Unsurprisingly, a lot of these efforts are focused on generative AI — more than a quarter of the second quarter’s recorded deal value in the healthcare IT sector went to companies offering generative AI products.
The biggest round raised by a generative AI-focused healthcare IT company in the second quarter was Hippocratic AI’s $50 million seed round in May. The startup, which bills itself as the first large language model designed specifically for healthcare, went on to raise another $15 million in July. Another notable deal was Hyro’s $20 million Series B round. The startup sells a conversational AI platform used by providers including Intermountain Healthcare, Mercy Health, Novant Health, Hackensack Meridian Health, Weill Cornell Medicine and Hospital for Special Surgery.
Even though the excitement around generative AI remains high, the industry is still exceedingly cautious about deploying this technology for clinical decision support or other functions that necessitate medical discretion, such as prior authorization review, the report noted. The industry is focusing on how generative AI can boost providers’ efficiency, capacity and job satisfaction, as well as improve patient experiences, for the time being, the report said.
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In addition to the hype surrounding generative AI, regulatory and reimbursement trends are also influencing healthcare IT investments. In the past couple years, CMS has introduced new codes for remote patient monitoring and expanded the range of practitioners allowed to provide this type of care. This has led to a larger influx of dollars flowing to startups specializing in remote patient monitoring, the report declared.
HealthSnap, a platform for chronic care virtual management and remote patient monitoring, completed a $9.1 million Series A round in May. Additionally, Optimize Health snagged $6 million in a Series B round in the second quarter. The company offers a remote patient monitoring and care coordination platform focused on the ambulatory market.
The report predicted that commercial payers — and later CMS — will scale back reimbursement for remote patient monitoring programs that fail to demonstrate their ability to improve patient outcomes. Because of this, startups in the remote patient monitoring space should prioritize the generation of actionable insights via seamless user experiences, Pitchbook’s analysts recommended.
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