Next Things First

Technology and the Health Care Funding Gap by charlottegee
October 15, 2008, 3:12 pm
Filed under: health it, venture capital | Tags: ,

Two fundamental aspects of the health care industry that make it tremendously ripe for innovation:

1) High Inefficiency. In a 2005 study by the RAND Corporation’s Health Group, it was determined that “annual savings from efficiency alone could be $77 billion or more.”

2) Lack of Technology. The same study also found a key issue to be the lack of innovation: “Most providers lack the information systems necessary to coordinate a patient’s care with other providers, share needed information, monitor compliance with prevention and disease-management guidelines, and measure and improve performance.”

For many entrepreneurs, this has meant that capital requirements for innovation are significantly less (a direct result of the two above factors).

There are high inefficiencies due to a plethora of unsolved problems (1). Additionally, technology applied in other sectors (but absent in health care) can be analogously leveraged in the health care sector to solve these problems (2).

This means that a lot of the innovation in the health care industry will be funded by very small amounts of capital. Technologically enabled solutions usually require less capital than some of the more infrastructure-intensive ventures. The ultimate problem arises from the fact that many investors in the space, specifically private equity investors, do not fund at this size. This leaves a huge funding gap for some of what will probably be the most important innovators in the field in the next 5-10 years. However, it also provides a HUGE opportunity for those who do fill this ephemeral and critical gap.

Submitted by Jory Caulkins
SSARIS Advisors, LLC


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