Investors Pour Billions Into Digital Health Care Start-ups

These emerging companies are attracting more venture capital than ever before

23 July 2014

Photo: iStockphoto

You may have never heard of Flatiron Health, but investors have. The company, which collects and analyzes data about cancer patients to help doctors make treatment decisions, received US $130 million in venture capital from Google Ventures. This is the largest investment in medical software to date for the search giant’s investment arm. The health care start-up, based in New York City, was founded only two years ago.

Big-data companies in particular are receiving a good chunk of the change this year. Flatiron Health’s cofounder Nat Turner told Fortune magazine the company plans to use the comprehensive data it collects from medical records to help improve oncology treatments by giving doctors more thorough information about cancer patients. It isn’t the only newcomer to capture the interest of venture capitalists.

In the first two quarters of 2014, more than $2.3 billion has been invested in digital health care start-ups, according to the latest report from Rock Health, an investment firm in San Francisco that helps fund and support emerging health care technology companies. That’s already $300 million more than what was invested in similar businesses in 2013.

Start-ups that help the medical community better manage payments from patients and insurance companies received more than $210 million in investments this year, and another $193 million went to companies that develop programs to help people purchase health care insurance or find medical professionals and services. Other investors have financed trendy health and fitness innovations, such as wearable devices and mobile apps. 

More start-ups are looking to see how they can provide services based on the release of the 1.7 gigabytes worth of data generated by the millions of transactions for medical services and procedures provided to recipients of Medicare, the U.S. government health insurance program for citizens ages 65 and over. Access to this data has encouraged some new companies to enter the field, including LyfeChannel, which uses the data to connect senior citizens with medical providers targeted to their needs.

And additional businesses are emerging to provide services related to the U.S. Affordable Care Act, which went into effect this year. In an interview with VentureBeat, Rock Health’s managing director, Malay Gandhi, said health care reform has put a lot of pressure on hospitals and other medical providers to reduce costs. These new ventures can help do that by providing them with tools to track payments from insurance companies, for example, or ways to reduce costs.

It’s worth noting that this spike in funding comes at a time when investment in medical research is actually declining. The United States, for example, accounted for more than half of the world’s medical research spending in 2007. However, funding dropped from $131 billion that year to $119 billion in 2012, mainly due to a lack of investors.

Are these start-ups going to help transform health care for the better, or are they solely business opportunities? What types of health care technology companies would you invest in? Share your opinion in the comments section below.

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