SAN FRANCISCO — A few hours before Obamacare’s health insurance exchanges opened up, a group of health care investors gathered at a restaurant in downtown San Francisco to discuss how information technology can play a role in combating escalating health care costs.
The general mood was optimistic, given that a key piece of the Affordable Care Act (aka Obamacare) would soon come into effect. Farzad Mostashari, the recently departed head of the Office of the National Coordinator for Health Information Technology, was the special guest in attendance.
The bow tie-wearing medic and policy adviser took the opportunity to reiterate the goals of the ACA, the law (which remains controversial to some even though its stood a number of legislative challenges, a Supreme Court challenge, and Obama got reelected after its passage) that brings new care options to the sick.
Related: Don’t miss our piece on 5 hot startup opportunities created by health care reform.
“I’m hopeful that tomorrow’s health care will be better … it’s lousy today,” Mostahari told us on Monday night. As of this morning (Oct. 1), people who don’t have insurance will be able to shop online on one of the new insurance marketplaces, called exchanges, or at specific locations in their communities for coverage that will take effect Jan. 1.
Surrounded by some of the most renowned health investors, I asked for their take on new investment opportunities as the ACA comes into effect. Here are the suggestions of leading venture capitalists, analysts, and the brokers behind the ACA, for how you can take advantage of what Mostahari calls a “seminal change” in health care.
EHealth‘s Gary Lauer said that consumers will benefit in the near-term. He’s the chief executive for a company that’s a marketplace for individual and family health insurance plans.
“They [patients] have more choices for enrollment, whether it is through a private exchange, state exchange or other agent,” he said. As Mostahari said during dinner, Americans will be able to do what they do best: shop.
Lauer also predicts that more people will start companies in the wake of the ACA. “People won’t feel as tied to their employer for health insurance,” he said. People might feel that they need to hold on to a steady job, or they risk being denied insurance, and having to pay out of pocket for health services. Through Obamacare, would-be entrepreneurs will be eligible for a plan on the new marketplaces.
Startups that make it easier for small businesses to provide health insurance
Dr. Bob Kocher, a physician and health IT investor at venture firm Venrock, sees huge opportunity for one of his portfolio companies, Zenefits, which helps companies manage HR and payroll online for free. Kocher was a key architect of the Affordable Care Act.
Zenefits, a graduate of startup accelerator Y Combinator, says it makes it easier to set up group health coverage and payroll for small businesses by automating the process and bringing it online.
Kocher believes we’ll see more pressure on employers of all sizes to provide insurance options. Why? The Individual Mandate, which requires you, your children, and any other dependents to have health insurance by 2014. Coverage can be supplied through your job, public programs such as Medicare or Medicaid, or an individual policy that you purchase. As a result, established businesses and startups will turn to Zenefits, Maxwell Health, and a other rivals to help them buy health insurance.
Progressive hospitals with ‘integrated delivery systems’
According to Krishna Yeshnant, a physician who heads up health investment at Google Ventures, it’s the hospitals that have already invested in value-based care (not fee-per-service) that are ahead of the curve.
Value-based care is a term often used by proponents of health reform — it means that doctors should be paid to keep patients healthy, not by ordering a slew of expensive tests when complications arise.
Two days a week, Yeshvant takes a break from investing and advises at Partners Healthcare in Boston. Partners launched a “Connected Health” program earlier in the summer, and reported promising results. The goal for the program is to prevent hospital readmissions by giving doctors and patients devices for home-health monitoring.
Patients can track their blood pressure, heart rate, and other key metrics away from the doctor’s office and upload this data wirelessly. Doctors can view this data at any time; they receive alerts if a patient exhibits worrying symptoms.
New entrants to the health insurance exchanges
In the last week or two, I’ve received dozens of pitches from new health insurance exchange marketplaces. These exchanges will face off against some large incumbents, and promise to offer a newer approach to health insurance.
Ben Wanamaker, a health researcher at the Clayton Christensen Institute, predicts that the newest insurance exchanges will impose stringent requirements on participants, such as a requirement to offer a silver and gold plan. He does not believe that the newer, smaller entrants can compete.
“These requirements effectively raise the barriers to entry for new entrants — they will have to cover more benefits than some patients want or need,” said Wanamaker. However, Wanamaker does believe that tech startups can provide a real service by providing tools to navigate the new exchanges. Startups like NerdWallet and ZocDoc have recently launched online guides to help consumers better understand the available options.
That said, I’m intrigued by Oscar Insurance, a technology driven health insurer competing against 15 larger incumbents on New York’s health insurance exchange. The startup reported a bigger-than-expected turnout of people shopping for coverage this afternoon. Oscar’s user interface was designed to mimic the experience of using Facebook — it even features a timeline.
Read up on the trio of investors behind Oscar (who also made early bets in Instagram and Microsoft) here.
Traditional therapeutics, pharmaceutical, and device companies
According to Yeshvant, companies with a business model that is tied to their volume of sales (and not the value of the product) will lose over time. Doctors will increasingly be compensated for keeping patients healthy, not for ordering expensive tests or prescribing drugs that may or may not work.
Instead, precision-based, “personalized health” startups like Foundation Medicine are generating a great deal of interest from physicians. Foundation just made a highly successful public debut — it sells test kits, which oncologists use to recommend treatment options for patients based on their molecular blueprint.
“It’s a really hard transition since all of these groups can still make a lot of money in the near term without changing, but I think everyone sees the writing on the wall that we need to focus on outcomes and value, not just volume,” said Yeshvant.