SAN FRANCISCO — The Affordable Care Act, aka health care reform, aka Obamacare, is spurring a massive creation of new business opportunities.

So says Bryan Sivak, the chief technical officer and entrepreneur-in-residence at the Department of Health and Human Services, the cabinet-level agency that regulates the $2.8 trillion U.S. health care market. Sivak joined VentureBeat’s HealthBeat conference today via a video conference (see photo above).

Just one of the areas that’s becoming fertile ground for entrepreneurial innovation: the health insurance exchanges mandated by the law.

These exchanges bring a level of transparency and openness to the insurance market that hasn’t been easy to find until now, Sivak said. The new exchanges will be large, consumer-facing marketplaces, and the insurance industry hasn’t been exactly nimble about embracing the latest consumer tech trends — so there will be lots of opportunities for startups to bridge the gap.

They’ll increase competition, because people will be able to see and compare insurance plans more easily. Now, any qualified, licensed insurer will have access to a market of potential customers via the exchanges.

Also, he said, the act will bring 30 million to 50 million more people into the ranks of the insured, creating a new pool of customers to market to. And there will be lots of data.

“You have no idea what’s possible, and you have no idea what people are going to come up with, so that’s what I’m really looking forward to,” Sivak said.

Apart from the ACA, Sivak also said government has an important role to play in facilitating health care innovation.

Government can help spur technology in three ways, he said:

• Facilitation: ”Governments at all levels are interested in seeing citizens do great things.” At the federal, state, and local levels, he said, there’s a lot of interest in helping people create new ventures, improve existing health care systems, or create new systems.
• Convening: “We’re really, really good at getting people together,” Sivak said. So if a big problem needs tackling, governments are well-positioned to gather people to talk about it.
• Incentivizing: Governments can be very effective at spurring change through relatively small incentives or through mandates. For example, he said, the adoption of electronic medical records (EMRs) stagnated until it was mandated by the Affordable Care Act in 2012.

“Just think about that: A small government intervention has caused EMR adoption to go from under 15 percent to over 70 percent,” Sivak said.

What’s more, government sits on top of a lot of data. Sivak estimates that HHS has about 1,000 data sets, 400 of which have been catalogued on the agency’s HealthData.gov website. Some of the datasets aren’t free, though HHS is working to bring the costs down. So there’s a long way to go still.

Sivak, a former entrepreneur who cut his teeth in San Francisco during the dot-com days, says his attitude toward government’s role is a new perspective for him.

“The only time I interacted with government was when I needed to file my incorporation paperwork with the State of California,” he said of his experience in the 1990s — not atypical of many tech entrepreneurs.

But if he’s right, techies — at least those who want to do business in the health care field — would do well to pay a lot more attention to what’s going on in government.

Photo credit: Michael O’Donnell/VentureBeat

SAN FRANCISCO — You might not guess it to look at your most recent medical bills, but doctors are nervous about their ability to make money.

CareCloud, which creates a fully-online management app for health care practices, surveyed over 5,000 doctors who say they are worried about their income in the next year.

“In the early 90s I saw healthcare for the first time and I was just blown away by how screwed up it was,” said chief executive Albert Santalo at VentureBeat’s HealthBeat conference today.

Despite attempts to modernize today’s practices in how they keep data and report revenue, the health care industry seems to be just as screwed up as it was 20 years ago, according to the survey, which CareCloud calls the Practice Profitability Index.

“You think about it very differently than you would 15 years ago in the early days of the web,” said Santalo. But, he said, “when you look at these systems, they date that far back.”

CareCloud is a platform-as-a-service (PaaS) that doctors can use to manage their finances. It also has a social layer to communicate with patients, as well as its own form of electronic health records (EHR). Indeed, it seems these EHRs are on of the main issues that make doctors worry about their profitability.

Santalo explained that EHRs are currently slowing doctors down, and he admitted that even CareCloud is a part of that problem. He predicts that 20 to 25 percent of doctors will be back in the market for better solutions surrounding EHRs.

There’s a lot of opportunity there, of course, for businesses to take up the challenge. (For instance, Practice Fusion has made great headway offering a free EHR now used by 150,000 doctors.)

CareCloud isn’t ignoring the issue and says it will release a new user interface for its EHRs next month.

Other than coding and documenting changes, doctors are also concerned about declining reimbursements, rising costs, and Affordable Care Act requirements, according to the survey. Nearly 50 percent of doctors are worried about using all this new technology to handle the flood of new patients that the ACA will bring to them.

“Doctors still care very much about their future, economics of their business, and what healthcare reform is imposing on them,” said Santalo. “They feel ill-equipped to handle the influx of 30 million new patients.”

CareCloud image via Michael O’Donnell/VentureBeat

Healthfundr is an equity-based crowdfunding platform for health startups. The site provides accredited investors with opportunities to invest in a selection of curated companies working on digital health, health IT, and diagnostic and medical devices.

The JOBS Act and the Affordable Care Act are dramatically changing regulations surrounding crowdfunding and healthcare. Crowdfunding has changed the venture capital landscape and startups in all sectors are using this method to raise  funding. The landscape for health investment is also changing. Funding soared for health IT and digital health companies in 2012, while money continued to lag for life sciences and medical device companies.

CEO Jared Iverson is a former securities attorney with experience working for a pharmaceutical company. He founded Healthfundr in response to shifts he observed in both industries.

“The company is rooted in a desire to see more innovation and capital around health and medical innovation,” he said in an interview with VentureBeat. “A lot of capital goes to areas that are easier to understand or have less regulation, and I’d love to see this sector become more mainstream. This is an area that has a huge impact on quality of life.”

Healthfundr is only open to accredited investors. As of today’s launch, it features three vetted companies that are looking to raise capital. Unlike other equity-based crowdfunding sites like TheFundersClub or CircleUp, Healthfundr works with later stage companies that already have traction and are looking to raise larger amounts. Iverson said there is no shortage of seed funding or later stage capital for health companies, but many struggle to receive first rounds of institutional funding. Healthfundr is meant to be a place where companies that have traction in the market can raise growth capital of a few million dollars.

“Health startups often have to overcome regulatory hurdles and require a higher degree of sophistication and more capital from investors,” said Iverson. “One of the unique difficulties is getting investors to follow-on. We want to fill this hole by being selective about the companies we choose so investors feel more confident in their ability to carry out due diligence.”

Healthfundr is a registered broker-dealer and will take a small portion of the capital raise, either in the form of equity or cash compensation. Iverson’s ultimate goal is to become the main hub for health and medical technology deals and drive funding and interest into this space.

The Office of the National Coordinator for Health IT just released its budget plan for 2014, which would increase its $61 million budget to $78 million, a 28 percent jump. But it’s a little-reported line item that’s causing a stir among entrepreneurs — a proposal to boost fees for electronic health record vendors.

The ONC is the division within the U.S. Department of Health and Human Services that leads many initiatives laid out in the Affordable Care Act.

The funding boost in the Obama administration’s proposed budget is a response to the expanding marketplace for health IT. The ONC reports that a new “revenue source” is needed to help it handle the “increasing workload.”

A little-reported line item proposes amped up fees for electronic health record vendors and is a cause for concern for entrepreneurs.

The $1 million user fee “would provide ONC with the necessary resources to meet the increasing demands of health IT vendors,” the plan stipulates. Sources tell me it has a 50 percent chance of being authorized by Congress.

It’s unclear at this point how the ONC would levy the user fee, but it’s plausible that it would be passed down to doctors.

Lauren Fifield, a senior strategist for the free electronic medical record startup Practice Fusion, said the user fee would not be a strain on the industry. The bigger concern is the “high likelihood” that the ONC will use these funds to take on more projects and soon require higher user fee revenues.

Already, EHR vendors are speculating that a user fee charge is the ONC’s way of assuming regulatory authority. “This would be agency creep,” said Fifield, and urged the FDA, FCC and ONC to come together to clarify their roles.

Health IT startups may eventually face charges on revenues akin to the maligned 2.3 percent excise tax on medical devices.

Fifled said this might also create confusion and overregulation for electronic health record developers and entrepreneurs. “The user fee is a slippery slope that could create an even more dysfunctional health IT market,” she said.

Also featured in the 126 pages of program descriptions are several health IT initiatives, including a commitment to examining patient safety, and data security. We’ll be discussing these topics and more at our upcoming HealthBeat conference.

Doctor with electronic health record // Shutterstock

But that might be about to change, according to Jeff Tangney, a serial entrepreneur who founded Epocrates, the medical information company, and is currently running Doximity, a Facebook-style app for doctors that is growing fast, with more than one in six doctors already on the network.

VentureBeat had a chance to chat with Tangney about the future of investment in the medical space.

VentureBeat: We don’t hear all that much about investing in medicine.

Tangney: No, health tech hasn’t even really been recognized as a category until the last 10 years. There wasn’t really too much venture investment in health tech, but that’s changing. With the passing of the Affordable Care Act and the recognition that health care is 18 percent of the U.S. economy … some VCs have started looking in.

VentureBeat: What will national health care do for the space?

Tangney: The first changes of Obamacare haven’t really changed all that much yet – the biggest changes are still coming up. In 2014, the insurance exchanges start at a state level. Until then, there’s a lot of uncertainty … which actually favors the venture community.

The medical community is not quick to change over time – venture community is the only one that can react that fast. For example, we just raised a $17M round a few months ago.

VentureBeat: What’s hard about investing in health care?

Tangney: Well, you see a lot of folks sitting on their hands due to regulation.

For example, it’s illegal for a doctor to send an email about a patient. It’s illegal to send an SMS. And the internet really isn’t used in healthcare. It’s a little like a third-world country … where they’re skipping PCs and going straight to smartphones.

Over time that will change.

VentureBeat: What is working … who’s getting VC in health?

Tangney: ZocDoc, HealthApp and CastLight are doing well. CastLight, which creates a very cool employer portal for lower health care costs, raised $100 million earlier this year.

ZocDoc, with does online scheduling, raised $70 million a few months before that. And PracticeFusion raised $34M round to help usher in electronic health records. We’ve raised $27 million at Doximity … so there’s easily $200 million raised in the last year.

VentureBeat: What do you see in the future?

Tangney: Investors who are focusing on health care are starting to place their bets … as soon as we get out of this regulatory uncertainty, things will start to move.

Most people don’t know it, but Sequoia’s biggest investment ever was in an urgent care center … MedExpress, about two or three years ago. They’re seeing this shift to insurance exchanges, where, instead of someone paying  $3,000 for treatment in a hospital, they’re getting essentially the same service for $1,000 in a small health care facility.

VentureBeat: How does the growing self-quantification movement fit into this?

Tangney: Well, I wear a Jawbone wristband, but the knock on Sand Hill Road is that no-one’s been able to turn it into a big business yet.

The question is: Where’s the cross-the-chasm product?

The hotbed of this is San Diego … QualComm has invested a lot, and West Wireless Institute has  put $500 million into quantification. They’re trying to come up with cool new technology that the U.S. can sell to the rest of the world … to the wealthy well.

I have a Sonos headband too. It’s really ugly, really geeky, and measures your sleep patterns. What I’ve learned is that to get a sleep score of 100, I need to be intimate with my wife first. [laughing]

Those are all cool things, but even Nike hasn’t been able to really crack this market yet.

photo credit: Viktor Hertz via photopin cc

I see four fundamental ways healthcare reform will not just ripple through, but rock the business landscape. Massive growth will likely come from:

1. Deliverers of Wisdom

With ObamaCare, more than 30 million new Americans will be entering the healthcare system. Many are amateurs; rookies to the system. They haven’t had a primary care physician before. They haven’t had a regular dentist.

The Internet is a great equalizer when it comes to accessing information. People turn to Yelp for restaurant reviews, Rotten Tomatoes for movie recommendations.

The influx of new users to the health system – almost a 10 percent increase – will need to know: Who is a good doctor? What do other patients think of him/her? What will this procedure cost me? When can I get an appointment?

These folks are generally lower on the socio-economic scale and younger. Their primary point of access is their mobile devices, rather than their PCs.

Expect to see more developers delivering highly relevant and targeted health apps soon.

2. Mad Men & Publishers

No one says they love their health insurance plan. But then again, most health plans don’t spend money on branding themselves.

Water just came out of a tap until Poland Spring, Dasani & Fiji made people care about getting it bottled and imported. Grocery stores were the unloved place to pick up the week’s produce until Trader Joe’s and Whole Foods created entire food movements. In both cases, new brands were built.

Because of individual mandate, more than 25 million Americans will be buying health insurance on their own. Making their own decisions, rather than getting it through their employers. As a result, health plans will likely spend heavily to become consumer-friendly brands.

Agencies, publishers and media will see sales grow as health insurance companies become clients on their rosters and pump money into the system.

3. Data Crunchers for Evidence Based Medicine

Buy a car, and you’ll get a warranty. Buy from a catalog and get satisfaction guaranteed. But, buy medical help from your provider, and take your chances.

No more.

As hospitals transform into Accountable Care Organizations (ACOs), they’ll be required to essentially guarantee the effectiveness of their services, or face stiff penalties. Already today, the Affordable Care Act mandates that hospitals who readmit a patient in 30 days or less don’t get reimbursed. Incentivizing healthcare to stand behind their services (effectively guaranteeing results) will fundamentally change the way medicine is practiced.

Today, you could see 10 different doctors for the same illness and get 10 different treatment options. The advent of ACOs, however, means that hospitals will need to apply lots of technology and statistics to understand which treatment plans get the best outcome.

Evidence-based medicine is ushering in the need for Big Data and companies that can manage and understand it. There are many opportunities for small businesses to help hospitals synthesize treatment data, track outliers, assess risks, and apply financial analysis to procedures and processes.

4. Healthcare Innovators

Healthcare used to be a sleepy industry. Boring, even. But as the biggest government program of this generation gets started, the entire healthcare industry has been thrown into the spotlight. The conversation has moved off Capitol Hill and has become personal. As it should.

We’re faced today with a nation that is aging, as well as becoming sicker. Diabetes has become an epidemic. Obesity is rampant. Couple that with healthcare costs that will hit more people in the pocket, and it’s clear we will all care more about healthcare than Americans have in the past. And we will all champion companies that can transform a lumbering, expensive and highly inefficient industry into in a lower-cost system that yields better results.

It’s a great time for healthcare innovators, scrappy startups, and dreamers who will revolutionize our system and meet the challenges ahead.

Mitch Rothschild is CEO of doctor-rating site Vitals and co-founder of Vitals’ parent company, MDx Medical. He has started, managed, grown, and (occasionally) sold a number of businesses, including Raspberry Red Marketing, Net-works, Tuff Rhino, Awards.com, RUSS CandyBears, and Time Warner Viewer’s Edge. His specialty is strategic marketing and execution, particularly in early-stage companies. 

[Top image credit: Rob Byron/Shutterstock]