Healthcare’s “Perfect Storm” (David Jones, Jr.)

Our U.S. healthcare system is in desperate need of solutions. I’m sure you’re aware that healthcare is a huge ($2.7 trillion) and growing (at 3x inflation) part of the U.S. economy, which is increasingly contributing to the country’s ongoing fiscal crisis. We already spend more per capita than anyone else in the world, often on new “bugs and drugs” that are much more expensive but don’t create a correspondingly healthier population; I call this our “sick care” system. Without change, the combined effects of increasing costs, an aging population, epidemic obesity and provider shortages will bring the system to the breaking point.

As a long-time healthcare investor, I’m glad to report that now, more than ever, many causes are combining to create a “perfect storm” of disruptive change and leading to an attractive investment climate. First, healthcare reform legislation has significant structural impact, with new features such as administrative cost caps, new pay-for-performance models, healthcare insurance purchasing exchanges and information technology mandates. These features create a deep need for innovative services and technology solutions that reduce costs, focus on outcomes, and improve coordination and productivity for all participants.

Second, other secular trends in healthcare and technology are converging to create opportunities. The rapidly declining cost of genetic testing is creating a new market for information and analytics services. The increasing share of healthcare costs borne by the consumer (by one estimate, growing from $200 billion today to $500 billion by 2015) calls for the development of health literacy, shopping support and spend management tools helping the consumer navigate what has traditionally been a business-to-business marketplace. And the explosive proliferation of information both as the industry continues to digitize and as more parties continue to create, organize, manage and synthesize all this data will cause a significant boom in innovative healthcare IT companies.

All of this takes place against the backdrop of broader technology change, bringing mobile devices into the hands of more and more physicians, allowing consumers to communicate in new ways and navigate intelligently through a world awash in information.

As a result, this “perfect storm” is creating a huge wave of innovative companies that are advancing change inside the traditional healthcare system and increasingly helping deliver health and wellness outside the confines of a doctor’s office. Born of innovative technology and services models, these companies are revolutionizing how healthcare is planned, delivered, evaluated and paid for.

Here at Chrysalis Ventures, our nearly two decades of healthcare services and technology focus gives us a front-row seat to the rapid changes going on in the industry. In 2011, we invested in two companies that are great examples of new and innovative approaches to healthcare, adding to our portfolio of great companies.

We look forward to working with you in 2012 and beyond.