VCs and entrepreneurs LOVE big markets. Big markets are so engrained in the startup culture, that it’s become standard practice for a founder’s pitch deck to include some reference and mathematical justification for a (at least) one billion dollar market they will disrupt. But rarely (to maybe never) do we hear of a trillion dollar market opportunity . . . that is, until now.
Today, BVP released our “Healthcare Valuescape” which profiles companies that are driving the $1 Trillion transformation of the healthcare industry. We believe the shift to a Fee-For-Value healthcare system will drive one of the largest entrepreneurial and wealth creation opportunities of our time.
Click here to see an infographic detailing the companies leading the sector: http://www.bvp.com/healthcare/valuescape
One of the main tenets of healthcare reform has been to better align payment/reimbursement schemes to incent healthcare providers for achieving improved outcomes and lower cost. Historically, insurance companies (including Medicare) have made separate payments to providers for each of the individual services they provide to patients for a single illness, visit or course of treatment. This payment system is called “Fee-For-Service” (FFS) and incentivizes quantity over quality as a doctor gets paid more when she/he provides more services.
However, this traditional FFS payment model is experiencing massive disruption due to healthcare reform. The Patient Protection and Affordable Care Act (PPACA) advances new reimbursement models which incent doctors on the quality and cost of a patient episode rather than the quantity of services provided. This new system is called Fee-For-Value (FFV).
In a FFV system, providers take on financial risk for their patients, meaning that providers share in the burden of a poor outcome and the upside of more efficient and higher quality care. Since PPACA was enacted five years ago, nearly 20% of all healthcare payments are value-based. Healthcare industry experts expect this to increase to 75% or more by the year 2020. By our account, that’s easily a Trillion Dollar value shift that will take place in the next 5-10 years. That’s not just a big but a massive market opportunity for entrepreneurs and venture capitalists to pursue.
We at BVP are obviously bullish on this trend and have already invested in a number of businesses that are leading this movement, including Welltok, ClearCare, Health Essentials, and Capsule to name a few. We aren’t the only ones who have recognized this opportunity but, as one of the more active investors in the healthcare space, we wanted to highlight this increasingly important sector of entrepreneurial activity.
By our count, ~$4.5 billion of private equity dollars have been invested in companies capitalizing on the shift. Within the FFV ecosystem, three segments standout as driving the creation of new companies and capturing the attention of investors: 1) consumer tools, 2) new risk-bearing provider models, and 3) telemedicine. Interest in these areas should come as no surprise. In the new value-based world, consumer engagement and technologies that lower the cost of care become critically important to healthcare providers.
There are more than 175 companies listed on the Valuescape and the top ten in terms of VC/PE investment are:
- Brighton Health
- Castlight (pre-IPO)
- Alignment Health
- American Well
- Evolent (pre-IPO)
- Remedy Partners
Four companies on the “BVP Healthcare Valuescape” (Evolent, Teladoc, Castlight, and Everyday Health) have gone public in the past two years. Given the massive trillion dollar opportunity, we expect many more IPOs to come from this list in the years to come.