New Technologies Key to Reducing or Averting Crisis in the System in Coming Decade

The partners at ONSET Ventures believe that new medical technologies are crucial for helping to avert a crisis in health care in the U.S., and that in particular, technologies that directly reduce health care costs represent an outstanding opportunity for the venture capital community.

The crisis comes from dramatically rising demands for health care services, rapidly increasing costs, and the inability of the current system – particularly Medicare/Medicaid – to continue to pay these costs at the forecasted future levels.

Although health care has been a darling of U.S. venture capitalists in recent years, with investments hitting a record $9.97 billion in 2007, new investments have been off sharply in the first half of 2008, with a 31% drop year over year, according to a July 19 Dow Jones Venture Capital Report. Moreover, investment in medical devices dropped 25% in the second quarter of 2008, when compared to the same quarter in 2007. ONSET believes that some of its colleagues in the industry may be overlooking a key opportunity.

“According to reports, health care spending in the United States reached $2.3 trillion in 2007, and is forecast to reach $4.2 trillion by 2016 – 20% of GDP,” said Rob Kuhling, managing director at ONSET. “Over the same period, Medicare expenditures will increase faster than salaries and GDP. The Hospital Insurance trust fund, which at the end of 2007 stood at $326 billion, is being increasingly eaten away by revenue shortfalls, such that it is expected to be bankrupt in slightly over ten years.”

Simplistically, Kuhling said, there are two non-exclusive approaches to solving this crisis – increase funding to the programs, and/or decrease the cost of and need for services and procedures. Funding discussions Kuhling and his partners will happily leave to the legislators, but decreasing costs – there is an opportunity for innovation and investment, he said.

“Anything you can do to shorten the stay in a hospital, reduce complications, manage chronic disease more effectively, shave time off of high-volume procedures, or change care settings from a high-cost to a low cost environment, you have the opportunity to reduce the financial demand on the health care system,” added Leslie Bottorff, managing director at ONSET.