Value-Based Healthtech Companies Draw New Financing.

"Companies seeking to steer the health system toward value-based care are capturing significant venture funding despite the complexity of this approach to medical services and a tepid startup financing market.

Conventional fee-for-service healthcare pays doctors for providing services. 

Newer, value-based payment models tie payments to quality and outcomes, a system designed to align incentives among doctors, patients and insurers. Venture-backed companies are delivering care through value-based structures or selling software to help doctors and insurers operate under this format.

Several value-based companies have closed venture rounds of $100 million or more this year, including Main Street Health, which raised $315 million to serve rural healthcare practices; Aledade, a network of independent primary-care practices that picked up $260 million; and kidney-care startup Strive Health, which collected $166 million.

This year, 1% of healthtech financings have been $100 million or more, down from 4% in 2022 and 8% in 2021, according to Silicon Valley Bank, which says half of this year's megadeals in healthtech have been in value-based care companies.

Value-based care companies are drawing interest even as the financing market cools. U.S. and European healthtech startups -- which sell tech-enabled healthcare products or services -- raised $8.15 billion in venture capital through Aug. 1, which is behind last year's pace, when these companies collected $23.07 billion for the full year, according to SVB.

"In general, we believe that value-based care is the way to go," said Annie Lamont, a managing partner at venture firm Oak HC/FT, a Main Street investor.

Value-based care companies often require significant funding to gain market share.

That raises questions about how many of today's startups will be able to raise the capital needed to survive as large sustainable businesses. Many investors are willing to tackle the complexities of value-based models as more doctors and insurers view it as a solution to lowering costs while improving patients' health.

Investors are responding to a push by health insurers to explore value-based care models. Medicare, for example, aims to move all fee-for-service beneficiaries onto value-based care by 2030.

Venture-backed companies early last decade pioneered value-based care models in primary care, a giant market, said Julie Ebert, managing director, life science and healthcare banking for SVB. They include Oak Street Health, which formed in 2012 to provide care for older Americans. CVS Health acquired the company in May in a $10.6 billion deal.

The success of these companies is contributing to momentum in the market now, including the formation of startups that tailor their services to specific patient populations, such as people with kidney disease, she added.

"Companies are finally starting to make money," Ebert said.

Nashville, Tenn.-based Main Street Health strikes deals with rural primary-care practices to help them operate under value-based structures. To do so, it negotiates agreements with health insurers who cover patients in physician practices.

Generally, one challenge to value-based care is that companies need to accumulate a sufficient volume of patients to show that their model is effective, said Marissa Moore, an investor with venture investor Omers Ventures. To do that, they must capture a large portion of the market, which requires a significant amount of time and money and people, she said." [2]

 

1.  "What are value-based care companies? Value-Based Care (VBC) is a health care delivery model under which providers — hospitals, labs, doctors, nurses and others — are paid based on the health outcomes of their patients and the quality of services rendered. Under some value-based contracts, providers share in financial risk with health insurance companies."  

2. Business News: Value-Based Healthtech Companies Draw New Financing. Gormley, Brian.  Wall Street Journal, Eastern edition; New York, N.Y.. 13 Oct 2023: B.3.