The healthcare IT sector is witnessing a slow but steady revival in venture capital funding, specifically for companies offering enterprise software to healthcare providers and payers. After a dip during the fourth quarter of 2022, which witnessed a meager $451.3 million raised, fundraising efforts rebounded in the second quarter of this year. According to a report by Pitchbook, healthcare IT companies managed to secure $1 billion in funding during this period, only slightly lower than the $1.3 billion raised in the first quarter.
One significant contributor to the increasing investment in health IT is the gradual recovery of health systems’ financial stability. Hospitals experienced their worst financial year in decades in 2021, but recent months have seen a decline in staff turnover and inflation. As of July, the hospital operating margin remained at 1.3%, continuing its positive trend for the fifth consecutive month. With some breathing room, healthcare leaders are now eager to enhance efficiency by investing in innovative technologies.
An unsurprising focus for these investments is generative artificial intelligence (AI). The report highlights that more than a quarter of the recorded deal value in the healthcare IT sector during the second quarter was directed towards companies offering generative AI products. One notable example is Hippocratic AI, which secured a substantial $50 million seed round in May. The startup, touting itself as the first large language model specifically designed for healthcare, proceeded to raise an additional $15 million in July. Another significant deal involved Hyro, a conversational AI platform provider that raised $20 million in a Series B round. Hyro’s platform is leveraged by esteemed healthcare providers like Intermountain Healthcare, Mercy Health, and Novant Health, among others.
Despite the buzz surrounding generative AI, the industry remains cautious about deploying this technology for critical clinical functions requiring medical discretion, such as clinical decision support or prior authorization review. Currently, the focus of generative AI implementation is primarily on how it can enhance providers’ efficiency, capacity, job satisfaction, and ultimately improve patient experiences.
Apart from the excitement surrounding generative AI, regulatory and reimbursement trends also influence healthcare IT investments. In recent years, the Centers for Medicare and Medicaid Services (CMS) has introduced new codes for remote patient monitoring and expanded the range of practitioners allowed to provide this care. Consequently, startups specializing in remote patient monitoring are gaining increased attention and funding. HealthSnap, a platform for chronic care virtual management and remote patient monitoring, secured $9.1 million in a Series A round in May. Additionally, Optimize Health obtained $6 million in a Series B funding round for its remote patient monitoring and care coordination platform focused on the ambulatory market.
The report suggests that commercial payers, followed by CMS, are likely to reduce reimbursement for remote patient monitoring programs that fail to demonstrate their ability to improve patient outcomes. In light of this, startups operating in the remote patient monitoring space are advised to prioritize the generation of actionable insights through seamless user experiences.
As venture capital funding continues to flow back into the healthcare IT sector, it is evident that a renewed focus on technological advancements is gaining traction. With the potential to revolutionize healthcare processes and outcomes, the industry is poised for further innovation and growth.
Market Capital Research 