Venture capital could help with hospital financials

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Venture capitalists want to funnel money into the healthcare sector lately. Startups in the healthcare sector received a record $3.9 billion during the first quarter of 2015, the Wall Street Journal has reported. That substanially beats the previous record set in the second quarter of last year, when it raised $3.42 billion. Biotech and healthcare services are of particular interest.

But I was a little curious as to whether healthcare finance issues also drive the funding bonanza. I spoke with Brian Murphy, a general partner with NewSpring Capital in Radnor, Pennsylvania. NewSpring has 20 different healthcare companies in its investment portfolio.

The pressing issues of healthcare costs drive investment, according to Murphy. As a result, he zeros in on companies that can bridge the gap between acute and post-acute services.

"We're in this period of time where there is a massive shifting of risk from traditional payers and traditional insurance to putting providers at risk," Murphy said during the exclusive interview. "This transformation of risk is creating immense change in the healthcare market and has made it really interesting in terms of where to invest."

In addition to the risk shift, he said the Affordable Care Act has also changed what venture capital firms look for in terms of how companies may interact with one another.

"It has created an integration of partners that have not been partners, and now you see see competitive providers coming together, different types of providers coming together, and payers coming together with providers in joint enterprises," Murphy said.

Since the ACA is also bringing millions of more Americans into the healthcare system, the business model for what Murphy termed "tried-and-true healthcare" is also changing. "The price you can charge and get paid is compressing (which means) gross margins increase when unit prices decrease," he said. "You therefore have to use human capital and technology to get a different result."

A lot of venture capital funding has been flowing into mobile health technology, but companies that can help the bottom lines of hospitals also get attention.

To that end, NewSpring is invested in several companies that try to address those issues. The two most prominent in terms of operating in the healthcare finance arena are RightCare Solutions and Precyse, both of which are software firms based in Pennsylvania.

RightCare focuses on admissions management, post-discharge planning and avoiding excess readmissions. Murphy noted that the company gives organizations the ability to drill down into the socioeconomic state of each inpatient and help the hospitals plan accordingly.

"They are items as straightforward as where a patient lives, whether they have access to transportation, if they have healthy family members at home," Murphy said, adding that this can help hospital post-discharge staff to plan accordingly.

Precyse focuses on managing hospital information management departments to help speed up the billings and payment of receivables.

Murphy said NewSpring would continue to focus on companies that are "connecting patients to clinical and administrative workflow models." These companies would "help providers from a clinical outcomes standpoint, or help achieve a reduction in administrative costs. Those are the two themes that will be front and center for us." - Ron(@FierceHealth)

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