How the Affordable Care Act Affects Investor Mandates

10 Dec

By Lucy Parkinson, Director of Research, LSN

The Affordable Care Act (ACA), passed in 2010, has had a profound impact on the US healthcare industry; its provisions have been implemented gradually, and investors in the life science sector have been paying close attention to its impact in their search for new opportunities. The ACA has been particularly impactful in healthcare IT investment, and we have also seen some effects in medical technology. As LSN’s research staff continue to converse with investors, several have spoken about this trend in depth. Here are a few effects of the ACA that our investor dialogues have brought to light.

Investors Find Opportunities in ACA Incentives

The ACA provides financial incentives and penalties for care providers to meet certain care quality goals. Some investors are therefore seeking technologies that will help care providers achieve these ACA-defined goals, as these technologies have the potential to be rapidly adopted by care providers seeking to meet ACA targets and avoid penalties.

For example, since 2012 hospitals have been penalized by a reduction in Medicare payments if they have high readmission rates. Some investors are therefore focused on services that can prevent readmission, such as data-driven care management platforms that will identify patients that need more support after being discharged from hospitals and connect those patients with services outside the hospital setting. Hospital safety is another area in which the ACA has created incentives, and some investors are focused on technologies that improve surgical safety or address hospital-acquired infections.

Investor Relationships with Hospitals Matter

As the aforementioned ACA incentives focus significantly on hospitals, investors with an eye to the ACA are typically seeking to invest in products that will be used in a hospital setting, or which focus on hospitals as their customer market. Several investors have focused on building relationships with hospitals or hospital networks; the investors can tap these relationships to help them assess deals, or to drive adoption of a product in which they’ve invested. Hospital consolidation is a significant trend within healthcare, and this consolidation often leads to hospitals becoming more powerful as customers, with the potential to drive rapid adoption of a product if it offers them better value than the status quo. In addition to building their own relationships with hospitals, investors will also consider whether a company is well positioned for working with hospital networks as customers and what existing relationships the companies have formed with major hospitals.

Insurance Companies Making Venture Investments

The health insurance industry is rapidly changing and consolidating in the new environment. An ACA feature called the Medical Loss Ratio compels insurers to spend 80-85% of premiums on providing care or improving the quality of care; as investing in new technologies can be classed as quality improvement spending, several insurance companies are now getting hands-on about investing in new healthcare technologies that can be deployed throughout their networks. Some insurers have become LPs in venture capital funds, whereas others have launched their own corporate VC arms. Consistently, LSN has found that these entities are primarily focused on healthcare IT and healthcare service opportunities that align with the ACA incentives; in many cases, the insurer may become investor and customer, and can use their internal resources to assess the value of a new product or service.

If your company’s technology aligns with one of the incentives outlined in the ACA, it’s definitely an angle that’s worth emphasizing in your pitch to investors, as many have a specific interest in investing in helping care providers meet their ACA goals. ACA implementation is changing many aspects of the healthcare industry, and a savvy CEO will position their company favorably in the new landscape.

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