Anne DeGheest on Where the Action is Heading in Healthcare: Delivery, Delivery, Delivery

Xconomy San Francisco — 

Talking with the angel investor Anne DeGheest the other day was humbling. After all, I sweat out long days and nights digging up news and features on what I think often represents the leading edge in healthcare capitalism—new drugs, medical devices, diagnostics, etc.

All that innovation is worthy of attention—she apparently didn’t want to hurt this biotech scribe’s feelings too much—but if you really want to find where the action is heading in healthcare, DeGheest insists it’s in something she likes to call “healthtech.”

What DeGheest is talking about is sort of a catch-all for healthcare delivery technologies that used to be what venture capitalists considered the boring part of healthcare. New drugs and devices represent about 16 percent of the total $2.5 trillion U.S. healthcare market, she says, while the rest of the market is focused on the delivery side of healthcare, like the everyday transactions that happen at hospitals and clinics. Now that President Obama’s healthcare reform effort is the law, and most everyone agrees that healthcare costs need to be somehow corralled, it’s time for a wave of innovative new healthtech companies that are focused on improving care and reducing costs—not adding new costs like with all those innovative drugs and devices.

“Venture capital and entrepreneurship have been focused on drugs and devices for 20 years,” DeGheest says. “I want to look at the other 84 percent of the market. Several forces are coming together at same time, to change the way we practice healthcare in this country, in a way more cost efficient way.”

This idea is still in its pretty early days, but DeGheest is one of the founding Silicon Valley angels in a group that is seeking to define it at something called HealthTech Capital. This is a budding angel group that seeks to bring together people from tech, biotech, and the healthcare delivery system to find scalable business models that can “improve the efficiency of healthcare delivery from the hospital to the home,” as the group says on its website.

Anne DeGheest

DeGheest, a managing partner at Medstars Venture Partners, comes to this effort having founded or advised companies that have raised $500 million in venture capital through her career. The original group at HealthTech Capital includes Don Ross, a board member of Sand Hill Angels, and Kathy LaPorte, a co-founder of New Leaf Ventures.

While “improving efficiency” of healthcare sounds like health IT and electronic medical records, that’s not what HealthTech Capital has in mind, DeGheest says. It’s really about the home. As healthcare gets extended to millions of more people, and the Baby Boomers continue to suffer from expensive chronic ailments as they age, something has to give in healthcare delivery. “Healthcare has to be moved out of the traditional hospital, and emergency rooms,” DeGheest says.

That means healthcare is going to be delivered in the home, via applications that are useful to physicians, nurses, home caregivers, and patients. Companies that figure out how to do this with a mixture of technologies will profit.

It’s not really a new idea to start companies in this field. Piyxs, a San Diego company that DeGheest invested in, was sold to Cardinal Health for more than $900 million in 1996. The concept was to set up medication dispensing machines in hospitals that reduced medication errors, she says.

Most of what people call Health IT today is really about getting electronic record systems that run seamlessly together inside the hospital. Most of that effort involves things the patient never sees, DeGheest says. Healthtech, she says, will involve some of the mobile devices that are everywhere, like the iPhone or iPad, and combine their hardware and software with applications that can monitor patients with chronic health conditions to avoid the most costly interactions with the hospital.

All this, naturally, is much easier said than done. Actually making smart investments in a field like this, which crosses a number of boundaries, relies some heavy-duty networking across disciplines. It requires people who understand the medical aspects of certain diseases, the healthcare reimbursement landscape, enabling technologies in devices like smartphones, and consumer marketing. People from all these walks of life reside in a diverse innovation hub like Silicon Valley, but they don’t often network together, or even know much about each other’s issues, DeGheest says.

Healthtech Capital got started last June, DeGheest says. It has already recruited more than 40 members, and made its first investment. The typical angel group makes five to 10 investments per year, and she notes “we expect to do that, and more.” The group, like the well-known Life Science Angels, allows each member to decide if he or she wants to invest in a given company.

It’s obviously too early to say whether “Healthtech” will catch on as the preferred term for that whole 84 percent of the healthcare system that involves delivery of care, other than drugs and devices. I’m not sure DeGheest convinced me to give up my day job of covering these innovative new products for healthcare. But it will certainly be something to watch, as everyone gets powerful mobile phones that can run apps that can allow medical professionals to keep better track of patients on the go. Biotech evangelist extraordinaire Steve Burrill often likes to say we are moving into a “spit on your BlackBerry” world, referring to one idea for transmitting real-time data on gene expression to your physician.

Silicon Valley, the hotbed of biotech, consumer electronics, and entrepreneurial risk-takers, is one of the very few places with potential to create a “spit on your BlackBerry” kind of healthcare world. DeGheest and her cohorts are betting it will happen sooner rather than later.

“We can change the system and capitalize on a revolution in healthcare. We can’t afford to keep doing what we’re doing,” DeGheest says.

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