Medical Technology Is Losing Share Of Venture Investments by Bruce Japsen
Medical technology continues to lose ground when it comes to all U.S. venture capital investment as value-based care takes hold of the healthcare system and the industry fights to get rid of a device tax, a new report indicates.
The share of medical technology venture deals dropped to just 4% of total deals last year compared to the industry’s 13% share 25 years ago, according to the analysisby the Deloitte Center for Health Solutions and The Advanced Medical Technology Association (AdvaMed).
“This report lays out in stark terms the challenges facing not only medtech startups, but the entire ecosystem that supports innovation in our industry,” Ashley Wittorf, executive director of AdvaMed Accel, said in a statement accompanying the report, which was released at AdvaMed's annual Medtech Conference.
There were 420 medical technology venture deals in 2016 out of more than 10,000 total venture deals , Deloitte said. That compares to 1992, when Deloitte says there were 98 “medtech venture deals” compared to 762 total venture deals.
The Deloitte analysis indicates the medical technology space hasn’t really recovered from the so-called “Great Recession” of a decade ago when the economic downturn contributed to a reduction in all venture capital funding.
What's more, medical technology companies had been paying a 2.3% medical device tax on sales under the Affordable Care Act until a two-year moratorium began in January 2016. Before the device tax was put on hiatus, the IRS collected between $1 billion and $2 billion a year in 2013, 2014 and 2015.
Meanwhile, medical technology companies say sales of their products have been hit hard from increased consolidation among providers of medical care that are under pressure to buy medical devices and related technology that produces good outcomes, making sure care is delivered at the right place, at the right time and in the right amount.
This move away from fee-for-service medicine to value-based models means insurance companies don't always pay for the medical device a doctor wants to use. Purchasing of devices at large multi-hospital systems has shifted from doctors to “hospital purchasing committees,” authors of the Deloitte report said.
“The trend of investment in medical technology is concerning, but the burgeoning investments in digital health point to an opportunity,” Glenn Snyder, a principal with Deloitte Consulting and the firm’s medical technology practice leader said in an interview.
Given the fast growth in the digital health space, Snyder sees an opportunity for medical device companies to attract move venture capital investment.
“As we look forward, medtech products of all kinds have digital health elements embedded into them,” Snyder said. “Inherently, digital health solutions are more solution-based, while a lot of people think of traditional medtech products as a product and not a solution. Increasingly, medtech products have a digital health component and they have the ability to measure outcomes.”
Whether medical technology companies can develop products that improve outcomes and measure them will be key, since health insurance companies like UnitedHealth Group, Aetna, Cigna and Anthem are making more than half of their payments to doctors and hospitals via value-based models that reward performance and quality of care delivered to patients.
New devices with a digital health component “have the ability to measure outcomes,” Snyder said. “Everybody has a role to improve the health of the ecosystem.”