Laila Keith
Investing in hospitals is a risky business. While it's encouraging to see so many entrepreneurs dedicating themselves to the health sector, venture investing is inherently risky. Hospitals have to be careful not to take too much risk, but being too conservative is also not a good strategy. Cash is precious for hospitals, even the most renowned, especially in an age of declining insurance reimbursements, deep uncertainty about public health care policy, and a changing payment structure that will require hospitals to assume financial risk for patient care.
| Characteristics | Values |
|---|---|
| Risk profile | Different from aggressive investors willing to take big gambles |
| Cash | Precious, especially with declining insurance reimbursements and uncertainty about public health care policy |
| Venture investing | Inherently risky, with a high failure rate |
| Venture capital | A new gold rush, bringing opportunity and risk |
| Health care start-ups | Risky, with a high chance of failure |
| Financial risk | Could affect credit rating |
What You'll Learn
Hospitals are not go-go investors, they are conservative with their investments
Hospital venture funds can lower standalone financial risk by investing strategic capital in the form of experience, know-how, data and intellectual property. This can play a more meaningful role than venture capital alone in improving the health care system.
However, venture investing is inherently risky, with about three of every four venture-funded start-ups failing to return their investors' capital, according to a Harvard Business School analysis. In addition, a study by Accenture found that just over half of nearly 900 digital health start-ups were "zombie start-ups, at risk to die".
While hospitals must be careful not to take too much risk, being too conservative is also not a good strategy. Health systems must watch to make sure that their financial risk does not affect their credit rating.
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Venture investing is inherently risky
Hospitals are not go-go investors on the hunt for high-risk, high-return opportunities. Cash is precious for hospitals, even the most renowned, especially in an age of declining insurance reimbursements, deep uncertainty about public health care policy, and a changing payment structure that will require hospitals to assume financial risk for patient care. Hospitals must be careful not to take too much risk, but being too conservative is also not a good strategy.
However, hospital venture funds can significantly lower standalone financial risk and boost their chances of success by investing strategic capital in the form of experience, know-how, data and intellectual property. This can play a more meaningful role than venture capital alone in improving the healthcare system.
In the first half of 2017, more than $6 billion was committed to health care start-ups, according to Startup Health Insights. Large hospitals, including those that are publicly traded, now routinely have venture funds that are investing millions in early-stage technology, fuelling fledgling businesses they hope will advance care and also turn a nice profit.
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Hospitals are facing a changing payment structure
Hospitals are not go-go investors, and their risk profile is very different from that of aggressive investors. They cannot afford to take big gambles, and so they must be conservative with their investments. However, being too conservative is also not a good strategy, as core operation revenue is challenged. Hospitals must strike a balance between taking risks and being cautious to ensure their financial risk does not affect their credit rating.
Venture investing is inherently risky, with a high failure rate, and this is no different in the healthcare industry. Most health care start-ups are going to fail, even with financial backers and good ideas. However, venture capitalists, along with hospitals and health care systems, are still investing millions in early-stage health tech companies, in the hopes of advancing care and turning a profit.
Hospital venture funds can lower financial risk and boost their chances of success by investing strategic capital in the form of experience, know-how, data and intellectual property. These investments can play a meaningful role in improving the healthcare system.
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Venture capitalists are ploughing money into health care start-ups
However, venture investing is inherently risky business. According to a Harvard Business School analysis, about three of every four venture-funded start-ups fail to return their investors' capital. There's no reason to believe the failure rate is lower in health care than any other industry. Accenture studied nearly 900 digital health start-ups and found just over half were "zombie start-ups, at risk to die".
Hospitals have to be careful not to take too much risk, but being too conservative is also not a good strategy. Cash is precious for hospitals, even the most renowned, especially in an age of declining insurance reimbursements, deep uncertainty about public health care policy, and a changing payment structure that will require hospitals to assume financial risk for patient care. Hospital venture funds can significantly lower standalone financial risk and boost their chances of success by investing strategic capital in the form of experience, know-how, data and intellectual property.
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Hospitals are investing in health care start-ups
Hospitals are investing in healthcare start-ups, but they are not go-go investors on the hunt for high-risk, high-return opportunities. Cash is precious for hospitals, especially in an age of declining insurance reimbursements, deep uncertainty about public healthcare policy, and a changing payment structure that will require hospitals to assume financial risk for patient care.
Venture investing is inherently risky business. According to a Harvard Business School analysis, about three of every four venture-funded start-ups fail to return their investors' capital. While it's encouraging to see so many entrepreneurs dedicating themselves to the health sector, most healthcare start-ups are going to fail, even with financial backers and good ideas.
However, hospital venture funds can significantly lower standalone financial risk and boost their chances of success by investing strategic capital in the form of experience, know-how, data and intellectual property. This can play a more meaningful role than venture capital alone in improving the healthcare system.
Recognising the need to make healthcare more accessible, efficient and affordable, venture capitalists, along with hospitals and health care systems, are ploughing money and resources into health care start-ups, particularly companies focused on health tech. More than $6 billion was committed during the first half of 2017, according to Startup Health Insights.
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Frequently asked questions
Hospitals are not go-go investors, and their risk profile is drastically different from that of aggressive investors. Cash is precious for hospitals, especially in an age of declining insurance reimbursements, deep uncertainty about public health care policy, and a changing payment structure that will require hospitals to assume financial risk for patient care.
Venture investing is inherently risky business. About three of every four venture-funded start-ups fail to return their investors’ capital, and there’s no reason to believe the failure rate is lower in health care than any other industry.
Health tech is a relatively new industry, and as such, it is difficult to predict its future. While large hospitals are now routinely investing millions in early-stage technology, there is no guarantee that these fledgling businesses will advance care or turn a profit.
Hospitals that are publicly traded are subject to the volatility of the stock market. This means that their share prices can fluctuate significantly, and they may be more vulnerable to economic downturns or changes in the regulatory environment.
