How hospital VC leaders are handling a cooled-down funding market

After a hot healthcare venture capital market over the last couple of years, healthcare companies' funding has dissipated.

"We are seeing a continued reversion to what I like to say is the historical norm level of funding. In 2020, 2021, and even the first half of 2022, there were super hot markets," Bradley Bennett, senior director of venture partnerships and funding at Evanston, Ill.-based NorthShore University HealthSystem, told Becker's. "We are seeing that dramatically right size."

The demand for virtual care during the COVID-19 pandemic saw a dramatic increase in venture-backed digital health companies. 

Adam Hunke, principal at Phoenix-based Banner Health's venture group, said he sees "tighter budgets and increased scrutiny on new and existing vendors post the digital tools boom from March 2020 to January 2022."

After bringing in $2.5 billion in the second quarter, 2023 is on track to be the lowest funding year for digital health since 2019.

Despite the slump in digital health venture funding, healthcare venture leaders say they still expect large disruptors to wade into primary care and value-based care.

"Innovative provider models that take on risk have seen a significant amount of investment in 2023. Recent large acquisitions such as Oak Street/CVS and Amedisys/Optum show the willingness of incumbents to write large checks in this space," said Andrew Lozier, head of new ventures and business incubation at Columbus-based OhioHealth. "Also, bringing care into the home typically requires a risk-based model in order to achieve financial success.

"Companies with in-home services who take on risk continue to emerge and gain traction. At OhioHealth, we have built partnerships with innovators that have unique models and take on risk." 

"We were the first hospital system to create a joint venture with ChenMed in order to provide care to underserved populations. Most recently, we created a joint venture with Privia to support our independent physicians and launched a partnership with Devoted Health in the Medicare Advantage space."

Medicare services worth $265 billion are expected to move toward home healthcare by 2025. So far, disruptors like CVS and Optum have spent $17 billion to capture that market.

Beyond the home health market, other value-based care disruptors have been able to rake in hauls in a difficult funding environment. In June, Aledade, a network of value-based primary care practices, raised $260 million in series F financing.

Even with the downturn in the digital health market, hospital VC leaders told Becker's they are still targeting innovative new technologies such as AI and data democratization.

"Data democratization has been an emerging healthcare investment trend. Patients no longer have to be within the four walls of a hospital to record certain biomarkers such as brain waves or level of congestion for chronic heart failure patients," said Liridon Rrushaj, director of venture investing at Peoria, Ill.-based OSF HealthCare.

"I believe this trend will continue and will expand across more biomarkers and lead to improved quality of life for patients who no longer have to spend countless hours in the emergency department or in observation."


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