While overall investments in healthcare declined, venture capitalists are increasing their bets on health IT.
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Venture capital investments in medical software and information services increased in the second quarter of 2011 to $198 million, a 27% increase from the $156 million invested during the same period in 2010, according to research from Dow Jones VentureSource. Additionally, second quarter figures reveal that there was a total of 19 deals, which was a 58% increase in deal activity compared to last year.
"Within medical software and information services the two areas that are getting the most attention and financing are clinical decision support and healthcare administration tools," Jessica Canning, global research director for Dow Jones VentureSource, told InformationWeek Healthcare.
Canning said much of the venture capital investments in software and services for healthcare have been driven by the federal government's health IT investments and incentive programs that have accelerated the adoption of health-related technology.
"This is an emerging sector that is getting increasingly exciting. In the second quarter, those healthcare IT deals raised $198 million, which brings the total venture investment so far to $245 million this year," Canning said. "We are looking to be up compared to 2010 when there was only about $486 million in all of 2010 and again up from 2009 when there was venture investments totaling $394 million for that year. The sector as a whole does seem to have some pretty nice traction year over year and is building up."
While health IT investments are gaining ground and proving to be vital to a hospital's goal of achieving greater revenue growth, the Dow Jones figures showed that overall investments in the healthcare sector declined in the second quarter. The numbers, released late last week, revealed that deals for healthcare companies slowed 12% and capital invested dropped 17% as 184 deals raised $2.3 billion in the most recent quarter, versus last year's second quarter figures when 209 deals raised $2.8 billion.
Despite a 25% drop in deal activity and 7% drop in capital invested, the biopharmaceuticals sector raised the most capital of any healthcare sector as 69 deals collected $1 billion. The medical devices sector was essentially flat as 84 deals raised $925 million. The healthcare services sector attracted the least amount of venture investment with 12 deals totaling $126 million.
Find out how health IT leaders are dealing with the industry's pain points, from allowing unfettered patient data access to sharing electronic records. Also in the new, all-digital issue of InformationWeek Healthcare: There needs to be better e-communication between technologists and clinicians. Download the issue now. (Free registration required.)
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