Physician-entrepreneur David Brailer, the former head of HHS' Office of the National Coordinator for Health Information Technology and current head of a venture capital firm, Health Evolution Partners, San Francisco, outlined his investment strategy for the young company at the 20th annual Bear Stearns healthcare investment conference today in New York.
In June, Brailer announced the venture capital firm had signed a $700 million investment deal backed by the California Public Employees Retirement System, or CalPERS, and would make bets on healthcare service companies and other venture capital firms.
In a telephone interview Sept. 6, Brailer said $500 million will be allocated to making investments in the $10 million to $80 million range to acquire both majority and, in some cases, minority interests in what he called "growth and late-stage investments." Targets will not so much be technology companies, per se, but companies that make innovative use of technology as a tool to improve healthcare organizations, he said.
"Our focus is not at all in IT companies," he said. "I'm into information services." Companies will be scored using what Brailer described as a "health value index," an attempt to identify and rank companies that will most likely survive and thrive in the coming healthcare market. "It's not that they have to show that they can save money, but they have to show they get more out of current expenditures," Brailer said. In addition, target companies must have products or services that will lead to the improvement of healthcare quality and have a "pro-consumer orientation," he said.
"This is a healthcare equivalent of carbon scoring," Brailer said. "We're going to metricize a concept. This is a leading indicator of who is going to survive in the future healthcare wars."
The strategy is not predicated on a future reduction in healthcare spending, but in the prediction that cost-containment will be relentless.
"I think it's fair to say our portfolio goes from a good performer to an outstanding performer if there is cost pressure on the industry," he said. "Healthcare spending can keep going up. I don't think it's going to stop, but the bet in this fund is that ... companies that can demonstrate they will do better for their money will succeed. I think those forces that push down on controlling costs will get stronger and stronger all the time."
The remaining $200 million will be invested in four to six other venture capital firms to develop an investment syndicate that will provide more hands-on top management involvement with smaller investments in startups or "very early revenue" companies.
"These early stage companies are very demanding of time, and a lot of the investment companies don't have the time to do that," he said. By collaborating with other venture capital firms, Brailer said the group should be able to leverage its resources and provide these fledgling companies with the attention and support they need.
Brailer said he would not be announcing investments in any specific companies today, but said his firm is negotiating with several prospects.
"I'm very mindful that the first investments we make will be signature stuff in terms of validating our strategy," Brailer said.
In a June interview, Brailer said he had started building his venture capital company in November 2006. Meanwhile, CalPERS, which provides healthcare benefits to 1.2 million active and retired state and local government employees in California and is estimated to spend $4.9 billion this year on healthcare, was looking at how it could use some of its $235 billion investment portfolio to lower its own healthcare costs. Consultant McKinsey & Co. suggested a venture capital fund, and then Brailer's firm and CalPERS joined forces.
Brailer founded and ran a healthcare data analysis company, CareScience, which was sold in 2003 to Quovadx. He became President Bushs appointment to head the newly created ONCHIT in 2004. Brailer stepped down as head of ONCHIT last summer, but continued to serve as co-chairman of the American Health Information Community, a healthcare IT advisory panel set up by HHS Secretary Mike Leavitt. Brailer stepped down as AHIC co-chairman in June after the CalPERS deal was announced.
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