Each of those years saw a huge step up from 2013, when venture capital investment reached $2.1 billion; $1.2 billion was invested in 2012, Mercom reports.

What’s fueling the boom is the shift from fee-for-service reimbursement to value-based payments that put providers and insurers at some risk for the cost and quality of care.

Hospitals and physician groups began seriously hunting for software tools and data analytics around 2010. They needed new approaches that would allow them to improve their management of groups of patients and step up the clinical efficacy and productivity of their employed doctors and clinicians.

The investment surge coincided with passage of the Affordable Care Act, which brought the healthcare industry to the realization that value-based reimbursement was inevitable. Providers recognized they needed to step up their innovation efforts. “It created this energy and movement,” said Matt Hermann, senior managing director of Ascension Ventures, the enterprise arm of 141-hospital Ascension.

Ascension was one of the first hospital systems to plunge into the venture capital game by setting up a dedicated fund and putting in place an organization with managers skilled at the art of investing in healthcare startups and technology.

Since founding its venture capital division in 2001, Ascension—with contributed capital from other not-for-profit health systems representing 500 hospitals—has raised $800 million and invested in 57 healthcare companies, Hermann said.

Ascension Ventures raised $255 million in its fourth fund in December. It almost immediately put a chunk of that capital to work in January by investing $20 million in Reputation.com, an online reputation management company that helps businesses respond to what customers are saying about them on social networks and review sites.

With healthcare consumerism on the rise and more Medicare pay pegged to patient satisfaction, hospitals and physicians are paying attention to reviews.

In fact, the 1,200-physician Henry Ford Medical Group in Detroit is changing compensation next year for its primary-care doctors so that 50% of pay will be pegged to how many consumers choose a particular doctor as their primary-care physician, rather than have the bulk of compensation based on throughput and the difficulty of care.

That will put a premium on how good those doctors look online as patients seek a primary-care doctor for their primary access to the system, group CEO Dr. William Conway said.

Until the ACA, most health systems were satisfied with occasionally investing in homegrown companies that helped them solve a problem, Hermann said. Now, the investment criteria have changed.

Hospital-sponsored venture funds still need a return on investment. And they are still looking to address specific problems. But, Hermann said, sophisticated funds today are choosing emerging technology companies whose products and services can be scaled across large systems, with management that can execute a growth strategy.

Alongside traditional venture capital funds in hotbeds such as New York and San Francisco, there have sprung up dozens of hospital-sponsored funds that not only want a return but the ability to get first crack at technology that the hospitals can widely deploy.

Modern Healthcare