How 15 leading pharmacy services companies are riding the health IT gold rush

How many times have we heard it said that one day in America there will be a nationwide health information network that will link patients, providers and payers seamlessly, efficiently and securely, across a universal standardized system? It’s been the dream of health information technology strategists and engineers for decades. And yet, when you take a look at the healthcare experience of the typical American consumer, you’d be hard-pressed to find evidence that we are any closer to achieving that dream today than we were in the days of the Carter administration.

Fortunately, what most American consumers are experiencing on the surface of the system is not an accurate reflection of the changes taking place at its core — changes that finally and genuinely can be characterized as revolutionary, not just evolutionary. 

While most would agree that the U.S. healthcare system has a long way to go before anyone, anywhere should start claiming victory, the current generation of changes — spurred on most notably by provisions set forth in the American Recovery and Reinvestment Act of 2009, as well as in the Patient Protection and Affordable Care Act of 2010 — are anything but the shallow platitudes of the past.

Together, these two acts of Congress — despite what one thinks of their overall effect on the healthcare system — have created the funding mechanisms for the infusion of tens of billions of public dollars, through grants and incentives, into the health IT sector. This, in turn, has attracted hundreds of millions in venture capital investments, and together they have turned health IT into one of the standout success stories in an otherwise listless economy.

According to Dow Jones VentureSource, healthcare services in particular have seen the strongest growth, with 54 healthcare services companies raising more than $1.2 billion in private investment in 2010, more than triple the capital raised by this sector in the previous 12 months. There’s good reason for this sudden rush of activity, too. Not only is health IT at the crossroads of two of the fastest-growing, most important global industries, but much of the money tied to the influx of government grants and incentives — which represents the lion’s share of the overall dollars being invested in health IT — will be paid out over the next fives years, with the largest amounts being paid out in 2011 and 2012, in line with the time lines spelled out in the PPACA and ARRA.

In addition to strictly defined time lines, the healthcare-reform acts that are driving change in today’s market are doing so because they draw very clear distinctions about the areas of IT innovation the healthcare sector needs most, including secure infrastructure, electronic data exchange and electronic health records, to name just a few.

But the ARRA goes one step further; it identifies actual technologies — including a particularly heavy emphasis on e-prescribing — that physicians and providers must employ in order to demonstrate that their adoption of electronic records and networks is not a one-time passive investment. In short, before doling out billions in HIT grants, the government built in a proof-of-use clause to the ARRA (known as the “Meaningful Use” incentive) to ensure providers are both building and using new technologies.

The effect that this meaningful use clause has had on the pharmacy sector cannot be overstated. It has thrust e-prescribing into the forefront of health IT and has served as a galvanizing event for just about every company throughout the pharmacy services sector. Today, there are quite literally hundreds of companies vying for a piece of this market — many driven by the lure of the federal stimulus package. And, collectively, they are starting to move the needle. According to the National Progress Report on E-Prescribing and Interoperable Healthcare, the percentage of electronic prescriptions has risen in the United States from 4% in 2008 to more than 25% at the end of 2010.

But federal dollars aren’t the only attraction in town — not by a long shot. The momentum in health IT has garnered serious attention from the private sector, too. Take Morgenthaler, a venture capital firm in Menlo Park, Calif. This past summer it held a nationwide contest to find the most promising health IT start-ups looking for seed and Series-A funding. By the time it was ready to announce its finalists, the Morgenthaler contest alone — a relatively small, invitation-only venue — had reviewed 117 candidates, each with its own application or service for a Web, mobile, social media or cloud-based solution designed to transform our healthcare system.

Now multiply the Morgenthaler example by the hundreds of like-minded initiatives taking place across the country, from private contests to state-run RFPs, and it’s easy to see how health IT has moved to the forefront of innovation. It’s no wonder Morgenthaler called health IT “as sexy an (investment) sector as social media and games.”

From sexy to utilitarian, the innovators and innovations driving health IT — particularly pharmacy services — are anything but ordinary. Whether they have 25 years of experience in pharmacy services or 25 weeks, they’re all driven by the same objective of creating a technology solution to help bring the industry to its long-held goal of creating an efficient and secure network that seamlessly will link patients, providers and payers.

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