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By Michael Greeley

June 15, 2003 | So there I was, passing the first medics' tent at Mile 4 as I lumbered through the Boston Marathon, and a strange thought crossed my mind: "If I were to collapse, the Boston Athletic Association would know much more about me than would any doctor or nurse stationed in that tent." I had a microchip tied to my laces wirelessly tracking my progress, and the BAA could provide reams of data to the race organizers if they were to come upon me crumpled by the side of the road. But they wouldn't be able to provide any medical or health data.

I was struck by the paradox that presented, but I also recognized enormous venture opportunities. The Holy Grail for healthcare providers is to be able to access and manipulate data from different sources in different environments. The reasons for the struggle to achieve this goal have been reported on in great detail: conflicting standards, inadequate IT infrastructure, privacy concerns, and so on. Arguably, though, conditions have changed, and as the healthcare marketplace moves from being heterogeneous to more homogeneous, the prospects for new products and services will improve.

HIPAA has mandated transaction-level standardization, which will allow previously disconnected organizations to share data. Health Level 7 is forcing a certain level of standardization in the laboratory. These developments are pushing labs, billing offices, hospitals, and insurance companies, which were previously disconnected environments, to become networked to each other. As we move to a more integrated environment, venture capitalists should begin to see companies developing applications that will drive greater utility of the data created and optimize infrastructure investments and business processes.

According to Don Pettini, chief technology officer of PrivaSource, a supplier of infrastructure solutions to ensure privacy of multisource medical information, "Hospitals seem to be investing in system upgrades and infrastructure again." Indeed, a recent Forrester Research report cited a 9.4 percent increase in hospital IT spending in 2003. The report attributes most of this stepped-up spending to efforts to standardize data for compliance and privacy issues, as well as healthcare provider connectivity. This is not to suggest that venture investors foresee the immediate arrival of the vaunted paperless environment, but that they see real IT budgets addressing these concerns and that enough "white spaces" exist for new companies to develop products that address pain points in the healthcare delivery system.

No Investment in Data 
Many industry analysts estimate that less than 5 percent of all patient data today is in a digital format, and that patient-centric data will continue to be stored in silos for a very long time. Pettini points out, "Data are of much poorer quality than one might expect, even when you walk into the most technically advanced healthcare provider."

While there seems to be an emerging consensus that much more data will be captured and stored electronically, archived data may never be converted to digital form. In fact, Forrester Research points out that in 2003 only 18 percent of hospital IT executives surveyed expect to make investments in content management, which is down from 39 percent in 2002. Their spending seems to be shifting to business intelligence and connectivity.

Healthcare is being industrialized. With standards and better data capture, presumably the effectiveness of healthcare may improve. Venture capitalists are witnessing a number of new vendors of process analytics tools that identify the fundamental metrics for productivity analysis, which will perpetuate the necessary protocols and best practices.

At this point, issues of connectivity become critical. The datacom marketplace is crowded with service providers operating along many different geographies of the wireless spectrum. Many argue that there is a glut of wireless carrier capacity. A number of vertical solutions providers offer customized systems for the healthcare sector, spanning everything from devices that capture patient data to devices that dispense medicine.

Many venture investors have tended to shy away from vertical applications unless they addressed enormous end-user markets; we like "platform technologies." Additionally, some venture investors avoid opportunities that are either predicated on new hardware device development or involve the successful deployment of devices before software solutions can be sold. The current environment, though, has caused some investors to rethink original suppositions around those business models.

Keith McNally, CEO of Ameranth Wireless, a Microsoft-backed provider of wireless integrated systems, points out that the needs in healthcare are so extraordinary that providers have to incorporate new technologies into their services. He highlights that "40,000 to 50,000 people are assumed to die each year from healthcare delivery failures in dosing and administering drugs." Pettini at PrivaSource estimates that "half to two-thirds of all patients at some point receive unnecessary care." Both executives agree that the introduction of IT solutions into the healthcare delivery system will reduce errors, improve efficacy, lower delivery costs, and ultimately make healthcare available to more people.

As I crossed the marathon finish line after 26.2 miles, I recalled my childhood hero Lee Majors and the famous line from "The Six Million Dollar Man": "Gentlemen, we can rebuild him. We have the technology."

Michael A. Greeley is the managing general partner of IDG Ventures, a global family of venture capital funds operating in North America, Europe, and Asia, with approximately $600 million under management. He can be reached at 

Many venture investors have tended to shy away from vertical applications.

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