As the U.S. population ages, the long-term opportunity to meet its healthcare needs will grow. Scale Venture Partners targets healthcare companies that aim to seize this opportunity by developing innovative solutions that improve health outcomes for patients while addressing the drivers of rising healthcare costs for the U.S. government.
 

ScaleVP Strategy

ScaleVP believes that companies that focus on treatment of the most expensive patients in the least expensive manner can “change the game” in the U.S. healthcare industry. That’s why we invest in startups that develop cost-innovative, primarily out-of-hospital solutions using multiple business models. Our preferred categories include healthcare services, healthcare information technology, biotechnology and medical devices.
 

Mounting Cost Pressures

Over the next 10 years, the size of the U.S. healthcare industry will double – from $2 trillion to $4 trillion. That’s because the share of the U.S. population over 65 will grow from 12 percent to 16 percent during this period. This age group spends more than four times as much on healthcare as the rest of the population. Unfortunately, these trends together will outweigh even the most aggressive cost-reform efforts.

Of course, this trend will significantly increase the U.S. government’s obligations under Medicare, Medicaid and SCHIP. These programs already cost more than $800 billion annually – representing 33 percent of U.S. government receipts. In addition, the present value of the unfunded Medicare shortfall is $34 trillion, which is more than twice our current national debt. As these obligations rise and shortfalls grow, so will the premium on care solutions that deliver the same or better outcomes to patients at lower costs to providers.
 

Market Inefficiencies

In this new environment, ScaleVP believes that cost-innovative solutions that target market inefficiencies will beat those that don’t. In this sense, the opportunity for entrepreneurs in the healthcare sector is enormous, given that significant inefficiencies exist:

• 50 percent of the $2.2 trillion healthcare spend takes place in hospitals, which are the most expensive cost-setting alternative
• 70 percent of healthcare costs are caused by chronic disease
• 50 percent of healthcare dollars are spent in the last two years of life
• 44 percent of Medicare dollars are spent on 5 percent of the patients