The healthcare industry has been notoriously slow at identifying methods and tools it needs to reduce costs and improve quality noted a report by healthcare investment firm the Psilos Group, but health reform is producing promising opportunities for investors to fuel needed innovations.

The Patient Protection and Affordable Care Act has spurred “an incredibly fertile time for healthcare investing,” according to the report, “2013 Outlook on Healthcare Economics and Innovation,” released April 17. It is the healthcare investment firm’s fifth annual report. 

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The healthcare industry has been notoriously slow at identifying methods and tools it needs to reduce costs and improve quality noted a report by healthcare investment firm the Psilos Group, but health reform is producing promising opportunities for investors to fuel needed innovations.

“The PPACA, catalyzed further by a stressed economy, is driving strong demand for innovation that will lead to a more cost-effective healthcare system,” said Al Waxman, co-founder and senior managing member of Psilos Group. “These drivers provide an excellent opportunity for healthcare investors to invest in innovative companies which have products that meet that demand.”

The report identified private health exchanges, consumer-focused insurance programs, health IT and innovations that reduce error and waste as areas of particular interest to investors.

While the creation of public healthcare insurance exchanges or marketplaces will support millions of Americans entering the insurance market in 2014, much of the action will take place in the private sector, the report noted. A number of employers will choose to leave group health insurance plans and place their employees in private exchanges to lower costs and provide them with employer-funded subsidies.  

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Besides providing consumer choice and perhaps a higher level of service, private health exchanges “will answer more directly to the employer,” the report said. Private exchanges often have more decision-support tools and personalized help for customers than the public exchanges.

“In particular, Psilos envisions massive opportunities for technologies that enable operators of both public and private exchanges to build high functioning platforms, including the shopping software and back‐end administrative technology and service products needed to serve tens of millions of people efficiently,” said Steve Krupa, co‐founder and managing member of Psilos, in a news release about the report.

Insurers competing for consumer dollars will be driven to provide the lowest-cost, highest-value products to individuals. Like consumer-focused brands, they will need to differentiate their products with innovative features that add value and service quality, according to the report. Products and services that help insurers build brand loyalty, such as incorporating consumer-friendly interfaces and tools, are a promising investment area.

The next wave of healthcare plan innovation will center on value-based healthcare plans that financially reward consumers for managing their health, especially around diabetes prevention, blood pressure control and medication compliance, and focus on wellness in order to produce cost savings.

Technology startups that can help providers transform from models based on volume to those that pay for value and efficiency, such as accountable care organizations, and companies that help consumers manage and track their health finances will be well-positioned to capitalize on health reform.

“Now is the time to make order out of chaos and to set the stage for a next-generation healthcare system that effectively services our nation,” the report concluded.