When looking for the latest investment opportunities in the healthcare arena, one major priority for many investors is information technology, IT.

A National Venture Capital Association recent survey showed that 61% of venture capitalists feel that investments in health IT will increase this year. By contrast, the survey shows that medical devices and biopharma are still less desirable as a health care investment prospect, a position that remained fairly consistent over the past several years as we have written in past blogs. As discussed in a recent article on MedCity News, ‘angel investors’ are also cautious about speculating in the medical device arena. The executive director of the Minnesota Angel Network described the investment outlook for medical devices, “worse than bleak”.

VCs are prospecting in the burgeoning information technology sector. Approximately two-thirds of venture capitalists anticipate an increase in technology initial public offerings this year as compared to 2011; only 18% expect more life science IPOs. During the third quarter of 2011, the number of venture capital life sciences deals decreased to its lowest level in almost three years, reports MoneyTree. Conversely, investment in health care-related IT increased about 20% to $460 million in 2010, according to a report from Dow Jones VentureSource.

Why are investors switching their focus from devices and drugs? Health IT is a hot area, in large part, due to federal and state incentive programs for implementing electronic health records technology (thus, increasing first-time users) and the various ways in which providers can work together to integrate systems (impacting changes in IT vendors and products). Other industry analysts point to cost efficacy; while medical apparatus and pharmaceuticals are seen as cost-increasing, medical IT is viewed as cost-reducing. While normally perceived as an industry asset, IT/cost reduction is a must as we enter the era of increasing government supervision on Medicare and Medicaid spending and integrated delivery systems such as ACOs.

While cutting high overhead costs, health IT is also expected to increase efficiency by improving patient-monitoring, augmenting clinical support for medical personnel and streamlining communication among healthcare providers, patients and payers.