According to PricewaterhouseCoopers health care prices are likely to rise 8% in 2011 and 8.5% next year. So much for ObamaCare bending the cost curve. Cost cutting will likely be left to employers, as they attempt to offer insurance to workers without going broke.

Venture capitalist Stephen Krupa sees opportunity in this mess. His New York City firm, Psilos, manages $580 million in funds that invest exclusively in health care IT, device and services companies. "Our sole focus is to fight health inflation," says the former Wasserstein Perella banker. "If you look at the CBO projections and take them seriously, which is hard to do, there is a tail-off in inflation underlying the models. How can you make that assumption? There have to be technological breakthroughs."

Krupa's portfolio of private companies chips away at costs, each in a different way--by offering a medical device at a lower price, a technology that makes buying insurance or measuring risk more efficient, or a service that pushes delivery away from acute care and toward prevention. His biggest hit has been ActiveHealth Management, a company that uses analytical software to help insurers get ahead of expensive diseases. Aetna ( AET - news - people ) bought it for $400 million in 2005, returning seven times Krupa's investment. Last year UnitedHealth ( UNH - news - people ) bought another Psilos company, called QualityMetric, a patient-surveying firm that measures drug efficacy. Krupa says he earned a 500% return on the deal.

Right now Krupa is pushing the cost-cutting angle with several other new investments. SeeChange, a small insurer in California, discounts premiums based on how much preventive care a patient gets. Gamma Medica has developed a new kind of camera that scans dense breast tissue for tumors; the scan costs a third of an MRI. It's already in use at hospitals like Mayo Clinic. ExtendHealth brokers health care and pension plans for retirees. It's gearing up for the new health exchanges that open in 2014.

It's more difficult to find serious inflation-fighting companies among publicly traded stocks. Big device companies like Medtronic ( MDT - news - people), Johnson & Johnson ( JNJ - news - people) and Boston Scientific ( BSX - news - people ) sell expensive products that fuel the cost surge. Meanwhile, many HMOs have abdicated the role of managing spending and are turning into commoditized claims-paying utilities.

Krupa sees a few exceptions. On the insurance side Aetna and UnitedHealth seem the most committed to becoming clinically oriented--that means using data-mining technology to identify expensive patients and then deploying preventive clinical programs to keep them out of the hospital. Krupa also believes that the insurance companies that gain market share will be the ones that embrace "value-based design"--in which you pay for health outcomes and not just for procedures and office visits. Both United and Aetna are piloting such projects.

As for the IT side? "This is not an industry where the technology departments have been innovators," says Krupa. An exception is Allscripts, the Chicago software company that specializes in digitizing records at doctors' offices. Allscripts sells the database of records and the interface for the doctor and has an open-source approach to applications running on its platform.

Among device companies, Krupa recommends the women's health company Hologic ( HOLX - news - people ). Like Gamma, Hologic is pioneering an imaging technology called tomosynthesis for patients who need more than a mammogram but don't want to pay $1,000 for an MRI. Another Krupa pick is NxStage, a home-dialysis technology firm that's disrupting dialysis centers like DaVita ( DVA - news - people ) and Fresenius.

#### Riding The health Cost Curve

Despite Obamacare's claims, health care inflation is a sure thing. Here are stocks that should benefit.
Company | Recent price | 2011 Est P/E | market value ($MIL)
Aetna | $43.79 | 10 | $16,618
Allscripts Healthcare Solutions | 20.02 | 22 | 3,808
Hologic | 20.64 | 17 | 5,395
NxStage Medical | 18.01 | NA | 978
UnitedHealth Group | 49.39 | 12 | 53,511
Prices as of June 2. NA: Not available. Source: Interactive Data and Thomson Reuters IBES via FactSet Research Systems.