St. Joseph Health creates institute to foster innovation

December 1, 2013


In health care, there's a lot of talk about collaborating to improve patient care and lower costs. But a hospital, where lives hinge on decisions made, or a physician practice, busy with day-to-day patient needs, often aren't the best environments for the creative thinking that propels advancements in health care technology or the delivery of care.

The Innovation Institute, launched in January and based in La Palma, Calif., provides a place where physicians, health system employees, and in time perhaps even patients, can submit concepts and product ideas to improve the quality of care, increase access, reduce costs and promote wellness. The most promising ideas and inventions will be incubated, analyzed to see if there's a market for their sale, and, if so, commercialized to improve health care. Institute leaders aren't focusing on a particular area of medical care, rather they're looking for innovation in everything from medical devices to pharmaceuticals to information technology advances or improved work processes.

The institute, an independent, for-profit business, has been structured to be owned by seven nonprofit health systems. St. Joseph Health, the $6 billion nonprofit Catholic system based in Irvine, Calif., is the founding member. In October, Bon Secours Health System, a $3.4 billion nonprofit Catholic system based in Marriottsville, Md., became the second member owner. The Innovation Institute President and Chief Executive Joseph Randolph said he has long been passionate about health care innovation, but in the past when physicians or health care staffers approached him with an idea, he didn't feel he had a place to direct them. Now, he does. "There's so much excitement. I feel like I'm working at a toy store, selling toys to kids."

Randolph was St. Joseph Health's chief financial officer for 10 years and its chief operating officer for five years, before taking on the leadership position at the institute. He said St. Joseph Health President and Chief Executive Deborah Proctor asked him to come up with a model to encourage innovation about two years ago.

Cleveland Clinic Innovations' Chief Innovation Officer Dr. Thomas Graham, left, at The Innovation Institute lab site in Newport Beach, Calif., with President and Chief Executive of St. Joseph Health Deborah Proctor and The Innovation Institute President and Chief Executive Joe Randolph.


Randolph said his research showed that many health systems had a chief innovation officer or department to support new technology, medical advances, work processes or other ways of transforming care. But much of his research done before the creation of The Innovation Institute suggested a separate organization, distinct from day-to-day health system operations, would best promote an environment to support innovation. The Innovation Institute provides a collaborative platform where health system member owners can work together on innovation.

Randolph said, "We wanted it to be self-sustaining and not be set up like a research division where we'd come back at the end of every year and say here's what we've accomplished, we need additional funding." The plan is that when systems invest, they'll reap rewards from their investments and not have to provide more funding, he explained.

Generating funds while generating ideas
The institute is made up of three elements: the Innovation Lab, where ideas and inventions will be developed into product prototypes and tested for "proof of concept"; the Growth Fund, a venture capital fund that will invest in existing companies that have innovative health care products or the potential for them; and the Enterprise Development Group, made up of companies that sell services needed by health systems from equipment maintenance to managing construction projects.

There are currently three companies in the Enterprise Development Group, described by institute leadership as "the economic engine" to sustain the effort in the early years: Tech Knowledge Associates, a clinical engineering company to maintain and repair hospital equipment; Petra Integrated Construction Strategies, a construction management and strategic master plan firm; and one acquired business, Health Care Design and Construction, a construction company. The Innovation Institute has controlling interest in companies in the Enterprise Development Group, but not always 100 percent ownership. The institute projects a $3 million profit for the current fiscal year, driven primarily from the Enterprise Development Group, Randolph explained.

St. Joseph Health provided about $40 million cash toward the effort and additionally contributed Tech Knowledge
Associates and Petra. Bon Secours is making an investment valued at about $10 million. The Growth Fund, with capital from outside investors, will start with $10 million in seed funding once the first four health systems are officially part of the institute, with plans to increase the fund to about $200 million, said Innovation Institute leadership. It's too early to identify fund investors, but Randolph said investment could come from pension and investment funds, insurance companies or health systems. Outside investors in the fund will get a return from the fund when the portfolio is sold, while the institute will receive fees for managing the fund and a return for the initial $10 million the institute provided to begin the fund.

About the lab
So just how will The Innovation Institute cultivate innovation?

A physician or health care employee can fill out an online disclosure form, akin to providing a short business plan, about his or her idea. Initially, the institute will focus on member systems but it does plan to accept outside ideas, in time. A team in California will work with the inventor to assess the idea and its potential, possibly provide some funding to further develop the concept and determine how it can be built in a way to scale it rapidly. Related patents will normally be retained by the health system where the employee or physician works, though there may be instances in which a physician will hold a patent, Randolph said.

The Innovation Institute has reached a strategic alliance agreement with the Cleveland Clinic, becoming a member of the Cleveland Clinic's health care innovation program. Cleveland Clinic Innovations has 12 years of experience in developing intellectual property, filing hundreds of active licenses and assisting with dozens of start-up companies. Larry Stofko, The Innovation Institute's executive vice president and chief technology officer, said the institute will tap into the expertise of dozens of people at the Cleveland Clinic who can assess the marketability of an invention, conduct patent research and assist with taking a device to market. The institute will pay the Cleveland Clinic for services, then recoup its costs out of revenues derived from inventions. Cleveland Clinic Innovations is "allowed to share in the upside with the inventor, with The Innovation Institute and with the health system" where the idea originated, he said.

If an idea moves forward, the inventor gets 40 percent of royalties or profits, his or her health system gets 20 percent, and 40 percent goes to the Innovation Lab. The Cleveland Clinic will receive a portion of the Innovation Lab's proceeds.

Leadership with The Innovation Institute said it's too early to provide a lot of specifics about what inventors have proposed since January, but Stofko said many of the innovations relate to health information technology, including wearables, or electronic devices that can provide continuous monitoring of a patient or promote medication adherence; new applications for handheld devices; multimedia training and documentation systems.

A lab space is under construction in Newport Beach, Calif., where Innovation Institute leadership will bring together people across disciplines to brainstorm and to talk about health care issues and how to resolve them. The lab also will be underwritten by companies seeking to showcase their inventions and technologies, and, in time, be a spot where innovation from the institute can be demonstrated, leadership said.

The Innovation Institute is open to faith-based and secular nonprofit systems. It will abide by the Ethical and Religious Directives for Catholic Health Care Services, Randolph said. The institute will include a nonprofit foundation where donors can give to support innovative solutions in underserved communities. The foundation will support health care innovation in communities where institute owner health systems have a presence.


Copyright © 2013 by the Catholic Health Association of the United States
For reprint permission, contact Betty Crosby or call (314) 253-3477.

Copyright © 2013 by the Catholic Health Association of the United States

For reprint permission, contact Betty Crosby or call (314) 253-3490.