As venture capitalists, ministry systems shape health products

December 1, 2014

By JULIE MINDA

Across the U.S., inventors and entrepreneurs are creating products and services that could transform the way health care providers deliver care and help providers adapt to the rapidly changing health care environment.


A past recipient of Ascension Ventures funding is Stereotaxis, which offers this remote magnetic navigation system. The system consists of two magnets that pivot around the patient table to drive the movement of a heart catheter. A compatible X-ray system is also used to guide the procedure.

Traditionally, health care providers and hospital companies have had limited ability to shape the development of health care products and services; but some in the ministry now are gaining sway, by operating their own venture capital funds.

In evaluating investment opportunities for venture capital dollars, "we are taking a look at where we think there is lots of opportunity for innovation — we're mainly looking at the Triple Aim and where we can add value and improve the customer service aspect of health care," said Aaron Martin, senior vice president of strategy and innovation for Providence Health & Services of Renton, Wash. The Triple Aim, developed by the Institute for Healthcare Improvement, has to do with the threefold goal of enhancing patients' experiences, improving population health and reducing the per-capita cost of care.

Providence is among the Catholic health systems that have launched their own venture capital funds in order to exert some measure of influence over the design and speed at which promising health care products and services are brought to market. Other systems with venture capital funds include St. Louis-based Ascension; Englewood, Colo.-based Catholic Health Initiatives; San Francisco-based Dignity Health; and Irvine, Calif.-based St. Joseph Health.

Providence's Martin; Matt Hermann, senior managing director of Ascension's Ascension Ventures; and Nick Barto, CHI senior vice president of capital finance and managing director of CHI's venture capital fund, spoke with Catholic Health World about their systems' respective approaches to venture funds. All said their organizations bring valuable health care experience to the table, identifying market opportunities and providing feedback for entrepreneurs and designers fine-tuning products and services.

Pioneer
A trailblazer in this model is Ascension, which began Ascension Ventures in 2001 and has since raised three venture capital funds &mdash the first involved Ascension only; and subsequent funds have included limited partners. Currently, Ascension Ventures has $550 million in assets under management. It has six limited partners, including Trinity Health of Livonia, Mich.; CHI; Dignity Health; and Chesterfield, Mo.-based Mercy; Intermountain Healthcare of Salt Lake City and Illinois' Decatur Memorial Hospital.

Ascension Ventures' team of eight investment professionals researches about 300 potential deals annually and moves about 15 percent to 20 percent of those to the next phase of pre-investment research, which is to "socialize the concept within our limited partner base to find out what folks think," said Hermann.

Martin
Martin
Barto
Barto
Hermann
Hermann

Once Ascension Ventures decides to invest in a company — it will invest up to $15 million per company, usually as part of an investment syndicate — it will normally gain board representation so it can be actively involved in guiding the company's direction and product development. Hermann said limited partner facilities may pilot the products or services that drew their interest as ventures investor; some facilities may be early customers.

Hermann noted that while, over time, Ascension Ventures has changed the weighting of its investments to favor health care IT and services, the fund's strategy has remained constant. That strategy is "to leverage the limited partner health systems to make better investments and to connect companies to our partners, and to help our partners through early exposure to innovative solutions." He noted that Ascension and the limited partners have experienced "healthy" returns from their investments. Nearly 50 companies have received funding from Ascension Ventures, including health care services, health care information technology and medical device companies. Several have had public stock offerings.

Support services
CHI launched its venture capital fund in 2012 and now has investments in five companies and $100 million under management — the venture money is part of CHI's $11 billion investment program, which Barto also manages. The venture fund invests in companies that provide corporate support services primarily to health care companies, including services related to revenue cycle, supply chain, information technology, clinical equipment and supplies and population health strategies. Fund recipients include MedSynergies, which provides consulting around physician alignment and revenue cycle functions; Carena, which helps companies deploy virtual care services; and Excelera, which helps companies develop integrated specialty pharmacy services. As with Ascension Ventures, CHI connects its fund recipients to CHI staff to exchange information.

Staff at CHI's Pharmacy Plus
Staff at CHI’s Pharmacy Plus specialty pharmacy in Louisville, Ky., answer a transplant patient’s questions about a specialty medication. The employees are, clockwise from left, Elizabeth Strange, pharmacy technician; Kathy Anderson, specialty pharmacy technician manager; and Roshaun Allen, medication coordinator. The pharmacy uses support services from Excelera Corp., a national specialty pharmacy network funded in part by CHI’s venture capital fund.

In addition to venture capital, CHI also seeks later-stage private investment opportunities in companies with viable products, according to Barto, who works with a staff of three.

He noted that while the venture capital fund is generating returns for CHI, the focus of the effort is not just on the returns, but on how CHI's investments can further the system's strategic priorities. These priorities include using technology to reach more patients and to manage their care, aligning well with physicians, keeping health care costs down and serving increasing numbers of patients as more people gain coverage under health care reform. "We try to be flexible and strategic in creating value both for CHI and for the companies, small and large, that we're investing in," said Barto.

Building a portfolio
Providence launched its Providence Ventures in September and plans to invest $150 million in young companies from early start-ups to companies that have viable products and early customers. Companies involved with online primary care access, care coordination and patient engagement, chronic disease management, clinician experience, data analytics and consumer health and wellness services will receive funding, according to a Providence press release. Initial fund recipients have not yet been announced.

Martin, who was recruited from Amazon's self-publishing and print-on-demand units and who now has a team of four, said Providence Ventures will seek out investments in companies with the potential to make the clinician and patient roles easier. Fund recipients could be involved in such areas as online scheduling of patient appointments, electronic medical records and wearable medical technology.

Martin said Providence plans to connect fund recipients with its network of providers, including to pilot technologies and services. "The actual capital dollars (invested as venture capital) are a commodity. Having a team closer to the providers that can give input — that team is the scarce piece." He said companies seeking early round funding "are eager to work with us because of the access we can provide to clinicians. … we have 74,000 people at Providence who can say when they're interested in (a product or service) and if it's useful. Our clinicians have a great instinct for the practical, and so we can offer this dimension" to entrepreneurs developing products and services.

Mission aspect
Barto, Hermann and Martin said a key benefit of the venture investments is an opportunity to ensure products and services are developed in line with the Catholic health mission to care for the poor and vulnerable.

Hermann noted that Ascension Ventures screens potential fund recipients for their dedication to underserved people, for instance by asking entrepreneurs about their volunteerism and philanthropy. Also, Ascension Ventures vets prospective portfolio companies with an ethicist's input.

Barto noted that the CHI team ensures applicants adhere to CHI's Catholic health mission and values.

And, Martin said Providence's venture capital team is "constantly thinking" about how technologies such as virtual physician visits can serve the poor and vulnerable by making it easier to access care. "A single mom working an hourly job is more at risk financially by having to take a half day off to take her child to the clinic," as compared to a salaried mother at a company that allows sick time to be used for doctor visits.

"Lack of accessible services hurts the poor rather than upper-income people," said Martin.

 

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