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Hospital-Backed Venture Fund Bets on Incentive to Fuel Innovation

Philip Betbeze, for HealthLeaders Media, January 28, 2011

Venture capital has lost a little bit of its swagger from the wild Internet speculation frenzy that fueled such unforgettable dot-com disasters as Webvan (a home deliverer of groceries), and Pets.com. But apparently, not in healthcare, which positively screams for innovation.

Apparently, some health systems don't feel like they can do that effectively in-house, as several have seeded venture capital startups through funds set up to innovate healthcare delivery.

Most recently (in fact, this week) a group of for-profit and nonprofit hospital chains joined forces to form a strategic venture fund called Heritage Healthcare Innovation Fund LP. To borrow a line from Bill Murray's character in Ghostbusters, what's next? Human sacrifice? Dogs and cats living together? Mass hysteria?

Community Health Systems, Vanguard Health Systems, and Lifepoint Hospitals, all based right here in my backyard in the Nashville area, will join two other nonprofit health systems in investing $10 million each to fund startup or early-stage companies focused on healthcare innovation. Is it strange? A little. Is it a good idea? Probably.

They're not the first to do this, after all.

I wrote a story a couple of years ago about a similar fund owned and managed by the nation's largest Catholic nonprofit health systems, Ascension Health. Ascension not only funded the group, but the group of former Wall Streeters even opened and staffed an office at the St. Louis-based system's headquarters to fund innovative healthcare companies.

Now called Ascension Health Ventures, the fund dwarfs the new $50 million fund announced earlier this week, and it should. It's been around a long time, and has an impressive portfolio of companies you may have heard of, including Accretive Health, a revenue cycle management company; Augmenix, a medical device company; and Emageon, a now-Nasdaq-listed archiving and workflow software company. In fact, they started the whole thing about the time of the implosion of those dot-com companies—in 2001.

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