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Hospital-Backed Venture Fund Bets on Incentive to Fuel Innovation

Philip Betbeze, for HealthLeaders Media, January 28, 2011

Joining the three for-profits in the Heritage startup will be nonprofits Iowa Health System and Trinity Health of Novi, MI. Both are big, successful players and are seeking to take advantage of the significant dollars available to companies that can help hospitals become safer, more efficient, and more innovative.

When you think beyond the immediate incongruity of nonprofit hospitals investing directly in for-profit companies, this kind of investment vehicle makes perfect sense. Nearly all nonprofit hospitals and systems have an investment portfolio to smooth out the financial highs and lows inherent in a business that depends on as much as 50% government reimbursement (which often doesn't even cover the cost of the treatment provided).

Those hospitals and systems have wide latitude to invest that big pot of money as they see fit. And as Ascension CEO Anthony Tersigni suggested when we talked about Ascension Health Ventures a couple of years ago, it makes a lot more sense than buying a basket of stocks or a fund of funds filled with companies unrelated to healthcare.

"Why shouldn't we take a portion of our investment portfolio and invest in companies that not only will give us an investment return but also the potential to transform the healthcare industry and significantly enhance quality patient care?" Tersigni said back in 2008.

Why indeed?

Philip Betbeze is senior leadership editor with HealthLeaders Media.
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