Beyond ROI: 3 Approaches to Health System Innovation

Hospital innovation leaders share ways they are changing healthcare from inside their systems.

As Apple, Amazon, and Google dive into healthcare with notions to transform the industry from the outside, many health systems and hospitals are designing their own innovations to do exactly the same thing from inside the system. These healthcare organizations have created their own incubators, investment companies, and labs to develop and nurture ideas and solutions.

The innovations these engines spawn help improve healthcare, and also sometimes result in for-profit ventures and companies that produce a significant return on investment. As the industry moves toward value-based care, these endeavors can create new revenue streams.

Yet, unlike typical investment firms, these innovation centers are interested in more than making money. They want to improve the healthcare system, starting with their own, And, because they serve as living labs to test these ventures, they offer innovators advantages that cannot be replicated elsewhere in the investment community.

Here's a look at three different approaches to innovation from some of the leaders in the field:  

1. UPMC: Insurance Revenues Bolster Innovation

Established in 2014, UPMC Enterprises, the innovation and commercialization arm of UPMC in Pittsburgh, operates ahead of the curve. It is widely regarded as one of the most successful such ventures in the country.

In the 1990s the medical center launched an insurance division to bolster the institution's research mission through insurance revenues. Today, about $10 billion from that source is combined with $10 billion from clinical revenues to support the organization's academic mission.

UPMC's model is relatively unusual. The insurance business makes "our risk tolerance much different than any other nonprofit hospital system," says Tal Heppenstall, president of UPMC Enterprises and executive vice president and treasurer of UPMC.

"When you look at an integrated delivery and financing system," he continues, "it is the ultimate expression of value-based care because the insurer and the provider are the same entity. You are incented without doubt to provide the best care for the patient at the lowest cost. The ability for us to make these investments to keep people away from our hospitals is one that every hospital must have, but it's really hard to figure out how you do it."

Vivify Health, one of UPMC Enterprises' ventures, demonstrates how this dynamic comes into play. The startup created a remote patient monitoring platform focused on population health solutions to keep people out of emergency rooms.

By launching the initiative, "We are not cutting our own revenue streams," says Heppenstall, "because as the insurer—which we are for about a third of our patients—we actually have the dollar already [through the premium payment]. The incentives are completely aligned, which is very unique in the healthcare industry."

Over 20 years the institution has invested over $700 million in about 80 different ventures that have returned over $800 million to its balance sheet. Fewer than 20 of the investments "worked really, really well," says Heppenstall, "but most of them didn't work out nearly as well as we had hoped."

"You have to be willing to accept risk, and you have to be willing to accept failure," says Heppenstall. "Some of the stuff that you're going to try isn't going to work."

Yet sometimes it does, and the payoff can be enormous. Take Arlington, Virginia-based Evolent Health, for instance, which helps physicians and hospitals create population health programs and their own insurance operations. Its June 2015 IPO had a valuation of $1 billion. UPMC Enterprises experienced a $300 million return on its investment of $38 million. 

2. Summation Health: Combine the Power of Two Health Systems

When MemorialCare Health System, a nonprofit health system in California, decided to amp up its innovation investment program, it didn't look far; it partnered with another California nonprofit healthcare system.

In 2014 Summation Health Ventures of Long Beach, California, was founded as a joint venture between MemorialCare and Cedars-Sinai in Los Angeles, a nonprofit academic healthcare organization. The strategic healthcare investment fund aims to accelerate entrepreneurial solutions for the healthcare systems. It already has propelled the growth of more than a dozen startups.

"Adding another healthcare system as a partner in our strategic investment activity offered substantial value to the process," Barry Arbuckle, PhD, president and CEO of MemorialCare. The entity gained an additional perspective on opportunities, the ability to work with more companies, and access to additional talent.

Venture capital firms operating in the healthcare innovation space have one primary focus: ROI. Summation takes a different approach.

"Our first priority is not a return on investment," says Arbuckle. "Our real interest is determining whether a product has the potential to improve the healthcare value equation. Our choices are based on whether we believe it can help reduce costs or improve clinical outcomes or, obviously, both. Hopefully, we will make a competitive return on our financial investment as well."

There are additional advantages to innovators.

"When startup companies come to us for funding," says Arbuckle, "they get something that the big funding houses and angel investors can't deliver in ways that we can." That includes an inside perspective from their target market of hospitals and physicians, plus hands-on collaboration.

Some recent startups that Summation successfully launched include:

• Aventura, an awareness technology for clinical desktop security, was acquired by Philips Healthcare in April 2017
   
• Advance Practice Strategies (APS), an education platform for medical professionals, was acquired by Relias Learning in April 2017
   
• Pristine, which creates smart glasses applications for the workforce, was acquired by Upskill in May 2017

Among the companies Summation is currently shepherding through its pipeline: Gauss Surgical, Prescient Surgical, and Silversheet.

3. Mass General: Tap the Brain Trust Within

How do you tap into the brain power within your health system to innovate? The Healthcare Transformation Lab (HTL) at Massachusetts General Hospital has found multiple ways.

The HTL is one of many innovation arms at Mass General, a 999-bed facility in Boston, which consistently ranks among the top five hospitals in the United States by U.S. News & World Report.

While other entities at the institution focus on the commercialization of solutions similar to UPMC and Summation, the lab's mission is to improve the experience and value of healthcare through collaborative innovation inside the organization. Rather than imposing solutions on physicians and frontline personnel, it turns to them for ideas.

"We want to empower clinicians to feel like agents of change and less like helpless recipients," says Julianne Soriano, HTL senior operations manager.

The HTL is the brainchild of Eric Isselbacher, MD, MHCDS, a cardiologist who serves as the founder and director of the four-year-old enterprise. It includes five operational staff members, interns, and two residents participating in a one-year fellowship program.

HTL worked with Harvard Business School to design a solution that would create a culture of positive change. The result is the Ether Dome Challenge, one of the primary ways the organization generates ideas for transformation.

The contest invites anyone who works in the system to submit ideas. Hospital leadership and contest participants select winners through an online voting system; HTL provides funding to bring their ideas to fruition.

Successes have included development of a cost-labeling system in the cardiac cath lab to guide staff members to make cost-effective choices; a solution to improve care coordination for patients with multidisciplinary needs; and development of algorithms to better match specialists to patients.

Engaging physicians in this manner has an added benefit, says Soriano. Some practitioners are leaving clinical practice to work with entrepreneurial and consulting firms. Working with the HTL, she says, enables them to continue their clinical practice, "the reason they went into medicine."

Learn More

Leaders on the vanguard of change will share their approaches at NEXT Hospital Innovation, October 7‒9, 2018, in Dallas, cohosted by HealthLeaders and Baylor Scott & White Health. Eleven organizations will showcase how they brought applications and tools to market along with their insights. Featured institutions include: Atrium Health,  Baylor Scott & White Health, Intermountain Healthcare, LifeBridge Health, Massachusetts General Hospital, Mount Sinai Health System, Northwell Health, Parkland Health & Hospital System, Providence St. Joseph Health, Summation Health Ventures (a partnership between MemorialCare and Cedars-Sinai), and UPMC.