Northwell's Tom Thornton shares insights on health system ventures.
Health system innovation investment arms are a relatively new phenomenon. A few have deep experience in this arena, most large systems are actively engaged in ventures, and many more are exploring the advantages.
Northwell Ventures was launched in 2013 to advance medical technology and promote the development of Northwell Health enterprises by investing in novel ideas and business models across the healthcare landscape. Its mission is to generate attractive returns, build profitable companies that drive quality health outcomes, increase operating efficiency, lower the overall costs of healthcare, and improve the patient experience.
I spoke with Thomas Thornton, senior vice president and executive director of Northwell Ventures, who joined the health system five years ago from Cleveland Clinic to launch Northwell's investment arm. He shares perspectives about the processes Northwell employs and predicts that alignment of investments between health systems is the next big trend. Following is a recap of our discussion, lightly edited for clarity and space.
HealthLeaders: How is Northwell Ventures structured?
Tom Thornton: We are a five-person team. We are not structured as a fund; we invest from a $50,000,000 allocation of capital, so we are investing off our balance sheet. We make investments only in areas that are important to Northwell's growth to effectively advance the Triple Aim.
We are a large health system, and people may think it is difficult to navigate a system of our size. I actually think the best thing we have going for us is the incredible support we have at the most senior positions of our system, but specifically our CEO and COO. That allows us to have a clear understanding of Northwell's strategy. It also allows us to effectively navigate a system of our size and scale.
HL: How do you select your investments?
Thornton: We get our areas of priority investments from [Northwell's strategy and leadership]. We take those investment themes and look for companies in those areas. We try not to meet a company in a venture forum or a conference and then say, "Let me go find a champion inside our health system." I might even argue, somewhat emphatically, if I ever say, "Let me go find a champion," it means I don't know what I'm doing. It means I'm being reactive.
We completely flip the usual arrangement. It allows us to vet companies more quickly and effectively because there's, obviously, highly prioritized interest. We vet companies differently from a venture investor because we have, right in front of us, more than 66,000 subject matter experts in clinical or administrative settings that enable us to think through how we would use a technology, product, or service, and the attendant workflow or disruptive workflow. We will not make an investment unless we can validate it inside Northwell, with an actual end-point driven pilot where it can be evaluated.
This is a good pressure test, because ventures move quickly. We would rather say a quick no than have a prolonged interaction with a company.
HL: Once you select a candidate, how do you move forward?
Thornton: We require co-investment. We will not go into deals alone. We want to share risk with other skilled financial and strategic investors. Early on, we did a lot of investments with venture firms and large corporates. More recently, we've been doing a lot of deals where the investors are healthcare providers.
An early one was Conversa Health, which is basically a chat bot for healthcare. One of the investors was Allscripts, a corporate strategic investor. However, for a more recent investment, Gauss Surgical, a surgical blood loss management system, we brought seven other health systems into the most recent [investment] round.
HL: Are other health systems receptive?
Thornton: This is [indicative of] a massive shift that's occurred. There's not a provider in probably the top 100 health systems in the country that isn't actively engaged in this activity. They see the strategic importance is more than just an invested rate of return. It allows them to:
- Look at things they wouldn't normally have looked at
- Engage partners that they wouldn't normally have engaged
- Gain capabilities that they absolutely require in order to be successful going forward
This age of providers sitting by passively and letting innovation happen to them is gone.
The new era involves hands-on innovation. It's about how to scale inside systems where the technology, product, or service is important, but the workflow is even more important. You've got to be able to marry the two. The big providers are being very thoughtful about how they approach these areas.
HL: Could you share more details about collaborating with other health systems?
Thornton: Beyond everything I've just said, my only point of amazement is—and I've been doing this inside large corporations and in venture funds for 25 years—I think the big shift that I've seen more recently, is that these healthcare providers are actually collaborating.
I will note we have done two investments—Arterys and Avizia—with NewYork-Presbyterian, a primary competitor in our own market. This is an interesting dynamic. These innovation-related activities are not about beating each other up in our marketplace. They are pre-commercial in nature and in an area for potential collaboration.
I can go through probably five deals right now that we're actively looking at and showing to other providers around the country.
HL: What advantages do health systems provide to the companies they invest in?
Thornton: When health systems collaborate as strategic investors [in companies], we will use their technologies, products, or services. We literally make the company [successful]. They need customers, but they also need partners like us to develop additional use cases to think through workflows of how the product or service will be implemented.
For the companies in which we invest, doing that with a strategic partner is just incredible. There are amazingly powerful benefits. And then to do so at scale with [multiple] health systems—seven with Gauss Surgical—is just incredible. You have to pause and think about the power of that. Increasingly we're seeing more and more of this. There are good reasons why providers are collaborating. No. 1, they trust each other. No. 2, increasingly, they have a venture arm, so they actually have people and resources where that trust can be enabled and extended.
HL: Are there other driving forces behind this trend of collaboration between health systems?
Thornton: I have a theory about health systems' strategy. The Northwell strategy may have seven components to it. I believe other large health systems have similar strategies. They may prioritize similar components of our strategy in slightly different ways, but I believe our strategies are largely consistent.
If we all have the same strategies, then why aren't we collaborating around these investments? I think that's driving this big massive trend that we're beginning to see out there. No one's commented on it. Nobody. Everyone talks about their individual [ventures]. What no one realizes is in the background there is an outrageous amount of venturing going on in virtually every major system. Even more shockingly, but highly appropriately, these big systems are actually collaborating together.
HL: Tell me more.
Thornton: We're not actually doing something that's unique. Every Fortune 100 company, and probably every Fortune 500 company, has a corporate venturing arm. Xerox Corp., Novartis ventures, Pfizer ventures, for example, have been doing this for decades. What we're really doing is taking the game plan, the operating model, and mirroring it in a way that fits the strategic needs and interests of healthcare providers.
When we set up Northwell Ventures, I told [Northwell President and CEO] Mike Dowling, "You think you're doing something incredibly amazing, and you are, in provider care." We were cutting edge. But my point to Mike was: "Go talk to your peer at Boeing. Go talk to your peer at HP. Go talk to your peers at Intel, Google, Facebook; you name it. Every single one of them has a corporate venturing arm. Every single one of them. And they all operate differently. They're all slightly different in the way they function, but there are some commonalities. We need to be students of what works in these organizations and what doesn't.
That conversation was so helpful because, one, we realized there's a lot of data and experiences out there that we can look into. So we actually used the experiences of our big corporate peers to develop our own program. Second—a lesson we learned from our peers—we had to burn deep into what our own strategy was. We couldn't just play at being a venture investor. If we were doing that, we probably should just put our money into a fund to make strategic investments. So we really have to prioritize what we are investing in and be precise.
HL: Are you willing to share the returns you've experienced on your investments?
Thornton: We've made 14 investments in approximately 22 months. I can't mention our actual return, but the big one that everyone knows about is our investment in Avizia that was acquired by American Well recently. While we don't talk about our returns publicly, we did get a good return. We're pleased with the relationship that company now has with American Well, and we're excited about the prospects of their model going forward.
HL: You're very selective in your investments. Tell me about the art of saying, "No."
Thornton: We sit with our senior leadership team at the beginning of every year and ask, "What should we be investing or not investing in this year?" I'm not even sure the big corporates do that. It changes year to year, but it's allowed us to rationally address the things that move the needle internally. It allows us to be more cost effective.
I now can say to a company, "Hey, I think you're doing amazing things. I'd love to be in on your deal if I were a financial investor, but it's not strategic to us at this point." I will be nice, listen politely, and I'll refer them on to someone else, but if it's not a good fit for us, we're done. And I think people really respect that.
HL: Anything you want to close with?
Thornton: There's one more mega trend I'd like to mention. Four or five years ago, people thought that digital health stuff was just hooey. There wasn't a lot of data beyond EMRs. There wasn't a lot of adoption, and yet digital disruption just didn't go away. It kept coming.
I think that it's now widely recognized by virtually every leader in healthcare that what's changed over the past few years is that the data have become a lot clearer. You almost have to back out of it and say, "What happened? Where did they get the data?" They got it from us, the big providers.
What's amazing is that, companies like us, UPMC, Cleveland Clinic, Providence, Ascension—big organizations that have done this for a while—I think they were the ones that said, "There's something going on out there. I'm not sure what it is, but I better figure this out." They were the ones that entered into these, at first, tentative relationships with these companies.
What's so stunning is that we've turned the corner on digital health. What's driving that even more now is this whole consumerism of care.
Unbeknownst to the rest of healthcare, venturing arms at big health systems quietly got formed, quietly started interacting with these companies, quietly started aggregating data, and these companies quietly became successes.
The root cause is these venturing arms. They are structured ways for health systems to interact with these companies. They did so in some cases because they thought they were good investments, in other cases they did it just to make sure they weren't missing something. These venturing arms are the tip of the spear for driving the Triple Aim.
“These venturing arms are the tip of the spear for driving the Triple Aim.”
Thomas Thornton, senior vice president and executive director, Northwell Ventures
Mandy Roth is the innovations editor at HealthLeaders.
Because health systems share similar strategies, they make ideal investment partners.
Northwell requires co-investors and is bringing deals to other health systems.
Innovation investments may be new to health systems, but not to corporate America, which provides operating models to emulate.
Early health system venturing arms helped digital health companies turn the corner.