Starting with an idea on the back of a napkin in 2012, ProMedica Innovations helps ProMedica Health System rise above its competitors and brings a development boost to an economically challenged region.
Hospitals and health systems often struggle with innovation, and what innovation means.
At Toledo, Ohio-based ProMedica Health System, it means developing an internal arm to fund early-stage health-related companies where it can serve as the lead, or the follow-on investor.
Some of the innovation ideas are sourced from ProMedica's employees, and some are early-stage healthcare companies started outside of ProMedica. The ideas have the potential to improve healthcare and generate investments to an economically depressed region.
The nine-person executive team at ProMedica Innovations says three factors helped them integrate innovation into the health system's mission. Here's how your health system can do it.
1. Make innovation a core value
ProMedica spent a lot of time and effort developing and defining its core values, starting with input from its employees. The 13-hospital nonprofit health system, which covers northwest Ohio and southern Michigan, defined four core values: compassion, teamwork, excellence, and innovation. Executives credit employees with the genesis of the venture arm.
"If you asked every health system what you mean by innovation, you'd get a different answer at every one," says John Pigott, MD, chief innovation officer with the venture arm. "But we invest in our employees' ideas, and they voted on innovation becoming one of our core values."
ProMedica Innovations started with an idea on the back of a napkin in 2012, says James Richardson, a financial analyst and investment associate at the venture fund.
"One of our huge advantages is we get a first look at the technology and often proprietary, best-in-class care, so there's a financial upside, but also the confidence that we can hit ProMedica's mission, not just with specific technologies but also trends," Richardson says. "There's a gap in the financing sector in that seed financing can be difficult, so we fit that niche."
The napkin idea evolved into one of the first investments ProMedica Innovations made, a device one of its vascular surgeons invented to make vessel preparation in the treatment of peripheral artery disease simpler, quicker, and more cost-effective. That surgeon was Mayo Clinic–trained Pigott, and the company that now sells the FDA-approved device, VentureMed Group, developed through $15 million in seed financing from ProMedica Innovations.
2. Bring a long-term commitment to the process
It's essential for health systems looking to fund innovation through an idea's early stages to understand how long it might take to get a payoff in return on investment, says Richardson.
"It's a longer-than-usual process," he says. "It's not the same as building a hospital. We have commitment from the very top and they understand the time frame. We're starting to see those results and we're grateful, but doing something like this is a very different thing for any health system."
As a division of the parent company, ProMedica Innovations has been in existence since late 2013, but has only been making investments and doing what Richardson calls "refined due diligence" for the past three years.
Pigott cautions others looking to do the same: "There will be some startup costs, so do your homework, but this can elevate you above your competitors, and there are real monies that can come into the region."
Because of ProMedica Innovations, more than $50 million in venture capital dollars have come to the region, but he says leadership must take a long-term view because an innovation program will have some of the same development costs and lead time as a startup company.
Pigott says conservatively, it will take six to eight years in terms of financials to make ProMedica Innovations self-sustaining.
3. Align your investments with your mission
"Our mission is your health, so when we look at a company to invest in through ProMedica Innovations ventures, it has to be life-sciences focused," says Pigott. "We look at a lot of financial metrics, but if it doesn't meet that basic criteria, that's a first cut."
Right now, the division has teams working on about 36 projects in different stages, he says. Many are early stage, meaning they begin in developing a product from the idea stage through proof of concept.
ProMedica Innovations has funded about 14 investments to date.
Its latest investment, announced in March, is $1 million in TELA Bio, which markets surgical implants called OviTex Reinforced BioScaffolds, a combined biologic and synthetic material that helps in the repair of hernias and in abdominal wall reconstruction. Its implants were approved by the FDA in 2016 for soft tissue repairs.
"It has some advantages in that it's strong and infection-resistant, where some other meshes have had difficulties with infection or inflammatory response," says Pigott. "The company is young, but it has an experienced management team and they are well financed."
Having an integrated delivery system to help evaluate such investments offers a competitive advantage, as is the case with most of its investments, Pigott says.
"I'm not a hernia surgeon, but we could go to our surgeons and ask them if it made sense, and at what price does it make sense with our supply people," he says. "It is FDA-cleared, and they're doing very well on their sales."
Philip Betbeze is the senior leadership editor at HealthLeaders.