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Healthcare spinouts multiply amid need for technology products

If the health information technology sector was hot two years ago, now it's boiling.

Local companies and institutions are clamoring to meet a burning need for IT products that can help health care providers cut costs and improve care.

No. 1 among them is the Cleveland Clinic. The institution is spinning out so many information technology companies that it might need a whole building for them.

That discussion is still preliminary. Nothing has been decided, not even whether the best course would be to use an existing building or build something new, said Heather Phillips, director of corporate communications for the Clinic.

However, the Clinic already is creating lots of companies that could help fill that space.

In March 2011, Chris Coburn — executive director of Cleveland Clinic Innovations, the hospital system's business development arm — told Crain's that the Clinic had launched five health IT companies during the previous two years.

Since then the Clinic has launched a few others, and at least five more are in the works, he said last week.

“Without question (health IT) is the hottest area in medical innovation right now,” Mr. Coburn said.

Demand for health IT products has been rising for a few years, but lately local efforts to develop and sell those products have become much more pronounced. For one, investors have pumped a lot more money into local health IT companies over the past 18 months.

The money starts to flow

Enforcer eCoaching Inc. — a Lyndhurst company developing software that sends personalized emails to people looking to lead healthier lives — raised $1.6 million from investors in March, according to a document filed with the U.S. Securities and Exchange Commission.

That company this summer raised another $250,000 from JumpStart Inc., a Cleveland nonprofit that assists and invests in local startups. So did GenomOncology LLC, a Westlake company developing software designed to automate the process of analyzing genomic data. GenomOncology raised $1.25 million from other investors earlier in 2012.

Explorys Inc., a Clinic spinout that has developed software that can analyze vast amounts of patient data, announced in May 2011 that it had raised $11.5 million. The 3-year-old Clinic spinout has raised a total of $20 million and has 79 employees. It is in the process of moving into a larger space in the Clinic-owned building that used to house the Cleveland Play House and the Museum of Contemporary Art Cleveland. The company eventually could become the anchor tenant in any health IT building the Clinic creates.

Nationally, some investors have created funds that invest only in health IT companies, Mr. Coburn said. So the Clinic expects its spinouts to be able to raise capital without too much trouble.

BioEnterprise Corp. is working to help more young health IT companies get off the ground. The Cleveland nonprofit, which was created to help boost the region's health care industry, in February of this year launched its H.I.T. Accelerator program.

Health IT companies that apply to the quarterly program send BioEnterprise information about their products. The nonprofit selects the best of the bunch, then uses an online portal to discuss those products with panels comprised of people from the program's partner institutions: the region's five largest hospital systems, Case Western Reserve University and health insurers SummaCare and Medical Mutual of Ohio.

Insurers join the crowd

The goal is to help local health IT companies find key customers while also helping institutions find good products, said Jim Weisman, a vice president at BioEnterprise who focuses on health IT. Partner institutions asked to follow up with two of the four companies that participated in the summer session, Mr. Weisman said.

The number of health IT startups in Northeast Ohio keeps growing, he said, adding that University Hospitals has a few spinouts in the works, too. The companies Mr. Weisman sees cover all sorts of sectors, he said.

“I'm seeing health and wellness. I'm seeing remote monitors. I'm seeing telemedicine,” he added.

Mr. Weisman said insurers also are starting to show more interest in health IT.

Medical Mutual in April hired Rahul Rosh to fill a new position: vice president of IT strategy. The Cleveland insurer since then has started making bets on different IT technologies, Mr. Rosh said. In addition to participating in the BioEnterprise program, Medical Mutual has invested in a health IT-focused private equity fund in hopes of getting first dibs on some of the technologies in which it invests.

The company also is using an AT&T platform that will allow it to develop medical software programs that will work on a broad range of mobile devices.

Although the company for years has used IT to process transactions, now Medical Mutual wants to use it to analyze information, Mr. Rosh said. For instance, data eventually could allow the company to separate smokers with a real desire to quit from those who probably won't, he said.

His position's existence is a testament to Medical Mutual's growing interest in health IT, he said from his home in New York City, while preparing to move to Cleveland.

“Certainly the emphasis has increased,” he said.

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