Investment advisers often counsel clients to put their money where their expertise is. Based on that recommendation, it might appear ill-advised for a hospital company to make a habit of pouring its pocket change into technology-oriented start-ups.
Not so, say strategists at Tenet Healthcare Corp. The Santa Barbara, Calif.-based hospital chain has been stepping up its investments in technology-related companies as a way to stay on the inside track of new products. Tenet also sees it as a way to combat some problems unrelated to technology, such as high levels of staff turnover.
Late last month, Emageon, a Birmingham, Ala.-based company that produces online archives for diagnostic images, announced at the annual meeting of the Radiological Society of North America in Chicago that Tenet had invested in the company.
Tenet and Kaiser Permanente, which also invested in Emageon, will together choose one healthcare executive to sit on Emageon's board of directors to represent both companies. The two providers coughed up about 30% of a $13 million round of financing for Emageon, with Tenet providing about $2 million, said company sources who requested anonymity.
Also in the past month, Tenet announced it purchased e-vitro, a Boulder, Colo.-based online health education company. Tenet plans to combine e-vitro's products with those of its own e-learning subsidiary, 10-month-old DigitalMED.
"We're not in it for the financial gain," said Tenet spokesman Harry Anderson. "We're in it to test the technology."
Anderson said that for an $11 billion company like Tenet, the amounts of seed capital these investments involve are not significant. He would not specify how much Tenet has invested in such companies except to acknowledge the amount is in the "low tens of millions of dollars."
Tenet's top managers are solidly behind the technology gambit. The company has a strategic development group focused on new economy investments, and its former chief financial officer, Trevor Fetter, last March left the company to become president and chief executive officer of Broadlane, an online group purchasing company that Tenet helped found and in which the company has a joint ownership interest.
Any technology investment Tenet makes must help its hospitals, Anderson said.
Similarly, the technology companies court healthcare providers as investors to build relationships for their products and services.
Chuck Jett, chairman and CEO of Emageon, said he worked to bring Tenet and Kaiser into his company's investor pool so that he could bend the ears of their executives and educate them about the benefits and cost savings Emageon's technology could achieve for them.
From Tenet's perspective, the possibility of making diagnostic images available to multiple users online could lower the hospital chain's costs significantly. And with 111 hospitals in 17 states nationwide, Tenet is a perfect petri dish for new technologies.
Mark Schroeder, CEO and founder of e-vitro, said part of Tenet's goal in purchasing his online professional education company was to find a way to combat high rates of attrition among nurses at its hospitals (See special report, p. 42). Under the combined venture, Schroeder will remain CEO.
Anderson said from 25% to 35% of Tenet's 53,000-member nursing workforce leave their jobs
"Tenet actually is very smart about all this," Schroeder said. "They started to look at ways they could ameliorate the situation."
After testing some online courses at a few hospitals, Tenet officials discovered attrition rates declined 3% to 6%, Schroeder said.
A nurse who may not have the time to go to a college to take continuing education courses might drop out of the profession altogether, Anderson explained. Anecdotal feedback showed that nurses who were offered the free online courses welcomed being able to take advantage of them at home with less disruption to their family life and without the imposed schedule of a structured classroom setting. That in turn makes nurses more likely to stick with the profession and remain at Tenet hospitals, Anderson said.
And because every percentage point of attrition represents about $10 million to $20 million in added costs to a company like Tenet, there is a powerful economic incentive to reduce rates, Schroeder said.
As he sees it, ownership by Tenet increases his products' credibility among other hospital chains, and from Tenet's perspective, its hospitals can gain a competitive advantage by creating a more satisfying environment for its employees.
"It's a way of taking your core asset and generating as much revenue potential out of that as possible," Schroeder said.