Physician entrepreneur David Brailer, the first national coordinator for health information technology, resigned as co-chairman of a key HHS policy advisory panel Friday, just four days after announcing a venture capital firm he formed had signed a $700 million investment deal with the giant California Public Employees Retirement System, or CalPERS, to funnel money into innovative healthcare IT and service companies.
In a written statement issued June 8, HHS Secretary Mike Leavitt said that, It is with regret that I have accepted Dr. Brailers resignation as vice chair of the American Health Information Community (AHIC). For the past three years, David has served as a key counselor on health information technology both in this role and formerly as the National Coordinator for Health IT at HHS. I have truly enjoyed working with David to advance the presidents health IT agenda and I wish him the best of luck.
Brailer earlier in the week said he enjoyed serving with AHIC and planned to stay on as co-chairman as long as Leavitt wanted him to serve. In a follow-up interview after his resignation was announced, however, Brailer said the decision to step down came after some pretty intense discussions midweek with lawyers in the office of government ethics at HHS.
It really wasnt a change of mind, he said. I think the ethics lawyers read the way the ethics rules applied differently than the way I had or my lawyers and others had. You just dont fall back into the private citizen category as easy as you want to. In the end, it was a judgment call on how do you act with due caution.
The agreement between Brailers San Francisco-based Health Evolution Partners and CalPERS was announced June 4.
Its two funds, Brailer said in the telephone interview, adding that $500 million is for direct investment; $200 million is what well use to invest in other investment companies.
Brailer, who holds a doctoral degree in managerial economics from the Wharton School of Business at the University of Pennsylvania, and a medical degree from the University of West Virginia, founded and ran for a decade a healthcare data analysis company, CareScience, which was sold in 2003 to Quovadx. President Bush appointed Brailer to head the newly created Office of the National Coordinator for Health Information Technology in May 2004.
He stepped down last summer as head of ONCHIT, but continued to do consulting work with HHS and the Treasury Department, and remained co-chairman of AHIC, a public-private panel Leavitt created in 2005.
The CalPERS alliance was something of a coincidence.
When I left the government, I began then a process of winding down some of my obligations and my consulting work with the White House and decided what I wanted to do, Brailer said. He added that he wanted to remain in healthcare and work to improve the efficiency of the healthcare system. By the end of last year, I concluded that venture capital and private investing was the way to do it.
Brailer said he quietly started building his venture capital company in November 2006 and opened the doors in January. Meanwhile, CalPERS got wind of it, Brailer said. The California pension giant, the largest public pension fund in the U.S. with assets as of March 31 of nearly $235 billion, had commissioned a study by McKinsey & Co., to give CalPERS advice on how to use its investment clout to improve its healthcare costs. It came independently to the same conclusionthat a venture capital fund would be the way to go, Brailer said.
CalPERS will spend an estimated $4.9 billion this year providing healthcare benefits to
1.2 million active and retired state and local government employees and their families in California, making it the third-largest purchaser of healthcare in the country behind only the federal government and General Motors Corp.
I am told that more than 300 business plans have already arrived at our offices, but that does not surprise me, Brailer said.
He expects the company to employ about 25 people, including three to five seasoned senior investment partners, which is a bit outsized for the investment portfolio right now, Brailer said, but were building to grow. Under the agreement with CalPERS, the pension fund will be the sole investor in the joint venture for the first year, then there will be a determination on how to go forward, and whether outside investors will be accepted, Brailer said.
Brailer said the new company has a five-year target to have all of the $700 million awarded, but, I think well drive through this investment chunk pretty quickly.
Ron Pion, a physician entrepreneur and adviser to venture capital and other companies on healthcare business and investment strategies, said linking up with CalPERS is a two-fer for the pension and benefits plan. They are very smart in selecting David Brailer, who has an opportunity in letting CalPERS know which healthcare IT companies to invest in now and why.
Id like to become one of his advisers because I know a dozen or a dozen and a half companies I know Id like to have him invest in, Pion said.