Venture firm: Health system investing better in numbers

McLaren Health Care's chief financial officer always asks himself the same question before throwing his system's money into a healthcare venture: Is this something we'd use?

"Why do you want to invest in a company with products that you have no desire to ever want to use?" Dave Mazurkiewicz said.

In that spirit, Mazurkiewicz is giving McLaren's support—in the form of an undisclosed financial investment—to a healthcare venture platform that won't necessarily call upon outside experts to vet potential ideas. Rather, it'll call upon its own investors—mostly health systems, but also insurers and healthcare vendors—to learn about what works in the industry.

LRVHealth planned to announce Monday it seeks to raise $100 million in venture capital that will go toward early-stage digital health, medical devices and diagnostics companies—whatever ideas its investors think show promise in fixing some of healthcare's most pressuring challenges.

Keith Figlioli, a general partner with LRVHealth and a leader on the new project, declined to say how much LRVHealth has raised so far, but said it's "a good amount" toward the $100 million goal, which the group plans to hit by early fall.

So far, eight health systems have signed on as investors, all undisclosed other than McLaren, a 12-hospital system based in Grand Blanc, Mich., which he said is one of the fund's largest investors. McLaren reported $3.7 billion in net revenue in fiscal 2016.

LRVHealth is actively marketing the fund to other potential investors, and Figlioli said he hopes to get 10 to 12 health systems, two to three insurers, and two to three healthcare vendors.

Another big player in the new fund is the Innovation Institute, a for-profit company owned by six not-for-profit health systems: Avera Health, Sioux Falls, S.D.; Bon Secours Health System, Marriottsville, Md.; Children's Hospital of Orange County, Orange, Calif.; Franciscan Missionaries of Our Lady Health System, Baton Rouge, La.; Mercy Health, Cincinnati; and Providence St. Joseph Health, Renton, Wash. The institute was looking for a partner for its new venture platform and decided on LRVHealth.

Innovation Institute CEO Joe Randolph said he likes that LRVHealth will make his company an "insider" in the decisionmaking process and would give his health system owners the chance to be early adopters of the concepts or products that are funded.

"It's kind of like the providers, the ones that are in the industry, are the ones that are evaluating and making the decisions," he said, "versus a financial type that's looking at it just from an outsider's perspective."

At its core, the approach is about health systems, Figlioli said. They'll serve as "test beds" for new ideas both to determine whether a company would be a good investment and, once investments are made, to use the products or services. So far, the systems involved have 148 hospitals.

McLaren already invests in fixed income funds and private equity funds, but Mazurkiewicz said that's far from the system's main function. That's why he sees benefit in joining up with LRVHealth, which is operated and supported by experts in the field.

"Our core business is providing healthcare, so we try to stay within our correct swim lane, but we do invest in various funds," he said.

With LRVHealth, Mazurkiewicz said he'll get the expertise of the other health systems involved, as well as the fund's leadership team and advisers. The advisers include Dr. Glenn Steele, former CEO of Geisinger Health System, and Terry Linn, former senior vice president of corporate development and strategy at Premier.

This is LRVHealth's fourth investment fund. Since its launch in 2000 the firm, formerly known as Long River Ventures, has funded companies like GetWellNetwork and MedVentive.

"We could potentially look at early stage businesses that multiple health systems can incubate together rather than having one health system do it at a time," Figlioli said.