Health systems fire up business incubators

It wasn't too long ago that executives for healthcare startup Aiva were coming off a stint in Cedars-Sinai's business accelerator program, in which they received $120,000 in seed money, guidance and office space from the Los Angeles-based healthcare organization to develop their idea. Now, just over a year later, their prospects are even brighter, having gotten funding from Amazon and Google, two names that are likely to open more doors for the voice-activation company.

Aiva was in the 2017 class of 10 at the Cedars-Sinai Accelerator, one of several similar programs at health systems across the country where organizations are guiding businesses and tapping entrepreneurs to bring new technologies to their patients and providers—and, eventually, to the broader healthcare ecosystem.

The programs give entrepreneurs opportunities to engage with hospitals and health systems early on in the innovation process.

“I can't overstate how important it is to a young startup to get that first live customer to be able to pressure-test the solution on real data with real operations,” said Greg Kuhnen, senior director of research for the Advisory Board. “The instant knowledge of the needs of the system, and the ability to recruit clinicians into the process, is very valuable to startups.”

At Cedars-Sinai, entrepreneurs accepted into the program can come from anywhere. At other incubators, they come from within the affiliated health systems. In both cases, incubating companies' ideas not only potentially improve systems' clinical outcomes but also financial results, as they expand use of the projects and sometimes spin off companies in which they hold equity stakes.

Health systems need not have their own programs to get in on the incubator game, though. They can also work with independent incubators not directly affiliated with hospitals.

But the benefits of incubators explicitly tied to health systems run in all directions. The system gets early access to new technology, as well as potential financial returns. The startup gets a place to try out its new technology. And patients get access to new care models.

Being able to test technology before going all in can be especially important when working with new companies. “When we work with more traditional vendors, we can call their customers and get references,” said Anne Wellington, managing director of the Cedars-Sinai Accelerator. “We really want to work with early-stage companies, but they don't necessarily have those resources available to us,” she added. “This works as due diligence for the health system while also providing mentorship for the companies.”

Some of the benefits are logistical, too. At Cedars-Sinai, companies in its accelerator get workspace next to the medical campus, which enables the hospital to provide both administrative support and guidance.

That also lets the hospital figure out which companies will be good to work with for the long haul. Many of the companies that have gone through the program since it began in 2015 have piloted their technologies at the health system, with some eventually rolling out across the enterprise. Well is one of them. The company, which was in the first class at the accelerator, created a text-messaging platform for provider-patient communication. That platform is now available for all of Cedars-Sinai, whose program started out as a partnership with seed accelerator Techstars—a partnership that his since lapsed.

“Participation is an opportunity to receive support in the form of funding but also in terms of boots on the ground,” said Deirdre Darragh, manager of communication and engagement for the Acceleration Lab at the Penn Medicine Center for Health Care Innovation in Philadelphia. “They can get recognition from leadership within the health system, which can potentially lead to future funding.”

It also leads to more informed projects, since their team members are getting feedback earlier than they might get on their own.

At the Penn Medicine Center accelerator program, feedback comes not only from those within the health system but also from payers—United Healthcare and Blue Cross Blue Shield—to whom the entrepreneurs pitch their ideas. (United Healthcare co-sponsored the entire 2016-17 class in the program.)

Unlike other incubators, where the main goal is creating a company, at Penn Medicine, the goal is first and foremost changing the way care is delivered. “We look for people who are in love with the problem they're trying to solve,” said Matt Van Der Tuyn, manager of design and strategy for the Acceleration Lab at the Penn Medicine Center for Health Care Innovation. “We're really trying to partner with passionate clinicians.”

That approach can boost physicians' spirits, which is especially important at a time when burnout among clinicians is rampant. “People think it's a lot of fun to come across the street to the accelerator and engage with people who are really excited about the solution,” Wellington said. “So it has this indirect benefit of being a jolt of energy.”

That's not to say there aren't tangible financial benefits to be had as well. “Health systems are looking to find new paths to sustainability through new sources of revenue and also supporting their core business,” said Brian Kalis, managing director of digital health and innovation for Accenture's health business. “Collaboration with health accelerators and startups becomes one of the ways to identify what's next and diffuse it throughout the system and unlock that value.”

That value hasn't translated to higher credit ratings, which remain unaffected, according to a Moody's spokesperson. But it has translated to increased revenue for some. By helping to commercialize discoveries by Partners HealthCare researchers at certain hospitals, Partners HealthCare Innovation was responsible for $154 million in revenue for the system over fiscal 2019. Over the past decade, the organization has spun out about 275 companies.

Some of that success is due to the fact that the researchers are working in hospitals already, said Chris Coburn, chief innovation officer of Boston-based Partners HealthCare and president of Partners HealthCare International. “If you're inside the four walls, you're a member of the home team, and it ensures alignment across the board.”

But hospital- and health system-affiliated incubators are not the only route for healthcare entrepreneurs. They might instead choose to work through a stand-alone incubator that, while not directly tied to a specific hospital or system, still may have connections to several such institutions.

That's the case at the few healthcare-specific incubators across the country, including Blueprint Health, Dreamit, and Matter.

The trouble with hospitals is “big institutions can't move as quickly as entrepreneurs can,” said Matter CEO Steven Collens. Because Matter works with many health systems, as well as insurance companies and life sciences companies, companies incubated there get access to a greater breadth of knowledge, Collens added.

Chicago-based Matter is a not-for-profit, and, unlike many hospital-affiliated incubators and accelerators, it doesn't take equity in the companies that work with it. Instead, it runs based on a membership model. That lets it work with entrepreneurs at a variety of stages of maturity, Collens said. “We really wanted to be a neutral arbiter.”

Because Matter works with several systems, payers, pharma companies, and other organizations—including Advocate Aurora Health and Blue Cross and Blue Shield of Illinois—its companies can test out their wares on a variety of potential customers. “Every health system is complex in its own way, so just because you have a solution for one does not mean it's going to work for all of them,” Collens said.

Indeed, it can be difficult for entrepreneurs to maintain perspective when working with health system-affiliated incubators. “Keeping that incubator health system you're associated with at arm's length and having a broader perspective of what the market needs is challenging,” Kuhnen said.

When stakeholders work with companies grown at places like Matter, they can also benefit. For instance, drugmaker Novo Nordisk and Matter recently ran a competition for companies to come up with ways to use data from Novo Nordisk's diabetes pen injectors. The winners of the competition now have the chance to co-develop their ideas with Novo Nordisk through an accelerator program connected to Matter.

It was Matter's “established network of entrepreneurs” that drew Advocate Aurora Health to partner with the incubator,” said Scott Powder, chief strategy officer for the health system. “Together … we can pilot and co-develop novel solutions to some of the industry's complex challenges.”

In the end, almost all the parties involved in incubating healthcare companies, whether at those directly linked to health systems or at independent organizations, see advantages. Perhaps what's most important, in the end, isn't the affiliation with a particular company but with a particular industry: healthcare.

“When we set up Matter, we decided it was really important to create a separate ecosystem around healthcare solutions,” Collens said. “The same investor is usually not going to be investing in retail solutions and healthcare solutions,” he said. “Healthcare just operates differently.”