Providence St. Joseph Health, one of the nation's largest nonprofit health systems, was an early adopter of mobile on-demand healthcare app Medicast, which launched about three and a half years ago, billing itself as the "first mobile-app-based house call service." In mid-2016, Providence St. Joseph took its relationship with Medicast one step further by acquiring the Mountain View, Calif., startup.
Providence St. Joseph, which has an internal digital innovation group, invests heavily in new technology. Providence Ventures, its $150 million healthcare venture capital fund, typically seeks to invest $8 million to $15 million in early- to mid-stage health IT and medical device and diagnostics firms that offer promising technology solutions to healthcare challenges.
Providence Ventures has invested in patient feedback tech firm Binary Fountain, surgical blood-loss monitoring provider Gauss Surgical, remote video interpreting business Indemand Interpreting, and children's wearable activity tracker Sqord, among others.
Providence leaders believe there are "key transformative strategies that healthcare incumbents absolutely need to nail," said the fund's managing general partner and the health system's chief digital officer, Amazon veteran Aaron Martin. These key strategies include creating a digital platform that simplifies the healthcare experience for consumers; bringing patients customized and targeted treatments through genetic medicine; and building "a culture of innovation."
Transforming Patient Care
Health systems aren't the only big organizations interested in health startups. CB Insights noted in October that the digital health sector was headed to a "record year" of $7.2 billion in funding to private firms that aim to transform hospital patient care.
CB Insights found 82 private digital health companies — operating in 15 categories — with a direct effect on hospitals' patient care, including those that touch on cleanliness, patient referrals, monitoring, care coordination, readmissions, diagnostics and medical records.
Investors include health venture firms, accelerators, the Mayo Clinic, and corporate venture arms such as health insurer-supported BlueCross BlueShield Venture Partners, pharmaceutical company-backed Merck Global Health Innovation Fund, GE Ventures, and Samsung Ventures.
Money Flows To Medical Device Startups
Earlier in the year, CB Insights noted that corporations or corporate venture arms, including pharmaceutical company Johnson & Johnson, medical device companies Medtronic and Boston Scientific, and HMO Kaiser Permanente, had been making major investments in medical device startups. As of early August, there had been more than 50 corporate deals channeling more than $833 million to private medical device companies.
Among the deals were a $75 million Series C round to Acutus Medical from GE Ventures and other investors, and a $52 million Series B round from backers including Johnson & Johnson Innovation and pharmaceutical giant Pfizer Venture Investments to personalized cancer-treatment firm RefleXion Medical.
In addition to Pfizer, Merck and J&J, big pharma players involved with venture investing in medical device startups include Roche, Novartis, Eli Lilly, AstraZeneca and GlaxoSmithKline.
Improving Care and Lowering Costs Through Technology
Heritage Group, a venture capital firm backed by strategic-investor health industry companies, including hospitals, health plans and drug distributors, has been active in investing in startups.
In early 2016, for example, Heritage Group made a $13.6 million Series B investment in Aver Inc., a medical bundled payment and data management firm. Co-investors included GE Ventures and drug and medical-products distributor and logistics giant Cardinal Health Inc.
“As healthcare shifts into value-based care, payers, providers and employers will continue to look for ways to better align cost and quality in care delivery," Heritage Group Managing said Director Rock Morphis.
Whether looking to embrace cutting-edge treatments, new digital patient platforms, simplified payment systems, data analytics technology or a more innovative culture, veteran healthcare corporations are realizing the value of investing in and acquiring startups. Becoming entwined with the right company may be the most efficient way for corporates to participate in the multifaceted transformation taking place in healthcare.