And supply chain can – and should – play a role
Kyle Hathaway
Ascension partners with Sunnyvale, Calif.-based Plug and Play Tech Center, and OSF HealthCare partners with Boston-based MassChallenge. Texas Medical Center launches a $25 million venture fund to support early-stage companies, while Partners HealthCare closes $171.1 million in capital to invest in such companies. Providence St. Joseph Health System has Providence Ventures, Cleveland Clinic has Cleveland Clinic Innovations, Mayo Clinic has Mayo Clinic Innovations.
Some are called “accelerators,” others “innovation centers.” Regardless of the term, health systems are channeling their clinical knowledge and experience, as well as capital, to not only develop innovative technology and processes, but to commercialize them, too. How – if at all – does supply chain fit into the picture?
The Journal of Healthcare Contracting recently spoke with Kyle Hathaway, founder and managing partner, VantEdge One Group, about accelerators and supply chain’s potential role in identifying innovative technologies.
Chicago-based VantEdge One Group is an innovation and venture firm that invests in technologies, methodologies and solutions that demonstrate an ability to create improvement in everyday healthcare processes, according to the firm. Its newest fund, slated to close in summer of 2018, has created a funding mechanism that allows physicians and health systems to invest together in technologies for cost improvement in healthcare. The company’s integrated accelerator program, Ad-Vance, works with entrepreneurs facilitating technologies and services – including medical devices and diagnostics – into the market while supporting health networks to create their own culture of innovation. Current suppliers and technology partners include SIGHT Medical, Jump Technologies, Z5 Inventory, Cost Control Solutions, BuildingLogiX. Osprey Medical and CMR Institute.
Journal of Healthcare Contracting: We hear a lot of news about health systems setting up innovation centers. Is this a new trend, or has it been around for some time?
Kyle Hathaway: The trend has more to do with innovation as a strategic focus for healthcare. Most of the prominent innovation centers began as research institutes, and they sought to attract clinical and post-clinical trial studies as well as research grants. These are still prominent today. What’s new is that these research institutes are beginning to add commercialization and innovation to their titles.
JHC: Why now?
Hathaway: Hospital CFOs have spent the better part of seven years in relative uncertainty about how their health systems are going to get paid for providing care. First, you had five years of hand-wringing around the Affordable Care Act. Now we have TrumpCare, and nobody knows what that means – though we do know it most likely means change.
Also, consider that healthcare is largely driven by what commercial payers will pay providers. In that sense, providers don’t actively control their revenue. Add to that the fact that for years healthcare systems have hosted all kinds of innovation, but have not been able to commercialize it. Traditionally, the creator of the innovation – who may be a physician – sells the intellectual property to a manufacturer with capital, who then brings it to market. So, even though the work was born in the health system, the health system ends up on the outside looking in. So now they’re asking, “Why get involved with innovation without taking a commercial interest in it?”
JHC: Have health system innovation centers been successful in terms of introducing new, marketable, effective medical technologies?
Hathaway: The jury is still out on the technologies created. Most of them are just managing to the “tech transfer” stage, so it will be exciting to see.
JHC: What is “tech transfer,” and what are the difficulties innovation centers face as they engage in the process?
Hathaway: Let me take a step back. Health systems create innovation centers to solve a problem. But one health system’s problem – and solution – is not necessarily that of others, though it may be similar. The notion of tech transfer is this: “I’m a health system, and I solved this problem for myself. Now, how do I commercialize it for a broader market?” In other words, the health system has hosted an innovation, incubated it, and created something it thinks is unique for the market. How do they create a business out of it?
But hospitals and health systems aren’t in the business of creating businesses. That’s the opportunity for innovation companies, such as VantEdge One Group. Our focus is on seed-stage to early-stage companies. We host a Partners in Innovation program, which brings health systems together to collaborate and incubate innovations for the commercial market. We help find the business opportunities from health systems’ innovations that have been created, we invest in them, and help them to scale.
JHC: To what extent do health system innovation centers develop things other than medical devices and technologies, such as services or business processes?
Hathaway: Some have created shared services models that are highly innovative. Some hospitals and health systems are moving toward self-distribution, and asking how they can turn their experience and expertise into a revenue stream.
JHC: How can non-profit hospitals and health systems engage in these commercial ventures without running into issues with the Internal Revenue Service?
Hathaway: Just because they are non-profit does not mean that they can’t invest. It really has more to do with where they devote the gains from investments. Non-profit organizations have done this for years. Most investment funds have separate legal structures. Others create spin-off “for-profit” entities owned by the health system. There are legal and tax advisors who are expert at this.
JHC: Name two or three things that distinguish successful innovation centers from less successful ones.
Hathaway: The main thing that characterizes a good program is the ability to create a culture of innovation amongst clinicians, physicians and employees. This engagement is critical and yields fantastic and relevant innovations. You have to show people the impact of their ideas, so they don’t feel those ideas are being sent into an abyss. The difficulty is filtering out the noise – that is, identifying those ideas that truly have potential. The second most important thing is the ability to scale the innovation created across the health network that creates it, then on to other networks. And third: creating real innovation that solves a problem. There are a lot of innovations seeking a problem where a problem may not exist.
JHC: Should supply chain executives be concerned that they will be pressured to acquire the technologies that their innovation centers fund or create?
Hathaway: Supply chain is the front line of external innovation in healthcare. Innovation centers miss a critical source of innovation by not engaging supply chain in the discussion. Instead, supply chain leaders should engage the innovation center at their health system to collaborate. We have partnered with some innovative health networks where supply chain is creating not only innovation opportunities, but also commercial opportunities for their health systems through early-stage technologies they would have turned away in the past for being too immature.