Hospital CVCs are growing and diversifying to confront the challenges facing the US healthcare system.
For much of its four-year history, TGH Ventures, the corporate venture arm of Tampa General Hospital in the US, has focused on strategic partnerships and direct investments in startups that improve care, increase revenue and contribute to the overall transformation of the academic medical system. Sample investments include HealthSnap, a remote health monitoring solution, and Medicom, a provider of healthcare IT solutions specialising in advanced medical imaging and data management systems.
More recently, the TGH Ventures team has begun to invest in ventures built internally by Tampa General, with the potential to generate financial or strategic value, such as Interhealth Medical Staffing Solutions, a for-profit staffing agency launched by Tampa General in 2022 to combat labour shortages and staff burnout across both clinical and operations teams.
TGH Ventures is one of at least 23 health system corporate venture arms in the US, according to a tracker from Becker’s Health IT. Industry experts say they are growing and diversifying in response to the enormous challenges facing healthcare organisations, from meagre profit margins and crisis-level staffing shortages to technological changes and the transition to outcomes-based care and reimbursement.
The pandemic has also boosted interest in healthcare venture teams, according to Neil Wyant, vice president, investment & commercialisation, at University Hospitals Ventures, the investment arm of University Hospitals in Cleveland, Ohio. “People had to innovate to stay ahead – to keep patients safe and create devices so you didn’t have to touch stuff,” he says. “There was an acceleration of decision-making during the pandemic, and leaders felt they needed to take a little more risk.”
Tampa General Hospital’s internal venture Interhealth “has eliminated premium labour costs, significantly reduced turnover, and increased team member satisfaction,” says Rachel Feinman, vice president of innovation at TGH and managing director of TGH Ventures. Building on this success, Feinman’s team is now creating a consulting model for other healthcare systems interested in developing their own versions of Interhealth.
The consulting concept, she explains, “is an example of how we can take an internal innovation and, instead of spinning it out as a tech company, leverage it in another way to drive revenue and solve challenges other systems may face.”
The pace of change in healthcare continues to accelerate, says Feinman. As a result, she says, healthcare organisations have recognised the need for a team that is alert to what is happening in the innovation arena but is also deeply integrated into the healthcare system so it “can understand the specific, strategic priorities the system needs to solve to provide the level of care we need for our patients.”
Bridging the gap between market trends and the needs of care facilities is “at the core of the proliferation of these groups,” says Feinman, adding that TGH Ventures is a “fast follower,” rather than an early adopter.
Diverse tactics, common goals
A couple of factors distinguish healthcare corporate venture arms from those of other industries. In the healthcare arena, in-house VC teams typically aren’t looking to acquire the companies in which they are investing, Wyant says. Instead, his team looks for collaborators and partners “who can help us drive clinical outcomes and better economics as well as patient satisfaction and physician satisfaction.”
Though they share a commitment to this “quadruple bottom line”, hospital venture teams nevertheless differ in how they operate and invest. Some focus on direct investments, some concentrate on strategic partnerships and opportunities for sweat equity. Others eventually spin out as independent venture capital funds.
UH Ventures takes a multifaceted approach to building its portfolio. With oversight over the university’s tech transfer office, the group invests non-dilutive (grant) funding – typically in $25,000 chunks – to help commercialise intellectual property developed by academic researchers. Whereas in the past universities were able to license intellectual property without extensive risk reduction, the commercialisation process now requires a prototype and, by extension, additional funds to make it a reality.
Tapping an $8 million Healthcare Collaboration Fund – a partnership with Jumpstart, an entrepreneur support organisation – UH Ventures has also made direct seed to series B investments in 14 startups over the past three years. One recent example is TailorMed, a company that helps financial navigators find revenue to cover the cost of therapies for patients, automating what used to be a cumbersome manual process.
Wyant said his team typically starts with a problem the medical system is trying to solve, then seeks a solution. “And then we say: ‘Might they be investable?’” For example, after TailorMed started providing services to University Hospital’s oncology department, UH Ventures partnered with several other hospital systems to perform collective due diligence and co-invest, according to Wyant. Collaborating with other organisations is a win-win, he adds, as it improves the likelihood the solution will gain market traction and acceptance.
Innovating the mundane
In January, healthcare venture capital firm Allumia Ventures – previously known as Providence Ventures – announced it had spun off from Providence Health & Services to become an independent firm following a first close of its third fund. Since its founding in 2015 Allumia has invested in 28 digital health and tech-enabled medical startups, all of which have a commercial relationship with the healthcare system headquartered in the US state of Washington, according to managing partner Jeff Stolte. Of those companies, 10 have successfully exited.
Healthcare organisations operate at a different pace than traditional business sectors, Stolte says. “As much everything has worked at Providence Ventures,” Stolte says, reorganising as an independent entity will enhance Allumia’s model. “Part of it was how do we set up a structure so we can effectively compete with the other funds that frankly we compete with, by being as nimble as possible while still preserving a strategic tie in back to Providence.”
The Providence system has committed $150 million toward Allumia’s third fund.
“It sounds mundane, but unfortunately this industry has a lot of mundane challenges.”
Jeff Stolte, managing partner at Allumia Ventures
Although Allumia invests in market-ready medtech, most of its investments focus on solving everyday operational and administrative problems, according to Stolte. As healthcare overall shifts from fee-based services to value-based care, he says, “that drives a need to address improvement in the way data flows and information flows both across and outside of our organisation. One focus area involves partnering with specialised care delivery operators who can help manage certain populations of care.
For example, Allumia has invested in Lyra, a digital health platform that connects employers to a network of therapists and coaches through live video and other digital tools, resulting in faster access to care and improved outcomes.
An investment in Collective Medical, a next-generation healthcare information exchange, connects emergency departments and hospitals across multiple providers, helping Providence coordinate care for specific patient populations. In particular, he says, the system has improved communication for patients discharged from acute care hospitals into post-acute settings.
“It sounds mundane, but unfortunately this industry has a lot of mundane challenges,” Stolte says.
Political headwinds
Uncertainties tied to the Trump administration’s freeze on grant funding from the National Institutes of Health (NIH), a US government agency that funds biomedical and public health research, could imperil some venture investments, firm leaders say. “A potential reduction or slowing of NIH funding will impact the IP pipeline negatively by either eliminating or slowing down critical research to create or translate IP,” Wyant notes.
There is also uncertainty about the impact on the US Food and Drug Administration (FDA), a government regulator of public health products, which “could not only impact commercialisation of our own IP but also impact progress of our venture portfolio companies, many of whom are going through an FDA regulatory process,” says Wyant.
In the meantime, venture firms continue to look for – and benefit from – new opportunities. Last year the Haslam family, owner of the Cleveland Browns National Football League team, donated $20 million to create the Haslam Sports Innovation Center, a partnership between UH Ventures and UH’s sports medicine department. According to Wyant, the centre has invested in three startups, including Collamedix, creator of CollaFabric, a technology with multiple applications for soft tissue support and repairs, and Osteocentric Technologies, designer of UnifiMIm, a less invasive technique for securing implants to bone.
For TGH Ventures, a combination of strategic partnerships as well as direct investments is a recipe for success. The team is collaborating with a startup called Milagro, which uses AI to streamline and optimise the coding process, improving speed and accuracy. Noting that TGH is Milagro’s first healthcare partner, Feinman says the venture team likes to work early on with companies “where there is a white space of opportunity to create a new solution.”
In those instances, she says, “we lend our intellectual property, our know-how, our time and resources to help with complex IT integration that the company may have never done before or understand unique workflows that will help the company be successful in the marketplace.”
“If they are ultimately successful, we are as well,” Feinman says.
