Digital health funding is so hot right now. However, depending on who you ask you’ll get a different Scoville Scale reading. A recent StartUp Health report stated a total of $6.4 billion has been invested in digital health ventures this year, a figure on course to be a record year for such funding. However, a recent Rock Health report set to cool expectations by stating $3.3 billion in funding has been spread across 233 digital health venture deals. The pace, according to Rock Health, doesn’t set up digital health funding to break any records this year (last year $4.5 billion was pumped into the space). It should be noted StartUp Health incorporates a larger investment arena in the space than Rock Health, Politico Pulse noted.
While Rock Health stated growth stage digital health deals are at an all-time low (10.2% of digital health deals), 60.9% of digital health deals this year so far were invested in early stage companies. The dance between investment and ROI is still shaking out for many of these deals but areas experiencing funding attention include analytics/big data, wearables and wellness. Rock Health has also noted reproductive health companies is an area to watch for as venture funding becomes hyper-focused and niche-specific.
While it is yet to be seen whether digital health funding will be a record year or not, figures north of $3 billion can provide a fair amount of quiche to companies trying to carve out a space for itself in the crowd.
Leading a new wave of provider digital health funding is the University of Pittsburgh Medical Center (UPMC) via UPMC Enterprises. In its latest report, Rock Health states UPMC “began investing this year and has already become the most active venture investor of the year with six investments.” These investments included $17 million in funding for mental health startup Lantern Health, leading a total $35 million in funding for and purchasing a majority stock in clinical decision support company medCPU and investing in health data analytics wizards Health Catalyst.
So what’s the strategy for a provider diving into the investment waters? As Healthcare Dive was told by Dr. Rasu Shrestha, Chief Innovation Officer at UPMC, while attending the recent Health 2.0 conference in Santa Clara, CA, it’s not a hobby with which to play around. “Lots of provider organizations are at least looking at what it means to be innovative and potentially invest in these sorts of efforts,” Shrestha told Healthcare Dive. He sees this as an encouraging trend that more provider organizations may enter the space.
Innovation and investment and entrepreneurship means different things to different individuals and organizations, but UPMC Enterprises focuses on four domains: Population health, consumer-driven care/services, clinical tools and business services.
What UPMC looks for in an investment
“First and foremost, we’re looking for the best and brightest ideas out there,” Shrestha says. “If it’s an exceptional idea that hits home with a specific pain point in critical areas that we’ve identified internally at UPMC then [that helps] the partnership.” If UPMC can identify a pain point and encapsulate it with the right business case and technologies and talent, then it believes it has a home run of a strategic pursuit.
Shrestha says something that might come as a surprise to some VCs: “We’re not necessarily always looking for the perfect company.” VCs generally are looking for the perfect company with the perfect pitch with the perfect team with a perfect set of solutions that’ll bring high returns. “In a way, what we’re looking for is the perfect imperfect in the sense we’re looking for the right opportunities to add value to the set of propositions that a company or entrepreneur brings to the table,” he added. This approach seeks to help push healthcare and patient care forward.
For example, the Lantern Health funding/partnership was a result of wanting to push innovation forward in mental health and making mental health resources more directly accessible to consumers. UPMC is working with Lantern Health to co-create a set of solutions currently piloting at UPMC which Lantern will then sell across the U.S. and perhaps beyond.
Pushing the value needle forward
While commercialization is not new to UPMC, it has within the last two years further honed in on its strategy to pull together its thesis around innovation, investment and commercialization, Shrestha noted. One of the things it has learned is to have the payer and provider organizations at UPMC, an integrated delivery financial system, work in unison to push toward value-based healthcare.
Shrestha emphasizes commitment to investments are important; it’s not just signing a MOU or forming a strategic partnership for a pilot program. Instead, leveraging the “living lab” across UPMC’s 3,800 clinicians helps identify pain points and potential solutions. From there, a culture of innovation can help nurture ideas and co-create products via investments and partnerships. These tools can be vetted and tested out within UPMC’s walls before taking out to market through a partner company or one of its startups. “Once it's out, we can be a strong reference site and showcase for that technology which I think is a really powerful proposition,” Shrestha said. “It's not just innovation for the sake of innovation. We're not just investing in these companies because they'll be a quick flip or return. We're very strategic in our approach to what innovation means for us and where we invest.”
Whether VCs or providers talk openly about it, there is a culture war occurring between healthcare and digital health. Physicians are taught evidence-based guidelines based on tried and tested methods. On the other side of the coin, digital health innovators are increasingly entering the space with less than tried and tested methods saying, “Trust us. It’ll work.” These two approaches don’t always vibe well with each other when care methods/procedures are being considered. Shrestha acknowledges this culture clash exists and, at UPMC Enterprises, tries to leverage those at-odds approaches by using human-centered design and participatory co-creation among providers, operations and product engineers. Embedding providers and clinical/operations specialists in the creation process before the first line of code is written helps suss out how a product might actually work in a real-clinical workflow setting, he said.
Bringing UPMC's principles around investment, co-creation and partnerships to the table “creates real meaningful and sustainable innovations that not only benefits us at UPMC but also the entire marketplace across the board,” Shrestha said.