How some providers are stoking entrepreneurial fires to ensure healthy financials
In an era of falling inpatient rates and value-based reimbursement, hospitals and health systems are seeking new ways to grow their revenue streams. For some, that has meant wearing an entrepreneurial hat and marketing home-grown solutions.
One example is the University of Pittsburgh Medical Center, which two years ago created UPMC Enterprises to develop and commercialize novel technologies.
As lead investor in a $5 million funding round, the health system is pursuing precision medicine with Pittsburgh-based Cernostics. UPMC’s support, announced Aug. 31, will help bring to market a diagnostic test for people with Barrett’s Esophagus, a serious complication of gastroesophageal reflux disease that can lead to cancer.
“It’s not always true that getting more care is getting better care; sometimes getting less care is getting better care,” says Tal Heppenstall, president of UPMC Enterprises. “We think that the area of personalized medicine, making sure that the care you get is appropriate for you, is going to be one of the things that’s going to drive [healthcare] costs lower. We prefer to lead that than to follow that.”
Cast a wide net
Another area that UPMC is focusing on is clinical decision support, making sure that technology that physicians and nurses use at the bedside actually helps, rather than hinder, them make the right decision. The health system has secured a majority interest in New York-based MedCPU and plans to co-develop future products with applications in population health, care management and consumer engagement, in addition to buying and using the company’s existing decision-support technology. The partnership also gives UPMC access to MedCPU’s more than 60 hospital clients.
The third area UPMC is focused on is the supply chain, says Heppenstall, pointing to Pensiamo, a recent joint venture with IBM Watson aimed at helping hospitals improve supply chain performance. The health system spun out another supply chain venture about two years ago — Prodigo Solutions, which helps hospitals control their supply costs through contract automation. That sale netted UPMC $9 million.
There are other projects as well, past and present, but Heppenstall says the benchmark is always the same. “We don’t invest in a company or do anything with a company unless somebody at UPMC — outside of UPMC Enterprises — either on the provider side or the health insurance side, thinks this is a great product that we can really add to. Our number one criterion is UPMC as a customer.”
Keep the ideas coming
Children’s Hospital of Philadelphia is also pushing the business model, looking at everything from devices that go on a child’s pinky to implantables that remain in the body throughout one’s life. Currently, the health system has about 50 projects running concurrently, says Patrick Fitzgerald, vice president for entrepreneurship and innovation at CHOP.
“I think one of the downfalls of other institutions in the innovation zone is that they only focus on one specific area. What I like about what we’re doing is we are looking at devices, we are looking at software, at therapies. We don’t want to limit ourselves.”
About two years ago, CHOP translated 20 years of gene therapy research into an integrate platform to treat rare diseases where no therapies exist. The result, a standalone company called Spark Therapeutics, went public last December and has since recently, with Pfizer, announced receipt of breakthrough therapy designation from the Food and Drug Administration for a treatment for hemophilia B. While not every idea will turn into a Spark Therapeutics, Fitzgerald believes there are many opportunities for either standalone companies or attractive licensing assets.
Not every idea has to have a direct impact on healthcare, either. CHOP took two decades worth of research on safe driving by pediatrician Flaura Winston, director of CHOP’s Center for Injury Research and Prevention, and spun it out into a standalone company that partners with small and medium-size businesses to diagnose and coach drivers.
CHOP’s focus, with entrepreneurship, is three-pronged: Create a culture that encourages ideas and innovation; make CHOP’s vast repository of knowledge and experience available to other hospitals and customers beyond the health system; and look for internal solutions that can be translated into new service offerings for CHOP patients. Fitzgerald cites, for example, a recently developed dermatology app that allows patients and families quick access to a pediatric dermatologist without having to drive to the facility.
Weigh risks vs. rewards of investment
Entrepreneurship is not just happening at academic medical centers. “I have seen this kind of entrepreneurship most often in small and critical care access hospitals looking to diversify their services, given the limited growth potential in their markets from their core services,” says Adam Higman, vice president of Soyring Consulting.
“IT products are common, whether that is an affiliation program for EMR affordability, data warehousing or locally developed software systems that deal with things like population health,” he tells Healthcare Dive. But he’s also seen success with support services that have a broader reach than just a local facility, such as food service, supply chain, laundry and linens and billing/collection solutions. And there are ventures in outpatient services like wound care, infusion therapy and home health, he notes.
When asked to do a feasibility analysis or evaluate a potential venture outside a hospital’s core business, Higman says his biggest advice is “to be honest about organizational capabilities and do the homework to weigh the risk/reward on the investment.”
Organizations need to assess whether they have the technical skills and leadership expertise to successfully pull off a venture and, if not, to build those resources in-house, partner with someone already in the space or engage a consultant to help set up the initial program, he says. In determining risk, the question isn’t just loss versus gain in revenue, but understanding how the investment will impact other priorities the hospital has, such as patient care.