Strategic Shift Health Systems Embrace Investing in Health Tech Startups

Health systems are increasingly establishing their venture capital arms to support and shape the landscape of health tech startups.

In a transformative shift over the past two decades, health systems are increasingly establishing their venture capital arms to support and shape the landscape of health tech startups.

Currently, at least 23 health systems, including giants like Ascension, Cleveland Clinic, Kaiser Permanente, Mayo Clinic, and UPMC, have embraced this trend, offering more than just financial support to emerging companies.

When a health tech startup secures investment from a health system’s venture capital arm, it gains not only capital but also access to invaluable industry expertise. Startups are granted a behind-the-scenes look at the intricacies of hospital workflows, creating an ideal environment for piloting digital tools effectively.

In recent interviews with MedCity News, startup founders revealed that investments from health system venture capital arms are perceived as significantly more valuable in the long run compared to funding from traditional venture capital firms. The tech pilots launched with health system partners are found to be more effective due to enhanced incentive alignment.

For health systems, investing in health tech startups is not just about financial returns; it’s an opportunity to actively shape the tools that will address challenges such as burnout, payment delays, and hospital readmissions. By participating in the early stages, health systems avoid potential issues where tools force clinicians to alter established workflows, hindering adoption.

Stanford Health Care, an early adopter with its venture capital arm launched in 2012, emphasizes the depth of commitment in helping startups understand the intricacies of care delivery systems. According to Tip Kim, Stanford Health Care’s Chief Market Development Officer, health system venture capital arms offer startups more than traditional funds, focusing on active participation in validating and commercializing technology essential for improving healthcare and reducing costs.

Startups in Stanford’s investment portfolio, such as digital health enablement startup Xealth and Atropos Health, have successfully commercialized products that are currently in use within the health system. The close involvement of the health system is credited with significantly improving the success rate of tech pilots.

Memorial Hermann in Houston exemplifies another health system with an investment arm, emphasizing long-term relationships with startups rather than mere funding.

The system strategically chooses startups aligned with key priorities, including addressing workforce burnout, optimizing care costs, tackling social determinants of health, enhancing patient experiences, and driving precision care.

The strategic investment relationship ensures startups address critical issues relevant to the health system’s goals. One such example is Laudio, a Boston-based startup automating administrative tasks to alleviate frontline nurse manager burnout. Memorial Hermann’s involvement as an investor ensures a collaborative approach to pilot programs, leading to strategic goal alignment and shared success.

The future of health system involvement in the tech startup landscape holds potential for even greater collaboration. Some suggest consortium-building among health system venture capital arms to expedite innovative product launches, fostering a collaborative approach that benefits both startups and the healthcare industry at large.

As health systems continue to play a pivotal role in shaping the future of health tech startups, these strategic investments underscore the importance of active collaboration, shared goals, and a commitment to improving healthcare outcomes. The evolving landscape holds promise for innovative solutions that address current challenges and pave the way for a more efficient and patient-centric healthcare ecosystem.