Exploring Digital Health Funding Strategies at Cleveland Clinic, UPMC

July 21, 2023 - Amid the flurry of new entrants into healthcare — including retailers and technology giants —provider organizations are increasingly taking on a new role in the digital healthcare arena. Instead of only being the customer, some health systems want to get in on the ground floor as investors, creating dedicated venture capital funds.

Venture capital's presence in the healthcare industry has grown prominent, particularly in the last decade. According to a 2019 Health Affairs article, the value of digital health investments increased by 858 percent between 2010 and 2017, outstripping the 166 percent growth in total venture capital funding in the overall economy.

The COVID-19 pandemic pushed digital health funding to new heights. In 2020, venture capital funding for health technology innovators almost doubled compared to 2019, crossing $14 billion, according to Deloitte.

Amid this growth, health systems began launching their own venture capital funds. One estimate shows that at least 23 health systems have an investment arm, including Kaiser Permanente, Ascension, Cleveland Clinic, and UPMC.

Now that the COVID-19 public health emergency (PHE) has been declared over, these health system-run funds are helping shape the future of investment in digital healthcare.  

A LOOK INTO HEALTH SYSTEMS' INVESTMENT ARMS

Health systems can glean numerous benefits from launching an investment arm, including the opportunity to champion solutions to widespread healthcare problems and the potential for additional revenue from investing in a successful company. UPMC saw value in both.

"UPMC Enterprises was formed to solve some of the toughest challenges in healthcare — while creating long-term returns that can be reinvested in the mission of UPMC," said Brent Burns, executive vice president at UPMC Enterprises.

The current iteration of UPMC Enterprises was launched in 2014 with a focus on advancing innovations that improve healthcare quality, delivery, and cost-effectiveness.

"We are committed to partnering with internal stakeholders and collaborating with our portfolio companies to build sustainable businesses that impact the lives of our patients in meaningful ways, such as improving access and efficiency of delivery and care," Burns said.

At Cleveland Clinic, the impetus to create an investment arm was born of efforts to commercialize intellectual property emerging from the health system.

"Cleveland Clinic is a teaching hospital," said JD Friedland, managing director of Cleveland Clinic Ventures. "We do a lot of research. Some of the sickest patients in the world come to Cleveland Clinic in areas where we have very strong clinical expertise like cardiovascular, neurology, orthopedics, urology…So as a result of that, many of our researchers and clinicians develop new intellectual property."

The health system created Cleveland Clinic Innovations two decades ago to help clinicians and researchers submit inventions and discoveries for commercialization. The Innovations group solicits, evaluates, and helps translate inventions into real-world use. The group then commercializes the invention either through a license agreement or operationalizes it via a license into a company that Cleveland Clinic Innovations forms. Cleveland Clinic Ventures is a part of the Innovations group.

"The Ventures team at Cleveland Clinic Innovations will serve as board members, board observers, and advisors to the company, and then we will work with the companies to recruit and retain management, develop and execute a strategic plan," Friedland said.

Of the 25 companies currently in its portfolio, about three-quarters started as a company Cleveland Clinic formed by licensing its owned intellectual property.

DIGITAL HEALTH INVESTMENTS SHIFTED DURING THE PANDEMIC

Over the years, UPMC Enterprises and Cleveland Clinic Ventures have invested broadly across clinical categories.

Friedland noted that digital health solutions supporting care for neurobehavioral and neurodegenerative disorders have been a top priority at Cleveland Clinic Ventures. This includes companies that develop tools to improve screening, diagnosis, and monitoring for these conditions.

For instance, the fund has invested in Autism Eyes, a development-stage company using proprietary algorithms and software delivered through a hardware solution to perform a seven-minute visual stimulus screening for patients 18 months and older.

"We have very high sensitivity and specificity for that test to be able to make a determination as a clinical decision support tool to assist the clinician in diagnosing and potentially treating autism," he said. "So, we're really excited about that technology."

The company was formed based on IP that emerged from Cleveland Clinic, which has previously published studies on the link between eye gaze patterns and underlying neurobehavioral conditions like autism spectrum disorder, Friedland added.

But Cleveland Clinic is not just interested in clinically focused digital health solutions. It is also one of the founding members and investors in Avaneer Health, which is developing a real-time distributed solution for revenue cycle management. The solution will enable healthcare providers to get reimbursed by payers without going through a claims clearinghouse.

Similarly, UPMC Enterprises' investments span clinically focused digital health solutions as well as operationally focused ones.

For instance, the venture capital fund has invested in Infectious Disease Connect, which provides access to infectious disease experts through telehealth solutions. It has also invested in Astrata, which offers software focused on the Healthcare Effectiveness Data and Information Set (HEDIS) to help health plan quality initiatives provide value-based care.

"UPMC Enterprises provided support to those individuals as they built their products and teams while also piloting the solutions internally," Burns said.

The COVID-19 pandemic further spurred the work being done by UPMC Enterprises and Cleveland Clinic Ventures. After the massive spike in venture funding for digital healthcare companies in 2020, it nearly doubled again in 2021, reaching $29.1 billion, according to Rock Health.

UPMC Enterprises saw several new opportunities emerge during the pandemic as new companies launched while existing ones pivoted, according to Burns. For example, the fund supported Safar Telecare, a virtual platform connecting specialists to bedside clinicians. The solution was developed during the first wave of COVID-19 to help struggling intensive care units within partner facilities in New York and UPMC. Since then, the technology has been used to support bedside consultations across several service lines at UPMC.

"The pandemic showed the resilience of our investment model, which is centered on establishing customer relationships, seeking co-development opportunities, and deploying capital in promising companies," Burns said.

UPMC Enterprises also saw a rising demand for technology support services among its portfolio companies. So, it worked with internal leaders to develop a suite of services to help the companies improve processes and reduce risks and costs.   

The acceleration in digital health funding impacted Cleveland Clinic Ventures positively overall. With the pandemic came a significant uptick in demand for virtual care services, like The Clinic by Cleveland Clinic, a joint venture with Amwell that enables patients to receive second opinion consultations virtually with Cleveland Clinic specialists.

Not only that, but the pandemic threw into sharp relief the gaps in digital healthcare. For instance, Friedland noted a lack of robust solutions addressing specialty staffing challenges in the venture fund's portfolio. Another unmet need was patient engagement solutions to ensure a continued connection between patients and providers after discharge.

To fill these gaps, the health system's Innovations and Venture groups began working closely with strategy leaders within the organization.

"I think one of the things we tried to do is create alignment internally between what we're doing within the Venture arm and within Innovations and how do we align that with what the strategic priorities are at Cleveland Clinic," Friedland said. "So, the folks in our strategy group, we have a very regular interchange with them about what they identify as the biggest pain points and the biggest problems, the biggest opportunities."

WHAT THE FUNDS ARE FOCUSING ON IN 2023 AND BEYOND

Digital health funding has declined, with startups raising only $6.1 billion in the first half of the year, new Rock Health data shows. Additionally, fewer investors are participating in digital health fundraising rounds. Only 555 investors participated in digital health fundraises in the first half of the year, down from 775 in the first half of 2022 and 832 in the first six months of 2021.

As digital health funding cools off, Cleveland Clinic plans to stay hyper-focused on its mission, that is, supporting technologies that can help solve persistent problems in healthcare.

The venture fund's broad strategic plan is to identify ideas generated outside of Cleveland Clinic that complement those generated internally and bring them together to operationalize.

"So that we can be a clinical trial site, we can be an early adopter, we can be a beta site, or we can be a customer in addition to potentially being an investor," he added.

Key areas that the fund is focused on in a post-PHE world include remote patient monitoring and patient engagement. With advanced technology comes numerous opportunities to boost outcomes, but Friedland notes that this is only possible if patients take ownership of their health, especially those with chronic diseases.

Another focus area is data, namely data security and ethical use considerations in digital healthcare.

"Because we have a lot of data on all of our patients, we want to make sure it's used properly and ethically, and we want to protect the data to make sure that it's only used for the purposes for which it would be intended," Friedland said. "We want to make sure that we have the ability to manage that data effectively while simultaneously making sure that the patient and the clinician have access to the right data at the right time."

Generative artificial intelligence (AI) is also piquing Cleveland Clinic Ventures' interest. But while generative AI has shown promise in several healthcare arenas, including diagnosis, Friedland and his team are waiting to see how much of the hype is smoke and how much is fire.

"We want to support real applications of generative AI in healthcare, but we're not just going to throw money at generative AI because somebody slapped that label on their company," he said.

Meanwhile, UPMC is focusing its investment strategy on improving patient access to care and driving efficiencies through automation and advanced technologies.

According to Burns, UPMC Enterprises plans to focus on innovations that help the health system get patients to the right level of care at the right time and in the right care setting to improve care access.

"Digital health tools that can re-envision the care landscape while still enabling services of the highest quality will accelerate our efforts to get outside the traditional clinic walls and into more community-based settings," he said.

To drive operational efficiencies, the venture fund is seeking solutions to help offload routine but time-consuming tasks onto technology.

The integration of digital healthcare into traditional care delivery is well underway. But as digital health funding cools off and traditional venture capital funds turn their attention to the next new thing, health system-fun funds may become the critical force moving the healthcare innovation needle.  

"That's maybe the benefit that an investor like Cleveland Clinic and many of our peer group members have," Friedland said. "This is not like, well, this week we're investing in digital health, and in six months we're just going to choose not to invest in healthcare because it's not as interesting. We're in this for the long haul."