When doctors and nurses treat patients, a primary focus is to manage, if not eliminate, their pain.For health systems that invest in startup and early-stage companies, the goal is, of course, to get a financial return on that investment, but it often also includes the hope of eliminating a “pain point.”Connecticut’s two largest healthcare systems, […]
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When doctors and nurses treat patients, a primary focus is to manage, if not eliminate, their pain.
For health systems that invest in startup and early-stage companies, the goal is, of course, to get a financial return on that investment, but it often also includes the hope of eliminating a “pain point.”
Connecticut’s two largest healthcare systems, Yale New Haven Health (YNHH) and Hartford HealthCare (HHC), each use a portion of their investment portfolios to invest in startup ventures, including some that are incubated in their clinical facilities.
Michael Angelini, senior vice president and chief investment officer for Yale New Haven Health, which generated $6.6 billion in operating revenue in fiscal 2023, said his organization began making such investments over a decade ago.
“We quite often had small, early-stage companies coming to us and saying, ‘We recognize you’re an academic medical center, and we have a product or service or technological application that we’re trying to develop, and we’d really love to do that in the four walls of your hospitals, in your clinics.’”
YNHH agreed, he said, because the ventures were usually developing “something that would solve a pain point for us.”
A few years later, Angelini said, YNHH went all in, founding the Center for Healthcare Innovation.
“We decided we were going to get better at this,” he said. “That we are going to promote a culture of innovation … and really get our people on the front lines thinking about how they can do things differently.”
Solving problems
Dr. Barry Stein, chief innovation officer for Hartford HealthCare, says his organization also invests in startups, utilizing four “very clearly defined” strategic imperatives: improving care access, affordability, equality and excellence, meaning quality and safety.
Stein said HHC, which owns seven hospitals and generated $5.9 billion in operating revenue in fiscal 2023, understands it needs “to innovate with the world’s best startups and companies that are prepared to disrupt,” so it has created an environment “to attract the world’s best entrepreneurs and companies to try and help us solve those problems.”
Neither health system would discuss the specific amounts of money they invest in startup ventures.
Angelini did say that YNHH’s overall investment portfolio is approximately $3.8 billion, and that its investment in startups “is a relatively small portion” of that portfolio.
“It’s less than 1%,” he said.
Stein said HHC works with startups in a number of ways, including being a limited partner in “multiple healthcare venture funds,” directly investing capital, and signing agreements for an equity stake.
Angelini said Yale New Haven Health has “about six investments in actual equity and about 12 that we’re working with.”
The U.S. medical technology industry has been attractive to investors. The sector raised $9.8 billion in venture funding during the first half of 2024, and $15.8 billion in all of 2023, according to research firm Statista.
In its 2024 fiscal year, which ended June 30, the state’s quasi-public venture capital arm, Connecticut Innovations, invested $14 million in healthcare technology companies, which represented 29% of its total investments.
Automating supply chains
One of the companies YNHH works with is Clarium, a New York-based startup focused on hospital supply-chain operations.
In August, YNHH joined a group of organizations in backing a $10.5 million investment in the company, which was founded in 2020.
Clarium developed Astra OS, an artificial intelligence-powered workflow technology and data system that helps providers automate their supply-chain operations, with the goals of achieving cost savings while improving productivity, the company said.
Clarium says health systems using Astra OS have identified an average of more than $10 million in cost savings and productivity gains in their supply-chain operations.
Angelini said Astra OS addressed a pain point for YNHH. “It’s really better at managing inventories, and that became glaringly obvious that was a pain point during COVID.”
Another startup investment addressing a pain point is RxLightning, Angelini said.
The company has developed a platform that simplifies, streamlines and automates the process for prescribing and managing specialty medications.
“Essentially that means, for patients, helping them understand what drugs are available for their needs, and then helping health systems understand that as well,” Angelini said.
Game-changer
For Hartford HealthCare, Stein said investing in startups can have positive results financially, while also helping fill a need.
He cited a company called Axuall, which HHC has an equity stake in, that has created a system for credentialing and onboarding physicians and other newly hired medical staff.
“To onboard a physician takes six to nine months at best, … and for them to be credentialed with every payer in your system takes forever,” Stein said.
Auxall’s system reduced the onboarding process to two weeks, he said.
Another example Stein cited is a company called Medeloop, for which HHC is a limited partner. Medeloop has created an AI-driven platform to help accelerate medical research.
“You’ve got multiple grant writers who go and look for potential funding for the research,” he said. “It’s a difficult process because it’s all over the place. Then you’ve got to write the grants, which takes months. This technology … learns about the research you’re doing, then goes out to the rest of the world and finds the appropriate, relevant funding sources and then writes the grants for you.”
That’s a game-changer for smaller health research institutions that can’t afford a large grant-writing staff, he said, adding it also fits in well with HHC’s new Center for AI Innovation in Healthcare.
“We are directly investing (in Medeloop) because we believe in them,” Stein said, “and we’re getting equity in validating the thesis that if it works in an environment like Hartford HealthCare, it can work in an environment anywhere in the world.”
Risky investments
Both Stein and Angelini acknowledge that investing in or partnering with startups involves significant risk, which is one reason their organizations are limiting these types of bets.
“These are risky investments, right?” Angelini said. “They’re early-stage companies. And if you talk to any venture capitalists … they’ll tell you one in 25 investments, or somewhere there abouts, is going to make it. And so, in order for you to have a success, you’ve got to make 25 of these investments, and you shouldn’t expect a whole lot of them to make it to the next level.”
The other issue is that such investments take time to blossom, he added.
“A number of these companies won’t really know if they’ve been successful until year six or seven,” Angelini said. “You know that is part of it. But for us, we do see some growth in valuations of these companies that we’re partnering with, and so that’s part of the equation.”