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Why hospitals should work with and invest in healthcare startups

Adaptive Medical Partners | Healthcare Administrators, Healthcare News, Physician Recruiting

Healthcare startups received $15 billion in investments in the first half of 2018, making the industry the second biggest source of venture capital money after internet companies. Considering the healthcare sector makes up nearly 18% of national GDP, this shouldn’t come as a surprise.

Not only can a successful startup generate lots of revenue, they can also improve lives through their innovations. For precisely these reasons, and other factors that making entrepreneurship unique in the medical sector, hospitals and healthcare systems must get more involved with startups.

Here’s how hospitals can serve as a crucial resource and partner for healthcare startups, and why it benefits all involved, most importantly the patients:

Hospitals understand what solutions work

The best startups in any field fulfill a need–they solve a crucial problem and enhance the lives of customers. The medical industry is no different here. That’s why Joe Lonsdale, a venture capitalist focusing on healthcare, says, “tools that can help patients achieve better outcomes” are going to have the most success.

After all, who understands what healthcare solutions work better than the professionals of the industry?

When it comes down to it, what differentiates the situation is that health issues, insurance frameworks, coverage plans, and the regulatory environment are complex and ever-changing. To create the most effective tools for keeping patients healthy, startups absolutely require the expert input of hospitals and healthcare providers. Whether the startup aims to make insurance cheaper or cancer treatments more personalized and effective, they can certainly benefit from a partnership–both financial and operation–with a hospital.

Hospitals and patients both benefit

The success of hospital systems that set up venture capital funds proves they’re a great partner for healthcare startups. For instance, Partners Innovation Fund has invested in over 20 healthcare startups, with a total of eight successful exits. That’s a pretty solid track record.

As an article published by Rines Angel Fund attests, healthcare startups are long-term, illiquid, high yield investments, which plays to hospitals’ favor financially (provided the strategy is correct). Making such investments, as well as helping to nurture and develop the ideas of entrepreneurs, also ensures hospitals are working to develop technology that will advance their industry–and therefore allow them to serve their patients better.

What’s notable is how much more incentive hospitals have to see the solution the startup provides come to fruition. That’s because it can benefit their operation tremendously.

For instance, Vivify Health, a healthcare software provider, had lots of options for investment in 2016 when they sought funding. However, they chose UPMC, a large Pittsburgh-based health system. Why? Because UPMC planned to hold on their investment rather than flip it for huge returns. That’s because they’ve been shifting to a value-based healthcare approach, and needed to improve their clinical efficacy and productivity. Vivify Health made for a perfect long-term partner.

In short, the potential is tremendous. Hospitals can reap the financial rewards and boost patient outcomes and experiences, all the while cutting costs and solving crucial issues they face. It’s win-win for everyone involved, from the startup to the hospital to the patient.

Making the partnership work

First, as an article in TechCrunch attests, hospitals could create incubators to nurture and grow healthcare startups. Their resources and expertise could remove many obstacles and expenses for startups, such as facility management and technical support, as well as the need for equipment. They could offer guidance on research and development and assist with building out solutions as well. This will allow resident entrepreneurs to focus on what matters most–life-changing health innovation.

Second, hospitals should bring on those who have experience in venture capital, especially ones who have had successful investments in science-driven fields, from biotech to life sciences. They’ll not only bring important insight on the potential and validity of ideas, but also provide a fresh set of eyes that enables hospitals to think outside their own system–and actuate world-changing solutions.

Lastly, hospitals should make an effort to transform their own culture. An entrepreneurial mindset must be adopted and the team must get comfortable with change. That starts with leadership and hiring the right doctors, nurses, and staff to build an adaptable, nimble work atmosphere that’s ready to dream and work with entrepreneurs.