Orange County Business Journal | Hospitals Stretch Selves Into More Innovation

Hospitals Stretch Selves Into More Innovation

Seek Entrepreneurs to Improve Healthcare, Bottom Lines

Orange County hospital systems are moving deeper into the “business of innovation” as they seek to respond to changes in the healthcare sector.

Such ventures take various forms, including business incubators and investments into various types of companies.

Hoag Memorial Hospital Presbyterian doesn’t have a specific business incubator or investment fund, “but we do have a history of activity funding pilot [programs] and innovations through our balance sheet,” spokesperson Nina Robinson said.

Tenet California, which operates three hospitals in OC, said it has no plans to start an investment fund. UC Irvine Healthcare also has no fund.

At least two of their competitors do have specifically dedicated programs.

MemorialCare Innovation Fund is a Long Beach-based arm of Fountain Valley-based MemorialCare Health System.

The fund “makes private equity investments in companies interested in developing a synergistic relationship with the system’s five medical centers and affiliated physicians,” it says on its website.

MemorialCare Innovation Fund typically invests in early- to midstage companies focused on medical devices, healthcare information technology or healthcare services.

Its portfolio companies include Irvine-based Ivantis Inc., which is developing the Hydrus microstent to treat glaucoma, a leading cause of blindness, and San Diego-based healthcare information technology company Skylight Healthcare Systems Inc.

“Our main objective is to look for opportunities to bridge between the entrepreneurial world and the healthcare system,” said Brant Heise, the fund’s managing director.

Portfolio companies come to MemorialCare Innovation Fund through various channels, including networking and referrals. Heise said it goes into investments expecting to hold on to them from two to five years.

“We do not work with anyone’s money except for MemorialCare’s—we don’t have limited partners in our fund,” Heise said, adding that the fund doesn’t touch retirement funds for the health system’s employees.

The fund wouldn’t disclose how much money it’s invested but said it has $60 million in assets.

It’s evolved into what it does today from its beginnings roughly 25 years ago, according to Heise, who has been with the fund since 2002. He said it once ran some for-profit businesses that MemorialCare owned, such as third-party administrators for company health plans.

“Over time, it’s evolved where it did not make sense for us to operate companies,” he said. “What it made sense for us to do is bridge this gap” through evolving into a fund.”

The fund started investing in companies in about 2003, according to Heise.

Innovation Institute

Irvine-based St. Joseph Health moved into the innovation world last year. It is collaborating with others to develop products and services stemming from doctors’ and employees’ inventions.

The hospital system is an owner of the La Palma-based Innovation Institute, a for-profit, limited-liability corporation separate from St. Joseph Health, which launched the institute in January 2013 with a $40 million investment.

The institute announced Bon Secours Health System, a Marriottsville, Md.-based hospital operator, as the second owner in October.

An investment piece is part of the institute, which plans to raise capital from private investors to fund mid- to late-stage healthcare companies, said Joe Randolph, its president and chief executive.

Randolph also pointed out the role of the institute’s Innovation Lab, calling it “a vehicle to tap into new revenue sources” for its investor-owners.

Other parts of the Innovation Institute are in a more advanced stage. Its Innovation Lab team—including Executive Director Patricia Eisenhardt and executive sponsor Larry Stofko—has traveled to St. Joseph Hospital-Orange; St. Jude Medical Center in Fullerton; and Mission Hospital, which has campuses in Mission Viejo and Laguna Beach, along with its hospital in Apple Valley, to introduce doctors and employees to the concept.

The Innovation Lab is intended to take ideas for healthcare products and services from the concept stage to market. It collaborates with Cleveland Clinic Innovations, which is part of the multispecialty academic medical center in Cleveland.

“Once we review the submissions, we may forward them to our partners at the Cleveland Clinic for market and patentability evaluation,” Eisenhardt said.

The lab will protect and market the product concept once the Cleveland Clinic’s evaluation is favorable, Eisenhardt said.

She added that licenses and other business agreements follow.

Some 30 product concepts have been submitted to the institute’s lab, 18 of which are from doctors, Eisenhardt said.