Issue link: https://beckershealthcare.uberflip.com/i/1424600
52 INNOVATION Digital health investment red flags to look out for, per 9 hospital innovation execs By Katie Adams I n August, hospital innovation leaders shared with Becker's the No. 1 thing they seek in a potential innovation investment. Now, in September, they're detailing what red flags to look out for. Editor's note: Responses have been lightly edited for clarity and style. Thomas Graham, MD. Chief Innovation and Transformation Officer at Kettering (Ohio) Health: Those colleagues who carry titles involving innovation, transformation and strategy. CIOs and CMIOs are getting inundated by both organic (coming from one's own institution) and external opportunities to explore new digital health investments. Honestly, that is good news for the future of healthcare delivery. However, whether the new offering is intramural versus emanat- ing from an emerging company or established entity, we must fil- ter these carefully. Our approach includes a disciplined evaluation process and checklist: Is the new tool a "buy or a build," meaning do we already maintain capacity/capability? Will it be accretive, not redundant, to platforms we are already operating? Does it deliver a measurable outcome? Will the relationship resemble a partnership vs. a vendor-client arrangement? Does it interface with or further activate our EMR? Is the offering mission-aligned and strategic for our enterprise? Any new investment we make must enhance access, improve out- comes, elevate patient experience and/or manage cost of care. Daniel Durand, MD. Chief Clinical Officer at LifeBridge Health (Baltimore): I look for the following red flags, which are enough to knock out easily 80 percent of potential investments in digital health: 1. Do they have a legitimate sustainable competitive advantage? Por- ter's Five Forces model provides a useful framework to determine whether there are legitimate barriers to various competitive forces. Typically I want to see that a startup has either intellectual property (e.g. devices or patented soware algorithms) or at least the chance to develop legitimate "trade secrets" (e.g. proprietary data or analytics). Don't forget about network effects, which are sometimes called "Por- ter's sixth force" — these can provide a nonlinear boost to firms with large initial user bases (think Uber and AirBnB). 2. Is the stakeholder whose problem they are solving going to be will- ing or able to pay them? One of the tricky things about healthcare is the complexity of the flow of money and the "principal agent prob- lem" — the idea that the party paying for something is rarely the party "shopping" for the service. It's generally far easier to figure out how to create value in healthcare than it is to figure out who is willing and able to pay for whatever value you are creating. 3. Are they vastly overestimating the cost of new revenue? Firms run by "nonhealthcare" entrepreneurs oen simply cannot fathom just HOW fragmented the system is due to both the regulatory environ- ment as well as the startling lack of consolidation relative to other sec- tors. As much as they think they understand the degree to which each customer is a "one-off build" … they rarely get it right quantitatively, and most startups systematically underestimate the degree to which they will pay dearly for each new implementation. Kolaleh Eskandanian, PhD. Chief Innovation Officer at Chil- dren's National Hospital (Washington, D.C.): Digital health in- cludes a broad range of categories spanning from health IT to fit- ness trackers to sophisticated soware assisting clinicians to make decisions. My area of focus includes the digital health soware and applications that are regulated due to their intended use as a med- ical product, adjunct to a medical product or algorithms that assist in medical decision-making. In this context, a red flag I look for is the rigor given to testing and validation that should go into the de- velopment process to obtain regulatory clearance or approval. An- other red flag is when developers insist on masking a "soware as a medical device" as a consumer product thinking investors shy away from regulated technologies. Jason Joseph. Senior Vice President and Chief Digital and Infor- mation Officer at Spectrum Health (Grand Rapids, Mich.): Digital health has a lot of attention and investment right now, and rightly so. ere is a huge opportunity to use digital technology that can make therapeutics and programmatic management of health and disease better and more efficient. However, there are more good ideas than there are companies that have figured out how to make those ideas truly impactful — which means there are going to be a lot of failures over time. at's OK if you are looking to place some investments in things that have a higher risk but may carry a return. As a health system looking to improve health for our patients and members, we look for the fundamentals. Is there a reasonable busi- ness model that will sustain this company into the future? We want partners that have some staying power. Are there measurable out- comes that have been demonstrated in the real world? Does the tool or platform know its place in our ecosystem and fill a need without infringing on other areas that will be duplicative or confusing to con- sumers? If these things aren't aligned in the right way, it's wise to pro- ceed with caution and some guardrails. Kathy Azeez-Narain. Chief Digital Officer at Hoag Hospital (New- port Beach, Calif.): Digital health has become one of the trending topics across the healthcare industry. On top of that there are new startups entering the space daily, which make it increasingly import- ant to vet and thoroughly assess potential investment areas. e first red flag is whether the tool is being introduced for the right reasons. Is it being pitched because it is solving a real problem that either phy- sicians, patients or consumers are experiencing? Does it solve a gap in the marketplace today that would bring positive impacts to those we are caring for? ese answers are important because we are focused on solving the gaps versus building the trending technology. e second red flag is how the products are built. Assessing whether this is just another great idea driven by great business leaders or if they also have strong engineers who understand that what is built will most likely need to work with legacy systems. We need to en- sure the product built solves for that, otherwise you run into many integration problems. Lastly, are the estimated costs realistic? You want to ensure that the product you are looking to invest in has founders/leaders that under- stand that acquisition won't only be about the patient/consumer but also getting physicians to use the tools which can impact ROI poten-