Next Things First

Health Innovation in the Northwest … Buzz Is Building by charlottegee
April 14, 2009, 7:34 am
Filed under: innovateHealth, seattle market, start-ups | Tags: , ,

This week, Dave Chase’s Seattle P-I blog, Seattle Startup Buzz, highlighted the health care innovation taking place in the Pacific Northwest:

It’s clear there is an innovation revolution taking place around the health care industry. The need for transformation is huge given the size of the market (16% of GDP and relentlessly growing). I worked in Healthcare I.T. in the 80’s and 90’s and always described it the industry as a paradox. On the one hand, it was at the cutting edge when it came to medical technology but was in the dark ages when it came to information technology. …

The Northwest is quietly staking a claim to leadership in this new innovation economy… and it makes sense. The region is home to some of the most successful software companies on the planet and we also have an extremely vibrant health care ecosystem with significant stakeholders like Swedish, Virgina Mason, Fred Hutch the UW and many others. Combine these elements and what you get is the makings of a first-tier health care innovation environment that will very likely produce the next great companies from the Northwest and could very well become difference makers in the US and even worldwide health care marketplaces.

Recognition of this potential is exactly what spurred Davis Wright Tremaine and a group of health care entrepreneurs to launch innovateHealth…a recently formed organization connecting innovators in the region and creating access inward and outward with potential clients, government leaders, capital resources and more. The folks behind the group are Rob Coppedge of Faultline Ventures, Peter Gelpi of Clarity Health Services, Tobin Arthur of iMedExchange, Joe Whitford and Stuart Campbell both of Davis Wright Tremaine.

We’re thrilled about the building “buzz” around the many innovative health care companies in the area and look forward to more.

More on innovateHealth: innovateHealth // Supporting Health Care Innovators in the Pacific Northwest

Posted by CharlotteGee


Getting It Right the First Time, Warranty Included by charlottegee
April 1, 2009, 6:40 am
Filed under: hospitals, innovation | Tags: , ,

Yesterday the Washington Post ran a piece on Geisinger Health System’s ProvenCare program, which the health system began three years ago:

Mimicking the [Maytag] appliance company that advertised its products’ reliability, the health system devised a 90-day warranty on elective heart surgery, promising to get it right the first time, for a flat fee. If complications arise or the patient returns to the hospital, Geisinger bears the additional cost. The venture has paid off. Heart patients have fared measurably better, and the health system has cut its bypass surgery costs by 15 percent. Today, Geisinger has extended the program to half a dozen other procedures, and initiatives such as the counterintuitive experiment in Pennsylvania coal country are now at the heart of efforts in Washington to refashion how care is delivered across the United States.

How’d they do it?

Geisinger … achieves those goals through standardization. Science-based protocols are “hard-wired” into the process, in much the same way that high-end manufacturing works, said Alfred S. Casale, Geisinger’s associate chief medical officer and a driving force behind the program. For heart bypass surgery, Geisinger guarantees that every patient will receive 40 action items it has identified as best practices. The list includes, for example, properly administering antibiotics within 30 minutes of the operation. The wrong dose increases the likelihood of infection, and infection can lead to a second surgery, prolonged hospitalization and greater risk of death. Surgeons can opt out of doing any element if they give a reason, and an operation is canceled if a single step is missed in the preparations. Electronic medical records contain built-in reminders for the surgical team and track the results.

Of course, not all is well (and many of the reader comments point out that the writer focused only on the good things, leaving out some of the negative effects, and didn’t cover the systematic problems with replicating this program):

But its success has been limited. Geisinger also treats patients who are insured by other companies, and those insurers are not convinced that the savings would be large enough to make it worthwhile for them to renegotiate contracts with the health system. Many still feel more comfortable with the traditional pay-per-procedure approach, even though they run the risk of having to pay thousands of dollars to fix surgeries that go wrong.

Most hospitals are also skeptical of Geisinger’s innovation, saying they would lose money by being unable to bill for treatment of patients who must return. “If they do the right thing and keep patients out of the hospital, it costs them,” said Glenn Steele Jr., Geisinger’s president and chief executive. … Geisinger doctors initially recoiled at the idea of “cookbook medicine,” believing they already followed best practices, Casale said.

PBS’ “NewsHour with Jim Lehrer” also reported on the ProvenCare system:

DR. ALFRED CASALE: We’re saying that we’re so sure that by doing these things right, we’re going to lower complication rates that we’re willing to share the risk of that with the payers, rather than, in the past, there was this perverse mechanism where, if I forgot to give an antibiotic and the patient developed a wound infection after that, and if that patient had to come back in and have another operation to fix the wound, I’d send you another bill, and your insurance company would happily pay it. We think this ProvenCare process has shifted from paying for individual items to paying for value delivered by a high-quality, high-performing system.

MedInnovationBlog had something to say about systems in health care:

Geisinger’s 90 day warranty is an example of “systems engineering” in health care. A number of large integrated multipspecialty groups – Kaiser, Virginia Mason, Intermountain Healthcare, Partners Health, and various academic centers – are following this approach. Systems engineering advocates say, in essence, if you get enough health care people within a health system working together in an organized and systematic way to achieve specific goals, you will reduce errors and improve performance. This requires data, commitment, infrastructure, computer monitoring, electronic records, and physicians in intergrated large multispecialty groups. In American medicine , systems engineering is not common since only 4% of doctors belong to groups of 50 or more.

Posted by CharlotteGee

“Fleeing Angels” in This Tough Economy by charlottegee
February 3, 2009, 1:51 pm
Filed under: angel investors, economy, innovation | Tags: ,

The New York Times today added yet another article to the pile of depressing news on how this long cold winter just keeps getting tougher for entrepreneurs and innovators:

Angel investors are the optimistic financiers who give entrepreneurs their crucial first infusion of cash to bring their ideas to life. Now, in the midst of a punishing economic downturn that is sparing few companies, these patrons are cutting back on their bets and threatening the very foundation of the technology economy.

Unlike venture capitalists, angels invest small amounts of their own money — as little as $10,000 and usually less than $1 million — in very young companies. But like all investors, many angels suffered deep losses when the market plunged last fall.

That has left them skittish, investing in fewer technology start-ups and demanding more of those they do consider, leaving founders struggling to find money at the stage they need it most. The slowdown, entrepreneurs and investors say, could stunt the growth of new companies and have long-term effects on innovation.

Rob’s post on TechFlash in January highlighted the negative effects of a downtrodden economy on innovation (eerily similar to the Times article!):

The only good news for companies raising capital has come from high net worth investors and angel networks—but these pools of capital are reaching their limits. They cannot be expected to pick up all of the slack left by venture capitalists. So, as we move into 2009, we expect the companies “waiting it out” will finally launch fundraising efforts—and the demand for capital will significantly outstrip the supply. Angels won’t be able to keep up and the traditional venture community will remain focused on less risky deals and on reserving capital for existing portfolio companies. While I hope to be proved wrong, we are predicting that these trends will lead to continued loss of early-stage jobs and the unwinding of early-stage businesses. Worse, this will have a chilling on our Innovation Economy—shutting down a major engine of economic growth and job creation.

aerosmith30301On TechFlash today, John Cook wisely pointed out, also in response to the Times article, that “getting a good read on the angel market is nearly impossible, since it’s a nebulous group of unconnected investors who don’t necessarily share similar philosophies.” He asked blog readers to share their thoughts on the current angel market, and opinions are mixed, surprise, surprise.

Posted by CharlotteGee

Next Things Now: Profiles in Innovation by charlottegee
January 28, 2009, 2:28 pm
Filed under: innovation, next things now | Tags: ,

Soon we will be starting a new series on the Next Things First blog called Next Things Now: Profiles in Innovation. Sure, we can talk till we’re blue about the need for health care fixes, from improving quality of care to increasing clinical efficiency to reducing administrative costs to finding real ways to encourage and support health and well-being across populations.

But talking in abstract can only take us so far. In the coming weeks, we’ll be putting a few companies in the spotlight to illustrate what we mean by “innovation.” As we strive to make sense of what comes next, we look forward to highlighting some of the innovators who are bringing needed solutions to the market … and analyzing the challenges these entrepreneurs face in growing their businesses.

If you’d like to suggest a company for this series, email us.

Posted by CharlotteGee

Running on Empty by Rob Coppedge

The snow storm that has left Seattle immobilized (the schools were closed a day *before* the storm, just for good measure) has created the perfect  cold, wintry environment to read the just released National Venture Capital Association survey.  It confirms the icy predictions we’ve been making over the past month – things do not look good for start ups and early stage companies in 2009. In fact, for those that will need the capital markets, things look quite bad.

Respected Seattle business journalist John Cook comments on the NVCA report:

I’ve been informally conducting my own survey of VCs, lawyers and entrepreneurs around town.  The message I am hearing is not pretty, with one VC saying that nearly everyone is hunkered down. Long-time tech entrepreneurs such as The Cobalt Group’s John Holt and Jobster’s Jeff Seely have told me recently that it is about the worst economic environment they have seen.

The general feeling is that the capital markets may be shut for another 12 to 18 months, meaning that startup companies will have to learn to exist on the fumes of their previous venture rounds or get to profitability sooner than anticipated.

Running on fumes… Wow. I made the mistake of using that line with several start up CEOs recently and they almost took my head off. “What do you think we’ve been doing?” “We don’t have any fumes left… we ran out in the third quarter”.

A 70s Flashback for Start Ups

Running on Empty: A 70s Flashback for Start Ups

Without access to capital many of these early stage companies won’t make it to the next gas pump. Unfortunately, with news like this NVCA survey and  Coller’s Global LP Barometer, it doesn’t sound like the capital markets are going to show any sympathy.

Sure, there may be bigger problems out there.  But when billions of dollars are spent to bail out industries that  need to shed jobs, it is troubling to see the innovation and job creation engine of our economy seriously threatened by a lack of relatively small amounts of capital (mere rounding errors to the Treasury’s bailout accountants).

Posted by RobC

A Cold Winter for Start Ups by Rob Coppedge

Our methods are not scientific and I don’t know what you can reliably extrapolate from our results, but you heard it here first: It is already a very cold winter for health care start ups.

In the past week, I have received numerous calls from companies either (1) suspending their fundraising activities and cutting back to bare bones operations or (2) flat out closing up shop.  After nearly 15 years in and around venture capital, I have never seen so many interesting, well positioned companies go through this existential crisis at the same time (not counting the decimation of waves of nonsensical business models in the early 2000’s).

Perhaps it is an effort to clean things up before the end of the year, but I am not so sure that what we are experiencing now isn’t a harbinger of much worse things to come. A few trends worth considering:

1. Waiting it Out. Many early stage companies pulled (or never launched) their fundraising efforts during mid-2008, hoping to relaunch in early 2009.

2. A Dustbowl. By all reports, venture capitalists with “dry powder”  have pulled back and are sitting on their hands waiting to get a handle on the cash needs and time to exit for their current portfolio companies. Not that there has been much venture for early stage health care companies recently anyway, but this is creating a veritable Dustbowl.

3. A Dustbowl, Inside a Chasm? Not only is the industry segment traditionally (and especially now) underventured, but there is little capital for the size of deals needed by early stage health care companies. These companies need $500,000 to $5 million, but few if any are placing this kind of capital in health care start ups (much easier to raise $10-25 million, even in this market). This “Capital Gap” is a big problem, and will be hard to address with the capital and investors in the market now. Larger fund sizes mean larger deals – and most firms with long term health care specialty have been raising much larger fnds. And for funds that have been dabbling in the early stage,  opportunities to move up the risk curve to positive EBITDA deals is very attractive in this market.

4. The Limitations of Angels. The only good news for companies raising capital this fall has come from regional angel networks – but these pools of capital are limited and often regional in their focus.

So, as we move into 2009, we expect to see the companies that have been trying to wait out the market finally launch fundraising efforts out of necessity – and the demand for capital will significantly outstrip the supply. Angel networks won’t be able to keep up and the traditional venture community will remain focused on less risky deals and reserving capital for their existing portfolio companies (which may not see an exit for much longer than originally expected).

While I hope to be proved wrong, we are predicting that these trends will lead to the continued loss of jobs in early stage businesses and potentially the lack of introduction of new innovation into the health care market over the next 12 months. The good news is that well capitalized businesses will have a hey day in this sector, as there is considerable opportunity to build and grow health care services companies in this market (even industry novices can pick up on the increasing clamor for efficiency,  quality and cost effective access – all require new, technology driven solutions). But without the proper capital, there is certain to be a chilling effect on innovation and growth.

Sadly, I expect to be getting more phone calls from entrepreneurs scaling back and shuttering operations during this cold Winter… which might last well into next Fall…

Posted by RobC

Quick Read: Seattle HealthTech Meetup by charlottegee
November 25, 2008, 3:05 pm
Filed under: innovation, seattle market | Tags: ,

The iMedExchange blog recently posted a writeup of the first “Seattle HealthTech Meetup”—featuring none other than Faultline Ventures founder (and Next Things First creator) Rob Coppedge. The event focused on how Seattle can become “a more vibrant and effective hub of healthcare technology … the advantage of Seattle’s entrepreneurial spirit and focus on innovation.” Rob also highlighted the fact that “Seattle is not as risk averse as some other cities currently thought of as healthcare hubs such as Nashville and Louisville.” Fourteen different regional health care companies attended.

Rob will be posting more thoughts on all of this soon. For now, see the post at iMedExchange.

Posted by CharlotteGee