The Hospital Accelerator Model

Evolving reimbursement models, the Affordable Care Act and the activation of patients as consumers are among the major drivers of anticipated disruption to the provider landscape. This shifting financial, regulatory and patient preference has led to not only industry veterans attempting to recalibrate ways of doing business, but has also notably attracted outside entrepreneurs and capital vying to establish a presence in a massive industry ($1.5 trillion was spent on hospitals, physicians and clinics in 2013, according to the Kaiser Family Foundation) that historically has had large barriers to entry. StartUp Health reported  that capital flows for digital health increased from $1.2 billion in all of 2010 to $4.7 billion in the first three quarters of 2015. Despite all the above tailwinds, however, adoption of new business models has been relatively slow. A number of factors must be overcome, including:

• Cultural Differences: Many new entrants come from outside industries, such as technology. Current health care leaders may question new players’ understanding of the intricacies of health care, including fund flows, the level of control any one entity has over an entire episode of care, privacy, compliance, etc. New entrants, for their part, may view incumbents as slow adopters who have not faced the sort of innovation-driving market competition seen in other industries. Both viewpoints have merit.
• Financial Incentives: While the Centers for Medicare and Medicaid Services (CMS) is moving toward value-based reimbursement models such as shared savings or capitated payments, many (if not all) regions of the country are still highly incentivized along fee-for-volume payment models. Thus, adopting new technologies that may keep patients well and reduce unnecessary utilization will not necessarily yield positive financial impacts in the short term.
• Risks: As in all industries, new technologies and new firms have high failure rates. A large provider or system taking on the risk of building, buying or partnering with novel technologies or nascent firms must be highly selective.
• Complexity: While technologies and solutions from other industries may seem applicable to health care, many intricacies must be navigated by new solutions and firms, including the complex dynamics among providers, payors and patients.

As providers seek to stay ahead of the innovation curve in health care delivery and advance their visions of value-based care delivery, they must overcome these factors to tap emerging technologies and business models. A promising avenue is through accelerators/incubators. How Accelerators Work Traditionally, technology accelerators invest a small amount of seed capital (e.g., $10,000 to $20,000 for a 6% stake) and provide three to six months of intensive mentoring, which includes product development, business plan development, networking, co-working space and introductions to similar startups and industry-based advisors. Many of the health care delivery–focused accelerators are also now partnering with forward-thinking academic, municipal or provider entities. These entities establish a presence within the accelerator’s space and work side by side with its portfolio companies. Through partnering with an accelerator, a provider can address learning curve concerns around innovation adoption, such as:

• Mitigating Risks: Working with portfolio companies to develop and integrate solutions allows for “failing quickly” and iterating improvements before they are implemented by the provider or system. Additionally, leveraging accelerators reduces the risk involved in acquisition costs as well as the risk entailed in developing in-house solutions, which may be outside the core competencies of a hospital, physician group or system.
• Providing Guidance: When entrepreneurs from outside industries gain a deeper understanding of the day-to-day issues providers face and the complexities within the broader health care industry, these new insights can lead to even better tailored solutions for care providers and to anticipation of, and collaboration on, future challenges.

Health Care-Focused Accelerator Models Many accelerators and innovation centers for health systems operate with the following cycle: In “Survival of the Fittest: Health Care Accelerators Evolve Toward Specialization,” the California Healthcare Foundation identified six accelerator models with differences in purpose, ownership structure and governance: Key Takeaways Leveraging accelerators could be beneficial for providers who are asking:

• How can I integrate new technology or business models to help in the transition to value?
• How can I get involved with health care startups without having to invest major capital?
• How can I stay ahead of the innovation curve in a cost-effective manner?
• How can I build a culture of innovation within my organization?
• How can I differentiate my organization within the marketplace?
• How can I develop new revenue streams as reimbursement rates stagnate?

Continued financial, regulatory and patient preference pressures will push providers toward the “Triple Aim” (enhancing the patient experience, improving the health of populations, and reducing the per capita cost of health care). These goals will be accomplished through the integration of newly applied technologies and evolving business models with the current health care infrastructure. By leveraging accelerators, health care providers can mitigate risks associated with nascent firms and technologies while also properly positioning themselves for the future landscape. Alfredo Fernandez-Concha is a part of the Center for Healthcare Innovation at Kurt Salmon. He can be reached at alfredo.fernandez-concha@kurtsalmon.com.