‘Why not us?’

Health systems increasingly look to initiate innovation, instead of being on the receiving end

Where will the next great medical technologies come from? A Fortune 500 company? A mom-and-pop start-up? Silicon Valley?

How about your health system?

If it feels like you’ve been reading more news about health-system-operated technology incubators, accelerators and venture funds, you probably have.

Henry Soch

“Yes, there has been an increase in their involvement in medical device innovation,” says Henry Soch, vice president, Sg2, a Vizient company.

The reason is simple: Health systems realize they have a significant amount of intellectual capital within their organizations, and they can leverage it to create new devices and clinical pathways, which they can then commercialize to create new revenue streams, he says.

Soch leads Sg2’s intelligence work surrounding technology adoption and innovation. He looks at the technology landscape and informs member organizations when it is appropriate to adopt new technologies, and how they can incorporate those technologies in clinical care.

It is difficult to specify exactly how many healthcare systems operate accelerators or venture funds, because they often reside in different parts of the organizational structure, says Soch. Some fall under the strategy team (usually under the chief strategy officer), others may be included in the innovation office (under the direction of the chief innovation officer), and some may be stand-alone organizations or separate businesses that report directly to the board of directors.

Examples of active health systems include the Texas Medical Center, Cleveland Clinic, Kaiser Permanente, Intermountain Healthcare, Geisinger, Ascension, UPMC, Cedars-Sinai, Partners HealthCare System, Mayo Clinic, and many others.

Why health systems?
Health systems are no longer content with waiting for innovation. Instead, they want to create it.

The “accelerator” concept has been around for decades, but its adoption within the healthcare industry is only about 10 or 15 years old, says Soch. “It is now being applied more frequently because of the move to value-based care and the increasing need to rapidly respond to changes in the healthcare environment,” he says. “The other major driver is to try and accelerate the ‘bench to bedside’ cycle of innovation and speed up the adoption of new advances to benefit the most patients in the shortest timeframe.”

Obtaining FDA clearance for a new device requires serious clinical validation across a wide range of patients, he points out. “In a world that is moving to value-based payment, unless you can demonstrate REAL clinical value in either the diagnosis, treatment or cost implications, you miss the mark in terms of market effectiveness in new product development.”

How does it work?
Today’s venture groups and innovation institutes have departed from the traditional “technology transfer” business model, says Soch. That said, “an operational commercialization or technology transfer infrastructure” is the foundation for building a high-innovation environment.

An effective technology transfer infrastructure includes a formal process for soliciting ideas from people – clinicians or ancillary personnel – in the organization about projects they believe may have a major impact on healthcare delivery, he says. Perhaps it lowers the cost of delivery, shortens the time-to-diagnosis, reduces the workload burden on the clinical staff, or is truly transformative.

The healthy infrastructure allows people to discuss the project from a clinical and business perspective, says Soch. “If it passes that threshold, a certain amount of money will be allocated to the project for a prototype and proof of concept. Then the decision is made whether to provide additional funding or whether to seek outside help.”

But for many health systems, making the leap from technology transfer to true innovation can be challenging.

“Probably the biggest challenge is to eliminate the ‘silos’ in clinical innovation efforts that exist in most organizations,” says Soch. “It is critically important to understand how broadly a device or medical invention can be applied across disciplines when determining which proposals make the cut in terms of additional investment and prioritization.

“And health systems have limitations, not only in capital, but in knowledge of the business aspects of medical technology, such as manufacturing, marketing and distribution. In those cases, the health system would need a business partner with that kind of experience.”

If the healthcare system is heavily invested in the technology, it may be very involved in its development and commercialization. But many relationships are more “arms length,” meaning the system may cede these functions to others.

Either way, the stakes can be high. And they seem to be getting higher all the time.

The payback time to generate a positive ROI is shrinking considerably, says Soch. “In our conversations with healthcare innovation centers, we find they are beginning to look at an ROI of between 18 and 24 months, as opposed to the more typical five to seven years.”


The Texas Medical Center in Houston is a relative newcomer to the business of innovation, says Erik Halvorsen, Ph.D., director of the TMC Innovation Institute. But what it lacks in years, it has made up in terms of the number of early-stage healthcare companies under which it has lit a fire.

Five years ago, the leadership of the Texas Medical Center and its major institutions set out to create an environment that would nurture the next generation of therapies, medical devices and digital health applications.

The umbrella is the TMC Innovation Institute, which comprises about 200,000 square feet and several programs:

  • TMCx+ co-working space
  • TMCx accelerator
  • J&J Center for Device Innovation
  • AT&T Foundry for Healthcare, with a focus on digital health technologies
  • TMC Biodesign Fellowship Program
  • TMC Venture Fund

The TMCx+ incubator is a co-working space in which roughly 30 young companies – ranging in size from just a couple of people to 20 or more – house their offices and research efforts.

Another facet of the Institute – the TMCx accelerator – provides start-up companies with a variety of services without charge, including business plan refinement, legal advice to establish or protect intellectual property, prototype design and development, regulatory guidance, and introductions to both medical center partnerships and venture capital. The accelerator runs two cohorts of 20-25 start-ups per year – one for medical devices, one for digital health, explains Halvorsen. The most recent medical device cohort drew more than 200 applicants from 18 countries. At the end of six months, the participants present their plan to potential investors and strategic partners.

A third component of the program is J&J Innovation’s JLABS@TMC, a 34,000-square-foot facility of common, wet lab and office space, as well as a 1,000-square-foot prototyping space, which includes specialized software, electronics testing and assembly equipment, rapid fabrication and 3D printing capabilities. At press time, JLABS@TMC had 51 resident companies – 49 percent therapeutics, 31 percent med/surg and diagnostics, 10 percent technology and 10 percent consumer.

The Center for Device Innovation (CDI@TMC) is collaboration between Johnson & Johnson Medical Devices Companies, Johnson & Johnson Innovation LLC, and the Texas Medical Center designed to enable rapid prototyping and pre-clinical/clinical testing. The 25,000-square-foot Center includes a full machine shop with advanced prototyping equipment; 60 work benches; facilities for electronics lab, wet lab and mechanical testing; 12 private offices and 24 open workstations; virtual reality system and visualization space; and conference rooms.

In November 2017, the Innovation Institute launched the $25 million TMC Venture Fund, dedicated to investing in early stage technologies that can advance human health. The fund has invested $2.5 million across seven companies to date.

Finally, the TMC Biodesign Fellowship Program is a one-year paid fellowship for a handful of fellows specializing in digital health and medical devices, says Halvorsen. They are embedded in TMC hospitals, participate in clinical rotations and observational work, and identify unmet needs. They often come up with hundreds of ideas, which they ultimately narrow down to three, based on technical, market and other business criteria. The fellows then present their plans to the Innovation Institute team, who select one for the fellows to develop into a company. They have approximately six months to build prototypes, test them, and form a company.

“It’s a ground-up build, a very exciting program, and great experience for the fellows who participate,” says Halvorsen. “We have been doing this three years, and we’ve launched four companies.”

Corporate help
Academic medical centers and universities are strong at basic research, but have a tougher time working through prototyping, iterative design testing, IT, financing, gaining regulatory approval and carrying a product to market, says Halvorsen. “The further they go in the process, the less experience, knowledge and capabilities they usually have. You’re talking about taking a device from concept to regulatory approval and market entry. That can be several years and millions of dollars.” And that’s why they need help.

The TMC Innovation Institute draws on scores of corporate partners – law firms, venture capital groups, medical device companies, digital health companies – to mentor, advise or even partner with the start-ups in residence, he says. With 21 hospitals, collectively more than 800,000 surgeries, and 10 million patient encounters per year, TMC offers plenty of clinician involvement as well.

“If you can’t get traction [for your medical product] here, you probably won’t get it anywhere,” he says.

The activities of the Innovation Institute benefit TMC, its institutions and its patients, says Halvorsen.

“We find the best technologies from around the world that address unmet needs in healthcare, bring them to Houston and work to introduce them into clinical practice, to benefit patients and improve the entire healthcare process and experience.

“Our member institutions love it, because they want to be early adopters; they want to deliver the best for their patients. The Institute gives them a competitive advantage. People look at TMC as a destination where they get the best care with cutting-edge devices and procedures. That helps our hospitals recruit the best doctors, researchers and innovators, nurses, medical students and others, who want to be where new technology is being developed and deployed.”

Says Soch, as healthcare makes the transition from fee-for-service to value-based purchasing, health systems will have more of an impact on innovation. “They hold the keys to clinical care pathways, and they can determine whether the proper use of a new device will improve clinical outcomes of time-to-diagnose.”

Nine questions

Who better than health systems to address nine key questions that need to be answered to properly evaluate the potential of a new device or innovation, says Henry Soch, vice president, Sg2, a Vizient company:

  • Does this provide an improvement over existing practice?
  • Is it technically feasible?
  • Does it fulfill a REAL NEED?
  • Are there any barriers to commercialization?
  • How easily can it be implemented?
  • Is it evidence-based and does it provide real merit?
  • Is there a competitive market advantage if the heathcare system were to develop it?
  • What is the likelihood of peer adoption?
  • Is it at an actionable stage of development?

What’s an incubator? Accelerator?

Both incubators and accelerators help firms grow by providing guidance and mentorship, but in slightly different ways and, more importantly, at different stages in the life of the business, explains Fernando Sepulveda, managing director, Impulsa Business Accelerator, in a 2012 Inc. magazine article.

“Like a father to a child, an incubator provides shelter, where the child can feel safe and learn how to walk and talk by offering office space, business skills training, and access to financing and professional networks,” he writes. “The incubator nurtures the business throughout the startup phase (childhood) and provides all the necessary tools and advice for the business to stand on its own feet.

“However, while learning to stand on its own is a great entrepreneurial achievement, the walk through adolescence is often wobbly and filled with challenges, and the need for guidance is far from over. Often it becomes necessary to receive advice and guidance from a business accelerator.”

Business accelerators “help companies get through adolescence and prepare them to enter adulthood, providing them with strong arms and legs, sound values and a clear mindset (strategy) for the future. In other words, while incubators help companies stand and walk, accelerators teach companies to run.”

Incubator programs nurture the business for the time it takes for it to get on its feet, sometimes many years, writes Sepulveda. On the other hand, a business acceleration program usually lasts between three and six months.

Source: “The Difference Between a Business Accelerator and a Business Incubator?” Inc. magazine, July 31, 2012

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