There is no denying that high tech has made its way into hospitals across the nation. Amazon Alexa apps are cropping up in patient rooms and virtual reality headsets are making their way to clinic shelves. While these tools may look shiny on the outside, providers are now starting to have serious discussions about what tech makes business sense, and they're doing it from the get-go of the innovation process. 

“We’re a not-for-profit, but as our leadership likes to say, it’s margin for mission,” Emily Kagan-Trenchard, VP of digital and innovation strategy at Northwell Health, told MobiHealthNews. “At a certain point, if we want to keep pursuing our mission we have to make sure the margin is there to support it. So, in some ways you can’t separate the two, but there’s a question of how do we orient ourselves and then how do we prioritize ourselves.”

Prioritizing gaps, opportunities

ROI expectations can look different for every organization. Like many health systems, Kagan-Trenchard said that at Northwell the team first examines the value proposition to patients. 

“An orienting principal might be ‘let’s remember who people are when they come to our facilities.’ Remembering who people are when they come to any one of our facilities is a really critical goal that also has some bottom line figures,” Kagan-Trenchard said. “How much money are we spending merging duplicate records in our health system? How much money is being spent on paper people are filling out again and again, as well as the frustration it causes front desk staff, let alone our patients.”

Other provider organizations start out by looking at the leaks in its system that can be fixed with automation or another form of technology. While these fixes may not always generate new revenue, they could be effective in saving time and money. 

“You can look at what your existing revenue sources are and prevent the revenue leak or create new channels for growth,” Dr. Ashish Atreja, chief innovation officer at the Icahn School of Medicine at Mount Sinai, told MobiHealthNews. “These are the two major buckets we put these in. The third bucket is mostly around decreasing the man power to create efficiency. So for example, if a lot of phone calls have to be made, if things are very manual, then how can we automate the process? That way we are not creating new revenue or doing growth, but we are making them more efficient.”

At Mount Sinai, the team recently put this process to the test with a tool new for colonoscopy preparation. 

“There is a high no show rate for colonoscopies,” Atreja said. “One in five people who come in for a colonoscopy are not prepped the right way. So, we don’t end up doing the procedure. That is a lot of revenue lost.

"If we are going to a preprocedural planning that is automated, it is not only going to save us a lot of phone calls back and forth, but can also decrease no show rates and insure the patient is going to be able to get the colonoscopy the first time.”

Defining expectations

Startups still have to prove their worth to the large hospital systems, which often are most comfortable with the status quo. 

“Our entrenched business models are very strong. We have been around for over 200 years and our hospitals have figured out revenue models that work and are fine, right?” Dr. Kamal Jethwani, senior director of Partners HealthCare PivotLabs, said during the recent Enterprise Insights Series Event (in partnership with Google Cloud and Rock Health) panel. “So the burden of proof is on the startup to prove that this is better than status quo — and the status quo is actually pretty good, our efficiency levels are pretty good. If you think about Partners’ hospitals with Harvard-trained doctors, we are providing very good quality of care. To beat that quality of care is actually very difficult.” 

But when it comes to ROI for new innovations, hospitals have to do their part as well.  Each hospital has its own expectations, but these goalposts are not always made clear to the startups it is working with. 

“I think that people at provider organizations often underestimate how difficult it is to make clear the value of some of these solutions for the enterprise,” Nick Dougherty, managing director of MassChallenge HealthTech, told MobiHealthNews. “It is not just, 'this point solution is really great.' I have to look at it in the context of an enterprise and they, for good reason, are trying not to put people’s lives at risk. They are not looking to put the institution at risk [financially]. These providers, many of them have less a 1% operating margin. The risk tolerance is just so low that you really have to demonstrate the value.”

Dougherty said defining those fiscal expectations is key to successful partnerships. This transparency can also help both parties understand if a pilot or partnership makes sense for them. 

Startups are also facing other business questions that need to be considered when preparing to pitch their innovation. One of the biggest questions surrounds value-based care and how to make a profit. 

“The elephant in the room is value-based care,” Dougherty said. “So many of these companies are built on a value-based care paradigm. I still think a lot of people haven’t figured out what the definition of value-based care is. There are so many shapes and sizes of a value-based payment model. So much our health system is still fee for service. When you don’t understand what the underlying business is of healthcare or the business model, it is really hard to design a company around that.”

With the future of value-based care up in the air, health systems and startups are left with a murky view of how the long-term business model will pan out. 

“Not just for the patients or people they are touching, but also economically, it is important to build a sustainable company," Dougherty said. "I think there is still a lot of unknowns around value-based payments and what the future of healthcare in the US is. So, while that continues to exist we are going to have a really tumultuous innovation environment.”

Spinouts offer a commercial opportunity

When considering a business model for hospital innovation, many are turning to the flexibility and opportunity of a homegrown spinout. 

“What about a new business and what could you spin off? We think about that a lot because we are absolutely a company that’s very much interested in expanding the definition of what kind of care are we providing, and what kind of visits or services can we offer,” Kagan-Trenchard said. “And quite frankly we think, if we’re fixing our standard of care, there’s got to be others who are having the same problem who could benefit and could open up new business opportunities for us.”

One example of this is Mightier, a Boston Children’s Hospital spinout that makes biofeedback video games to help children with emotional regulation. The spinout has raised upwards of $10 million since its launch. 

Startups from hospital accelerators have a track record of being acquired or patterns licensed as well. For example, Wildflower Health, a digital health platform that helps patients navigate benefits and connect to resources, acquired Circle Women’s Health Platform, a startup from Providence St. Joseph Health System incubator, last year.