Reinventing the organization again & again

UPMC’s first startup — the for-profit UPMC Health Plan created 20 years ago — has grown to cover 2.6 million members and accounts for nearly 50 percent of UPMC’s revenues. And it is key to a more recent startup that just went public; Evolent Health, founded in 2011 by UPMC Health Plan and the Advisory Board Co., provides technology and support to provider organizations that are working to become integrated delivery and finance systems — better known by the acronym as IDFS — in UPMC’s mold.

“We essentially take the things that we have done here in Pittsburgh and share them with our brethren across the country to solve health care problems,” says UPMC’s Heppenstall.

Evolent has 750 staff members working with health systems in more than 25 markets around the country, and UPMC is an active partner in the fast-growing organization. “I think one of the reasons that Evolent has been so successful is the ability of other health systems to come here and see that there is somebody who can actually become an IDFS as successfully as UPMC has done it,” he says.

Evolent is one of several startups emanating from UPMC’s own operations. Others include Stentor, a picture archiving and communication system, and Prodigo Solutions, a health care supply chain company. Most recently, UPMC announced a significant investment in Palo Alto, Calif.-based Health Fidelity, which worked with UPMC Health Plan to develop risk-adjustment solutions for organizations that participate in Medicare Advantage, health insurance exchanges and Medicare accountable care organization programs.

UPMC Enterprises also works with partners to bring innovations to the marketplace. Omnyx, a joint venture of GE Healthcare and UPMC, developed the technology that allows pathology departments to digitize their workflow. Launched in 2008, Omnyx LLC was the first stand-alone company in GE’s history to be formed with an academic medical center.

“We are a large enough place and have made a big enough difference in this space that our pathologist could say, ‘Hey, here is something that we can do,’ ” Heppenstall says. “Obviously, building equipment isn’t something that we do every day, but GE does. So, we decided that our skill sets were complementary, and that’s how it came to be.”

Is your CFO a VC expert waiting to happen?

Finding the right mix of expertise is a challenge for health systems that have innovation investment programs.

Health-related startups want to partner with health systems to access their knowledge and the opportunity to use its hospitals and clinics as a learning laboratory. The health system needs leaders who know how to structure an investment deal, how to protect the organization’s interests and how to work successfully with entrepreneurs and young companies, says Lisa Suennen, managing partner of Venture Valkyrie Consulting, which helps organizations design venture funds.

“Serving on the board [of a startup] takes a different kind of skill than it takes to manage doctors at a hospital,” she says. “You have to balance between using internal people and bringing in people who have been successful in the business of venture capital.”

Of course, anyone who has succeeded in venture capital is an expensive hire, and structuring a compensation package may pose a challenge for nonprofit health systems.

“The right people are somewhat determined by your mission — whether it’s innovation creation or money creation,” Suennen says. “But if you aren’t savvy about the venture financing side of things, you can destroy your value proposition.”