![]() The largest, run by the Catholic hospital chain Ascension, has been in business for two decades and this year topped $1 billion, including contributions from 13 other nonprofit health systems eager to capture a piece of the returns. Many hospital-system venture capital funds, both established and new entrants, have grown rapidly. Children’s Hospital of Philadelphia, for instance, parlayed a $50 million investment into a return of more than $514 million after it spun off its gene therapy startup Spark Therapeutics. While they lack the experience of longtime venture capitalists, health systems posit that they have advantages because they can invent, incubate, test and fine-tune a startup’s creations. As an asset class, venture capital funds assets annually return between 10% and 15% depending on the time frame, according to PitchBook. Venture capitalists often bank on a runaway success that ends up on a stock exchange or in a sale to a larger company to counterbalance their losses. Because investors seek out companies in their early stages of development, a long-term horizon and tolerance for failure are critical to success. Venture capital funds are a potentially lucrative but risky form of investment most associated with funding Silicon Valley startup companies. Of that, nonprofit hospitals classified only $19 billion, or 7%, of their total investments as principally devoted to their nonprofit missions rather than producing income, the KHN analysis found. Together, nonprofit hospital systems held more than $283 billion in stocks, hedge funds, private equity, venture funds and other investment assets in 2019, the analysis found. Though their tax-exempt status is predicated on charitable efforts, nonprofit health systems rarely put humanitarian goals first when selecting investments, even when sitting on portfolios worth hundreds of millions of dollars or more, according to a KHN analysis of IRS filings. “It makes it hard to run a business that is financially successful if you’re altruistic.” Jim Weinstein, who championed a health initiative similar to Cone’s when he was CEO of the Dartmouth-Hitchcock health system in New Hampshire. “The financial models are so much based on how many patients you see, how many procedures you do,” said Dr. That change did not come as fast as hoped. Wellsmith, for instance, was premised on a shift in insurance payments from a fee for each service to reimbursements that would reward Cone for keeping patients healthy. Some systems have found the business case for using their own innovations is weaker than anticipated. Subscribe to KFF Health News' free Morning Briefing. ![]() “Even the best health care investors can’t reliably get their health systems to adopt technologies or new innovations,” said James Stanford, managing director and co-founder of Fitzroy Health, a health care investment company. ![]() Certain devices or apps sponsored by hospital systems have failed to be embraced by their own clinicians, out of either skepticism or habit. Some health system executives have belatedly discovered a project they underwrote was not as distinctive as they had thought. Health systems have gotten rattled by long-term investments when their hospitals hit a budgetary bump or underwent a corporate reorganization. Health system officials assert many of these investments are dually beneficial to their nonprofit missions, providing extra income and better care through new medical devices, software and other innovations, including ones their hospitals use.īut the gamble at times has been harder to pull off than expected. ![]() (Joye Qualls Photography)Įager to find new sources of revenue, hospital systems of all sizes have been experimenting as venture capitalists for health care startups, a role that until recent years only a dozen or so giant hospital systems engaged in. Even though initial results were promising, the health system shut down the operation. Austin, Texas, entrepreneur Jeanne Teshler worked with a North Carolina health system to develop a digital tool to help people manage their Type 2 diabetes. ![]()
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