Dignity Health in San Francisco has an active venture capital capability, which allocates capital largely through partnership initiatives in three areas: the patient and consumer, value-based care, and automation. Rich Roth, chief strategic innovation officer and comanager of Dignity Health’s Strategic Investment Fund, describes the organization’s philosophy related to its capital partnership strategy:
“On one side, there are amazing entrepreneurs, private-equity teams with capital, novel technologies, and creative business model ideas that offer new and fresh ways of looking at the world. On the other side, we health systems have real doctors, real nurses, and real clinical care occurring every day 24/7. When brought together, these complementary strengths can yield an effective partnership to co-develop things and to scale new capabilities. From the very start, a shared philosophy about the partnership’s complementary strengths is key to partnership success.”
For example, Dignity Health and GoHealth, a next-generation urgent care company, have partnered through shared capital investment to offer consumers conveniently located urgent care centers staffed by Dignity Health clinicians who provide streamlined diagnosis and treatment of non-emergency medical conditions. GoHealth also offers integration into the Dignity Health electronic health record system to support enhanced quality of care.
In contrast, Dignity Health’s digital initiatives are entirely self-funded. In 2016, the health system’s board of directors purposefully created a stand-alone “Office of Digital,” which interfaces with key partners such as population health, IT, and market operations. “The strategic differentiator (i.e., ‘creating an intensely positive personalized, digital experience for patients and consumers’) will propel us to a more contemporary representation of who we are,” Roth says.
A chief digital officer was appointed from within the organization to execute its digital strategy, with overall responsibilities for efforts spanning from online searches and calls to action on the demand marketing side, to the ways consumers are enabled to schedule appointments and choose physicians and care sites based on their preferences, to the use of digital therapeutics such as digital inhalers and glucometers integrated with standard treatments.
Given its high strategic value, platform control is paramount for Dignity Health. “Overarching and fundamental for all consumer interactions is Dignity’s common platform that we develop and we own,” Roth says. “Yes, we work with start-ups and layer their products on our platform, and we are helping a neighboring system to extend their digital transformation, but our platform remains our platform so that we can provide the consumer/patient with a single experience.”
A commitment of strategic capital by the board was significant, with first-year funding of $40 million, and funding increases in subsequent years based on achievement of defined targets. The board views the investment as a capital allocation (competing with other capex funds) rather than an investment allocation (competing with equities or alternatives). “The business case is supported when you view the access impact by comparing the number of people touched by a micro hospital, new hospital beds, or new MRI machines to the reach of people in 22 states via digital technologies,” says Roth.
See related article: Financing a Digital Transformation
Source: Rich Roth was a panel participant in the session “What’s Next for Private Equity and Healthcare?” at the Kaufman Hall Healthcare Leadership Conference, Oct. 18, 2018; comments are from the session and telephone interview, Nov. 2, 2018. Used with permission.