Digital health accelerators aim to turn snake oil into breakthroughs

Investments are flowing into the digital health space faster than ever before but the healthcare industry isn’t necessarily celebrating.

One of the most common complaints from healthcare executives is that many of the new gizmos and gadgets don’t address actual problems that they’re facing. Instead, they demonstrate that many of the would-be innovators lack an insider’s view of the healthcare industry.

Dr. James Madara, CEO of the American Medical Association, articulated that frustration at the group’s annual meeting in June. In a speech to delegates, he railed against “the age of digital snake oil.”

Unlike in other industries, he said, medicine is stuck with “so-called advancements that don't have an appropriate evidence base, or that just don't work that well—or that actually impede care, confuse patients and waste our time.”

But the AMA believes it can help change that dynamic. The trade association in January invested $15 million in a for-profit innovation company called Health2047 that will be based in Silicon Valley. It’s also working with a Chicago-based incubator called MATTER to find the next generation of digital health tools.

Shortly after Madara offered his biting critique of the current digital health landscape, the AMA forged its first partnership with Omada Health, which develops interactive tools to help patients prevent chronic conditions like diabetes.

Hospitals are similarly taking matters into their own hands, both as passive venture capital investors and increasingly through their own programs to develop healthcare technology talent.

Cedars-Sinai Medical Center in Los Angeles is in the second year of its accelerator program, which it runs in collaboration with TechStars. The application period for the 2017 program opened last month and will run through Oct. 15.

The 10 to 12 entrepreneurs will receive an investment of up to $120,000, in exchange for equity in their companies. They also gain access to physicians, researchers and executives from both the hospital and Techstars, and can tap into Cedar-Sinai’s clinical expertise and information technology.

The three-month program will kick off in January, and wrap up with a demo day in April, when entrepreneurs will have a chance to showcase their technology in front of healthcare executives, potential investors and the press.

Cedars-Sinai’s inaugural 2016 class drew 500 applicants for 10 spots. In the end, the hospital selected 11 startups for the program.

“I think these kids are a heck of a lot smarter than we were at that age,” said Tom Gordon, senior vice president at Cedars-Sinai, in an interview. “And I found myself betting on the individual rather than the idea.”

One of those start-ups is Grace, a company that aims to use technology to simplify end-of-life care and funeral planning. Co-founder Alex Kruger doesn’t have a traditional healthcare background, but after the death of his great-uncle, he saw firsthand how overwhelming these decisions can be for grieving loved ones. Grace can help families plan a funeral and guides them through the steps of notifying credit bureaus and closing bank accounts.

“Think of us as a checklist product,” Kruger said. “It’s about providing that information in a super-consumable way. Our goal is to help families make that process as easy and seamless as possible.”  

Cedars-Sinai’s accelerator gave the company access to its social workers, spiritual counselors and executives, who taught the team how to adapt and scale the business to work with a large health system. Social workers, for instance, pointed out that many family members may be struggling to find care for their loved one's pets—a service that Grace now offers.

The hospital has continued to work with some of the start-ups in its inaugural class. It announced partnerships last week with Grace and WELL, a company that allows front office staff to communicate with patients via text message and securely transfer data into an electronic medical record.

“I have watched people come with ideas that have helped my doctors,” Gordon said. “I have watched us go to work on avoiding 30-day readmissions. I believe that these people have ideas that I don’t have. They have experiences that we can’t have.”

Digital health venture fund Rock Health is projecting another record year for the digital health sector. If the first quarter of this year is any indication, digital health investments in 2016 will once again surpass the previous year. And that’s despite the pullback in funding that’s happening in tech overall.

Venture capital firms may be pouring money into the space, but digital health hopefuls will still need to show that their products have a meaningful impact on healthcare. Hospitals and pharma companies are under constant pressure to deliver more cost-effective care—and under so-called “value-based” reimbursement models, their own profits are at stake if they don’t.

So Madara may have a point. Just because something is cool or innovative doesn’t mean it’ll have staying power.

“You have to remember that this all starts with the total costs of care,” says Gordon of Cedars -Sinai. “Our No. 1 objective is to bring down the cost of care.”