Who profits from innovation? How to drive sustainable change in healthcare

By Bj?rn von Siemens, contributing author Dr. Eyal Zimlichman MD, MSc

Innovation in healthcare is accelerating all over the world, creating large gains in shareholder value for founders and investors. As of April 2022, 92 companies with a healthcare focus achieved unicorn status, when five years ago that number was still at only eight.?

Accordingly, global VC funding into healthtech businesses has increased massively. In comparison to around $2bn being invested globally in healthtech in 2011,? 2021 alone saw funding worth $44bn. In 2021, Europe’s overall healthtech funding increased 2.4 times vs. 2020 to $10bn, whereas healthtech funding in the United States grew 1.5 times over the same time period, to $38.1bn, making the USA the global leader in terms of amount of funding.?

When we break these numbers down however, it becomes apparent that some countries are less advanced than others. Germany’s contribution, for example, is still limited - and this is not just in terms of start-up funding, as the country’s traditional healthcare system is also lagging behind when it comes to driving impactful digital healthcare innovation.?

Innovation must be profitable

To understand how we can enable impactful innovation in Germany (and anywhere else), we first need to consider that it is not enough to develop products that improve the quality of patient care or cost efficiency. Those are necessary prerequisites for successful innovation.?

To create a sustainable fly-wheel effect, innovation in hospital based healthcare needs to be profitable for all participants of the ecosystem, not only for pharma, medtech companies and their investors.

We are not arguing against medtechs making profits from innovation, but suggest participation in innovation for providers. In other words, hospitals need to benefit financially from innovation in a more systematic way.?

When innovation is profitable, it sets into motion a positive cycle: as soon as hospitals partner with healthtech companies to develop and implement new technologies in a profitable way, this leads to higher profit generation for the hospitals, which can in turn be invested into further innovations.?

For this to become a reality in Europe, it requires a shift in mindset, a business-savvy attitude in hospitals, and a willingness to take risks.

Global best practices

When looking at innovative healthcare systems globally, such as the United States and Israel, this is exactly what we see – hospitals work with innovative healthtech and data commercialization players and develop business models that are commercially viable. This in turn, allows them to continue innovating, unlike in Europe where many hospital collaborations with start-ups fail to produce profits for the hospitals.??

Successful ventures such as Doctolib, Brainlab, Siemens Healthineers and our very own Caresyntax were created in Europe, in collaboration with the likes of AP-HP, Charite, TU Munich hospitals. Yet no European hospital owns significant equity or other upside in these ventures, which would create the fly-wheel effect.?

Overall, there are three best practice business models that can be observed globally:

1) Monetization of data and licenses: Hospitals gather large amounts of data and can make this data available to technology companies as part of an innovation collaboration. Together, the hospital and healthtech company can then develop new or improved products that are either used internally by the hospitals themselves or that are sold to other hospitals and companies. In the case of a sale, hospitals receive a share of the license fees or sell their rights. A successful example of data monetization is the partnership between Caresyntax and Sheba Medical Center in Israel, in which we jointly developed a new risk algorithm that is now commercialized across Caresyntax and other med-techs. Sheba generated income from data sales through this collaboration, and has further upside participation in the future.

"Together, hospitals and healthtech companies can develop new or improved products to use internally or to sell to others."

2) Equity participation: Hospitals that invest in technology companies and can benefit from their growing enterprise value as shareholders. There are especially impressive success stories when looking at fast-growing American healthtech companies. The stock price of healthtech MemorialCare Health System rose from $1.01 to $14.13 in just one year (2020-2021) and had an internal rate of return of 766%. Cedars Sinai Health System, funded by Cedars Sinai Hospital, had a share price of $26 after a 2019 IPO, up from a Series C share price of $5.69 in 2014. These examples show that investing in a growing healthtech can be highly profitable for a hospital after just a few years.?

3) Development of Innovation Centers: Hospitals can build their own innovation centers, such as the ARC Center (Accelerate, Redesign, Collaborate) that was founded by Sheba Medical Center in Israel. The ARC Center funds external startups and internally developed technologies, whilst managing an innovation fund. A strong entrepreneurship program provides many technological developments which are then commercialized to the market. Profits from company shares and proceeds from the in-house application of technologies are reinvested in further innovations. In the example of Sheba Medical Center, the ARC Center had a positive impact not only on financial income?but also on medical tourism and the hospital’s international ranking.

A mindset shift?

From the above examples, we can clearly see that profitable innovation models multiply the invested capital and enable more innovation, benefitting both hospitals and healthtech companies, whilst improving patient outcomes. This is a model we see ample demand for in the US, and growing awareness in Europe.

For European hospitals to succeed in its innovation leap in healthcare, there needs to be a mindset shift and the appropriate regulatory and governmental support. On one hand, researchers and physicians need to think bolder and hospitals need to combine monetization and research, whilst showing more willingness to take risks. On the other hand, there needs to be more public and governmental investment in the digitization of the healthcare system and a friendlier regulatory environment when it comes to topics such as data sharing.?

What are your thoughts??

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About the co-authors:

Eyal Zimlichman MD, MSc

Prof. Eyal Zimlichman serves as Deputy Director General, Chief Medical Officer, and Chief Innovation Officer at Sheba Medical Center, Israel's largest hospital. Previously, he held the position of Lead Researcher at Partners HealthCare's Clinical Affairs Department in Boston and was heavily involved in the efforts to implement a strategic care redesign initiative there. Prof. Zimlichman has served on several advisory committees commissioned by the Office of the National Coordinator for health information technology at the U.S. Department of Health and Human Services and is chairing as well as participating in several committees at Israel's Ministry of Health. He is also a founding member of the International Academy for Quality and Patient Safety.

Prof. Zimlichman is the founder and director of Sheba's ARC innovation program, which aims to redesign healthcare through digital health solutions by 2030. He is board certified in internal medicine, completed a degree at the Harvard T.H. Chan School of Public Health, and has earned his MD at the Technion Israel Institute of Technology.

Bjoern von Siemens:

Coming from a background of technology and healthcare innovators, Bjoern von Siemens is driven by the vision of creating stronger societies through better human health. Since 2007, Bjoern has been founding, investing and mentoring for the digital healthcare technology space. After working with groups such as Siemens Healthcare and advised health insurance companies through Boston Consulting Group and Bain&Comp, he co-founded surgical.ai in 2011. Surgical.ai is a privately held healthcare investment group with $150m AUM. Bjoern also launched caresyntax, a global leader in surgical analytics and automation. As of 2021, Caresyntax’s technologies are used in 4,000 operating rooms worldwide and improving 3 million surgeries per year. Bjoern was educated at the London School of Economics, EBS Oestrich-Winkel and conducted several years of PhD reseach on behavioral psychology and entrepreneurship at both the University of St. Gallen and Harvard University. He published his research in peer-reviewed and management journals, and authored a study and class on the history of Siemens at Harvard Business School.

Sources:?

1. Health Transformer 2021 Year-End Insights https://healthtransformer.co/2021-year-end-insights-report-44b-raised-globally-in-health-innovation-doubling-year-over-year-90b19ff4a8a6?
2. Global Health & Biotech investment update: https://dealroom.co/uploaded/2022/01/Dealroom-report-health-jan2022.pdf?x75805?
3. Global Health-Tech Unicorns: https://www.holoniq.com/health-tech-unicorns/?