How Tel Aviv's Sheba Medical Center and Haifa's Rambam Medical Center look to innovation to generate revenue.

For Israel's hospitals, innovation can and must be self-funding

By Jonah Comstock
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The Sheba Medical Center campus. (Photo courtesy Sheba Medical Center)

Hospitals all over the world hope that investment in innovation will ultimately lead to cost savings. But for Israel’s hospitals, that can't be an abstract hope, two hospital leaders told MobiHealthNews on a recent visit to the country. Instead, self-sustaining innovation is a concrete and immediate need for the hospitals’ bottom lines.

“Budget-wise, we have half a billion dollars per year,” Dr. Michael Halberthal, recently appointed CEO of Rambam Hospital in Haifa told journalists on a tour of the facility. “[We have] 5,000 workers, 1,000 beds, and half a billion dollars. If you compare us to Stanford, it’s 600 beds, 20,000 workers, and $7.3 billion. So we are not budgeted for any R&D. All the R&D we see around the hospital we have to find other sources for that money, and as you can see we are investing a lot in R&D for the hospital.”

The Israeli government only invests 7.5 percent of its GDP in healthcare (the United States spends more than 10 percent). So when Israeli hospitals talk about innovation, they’re talking about something that not only needs to pay for itself, but ideally will generate additional money to help fund the hospital.

At MEDinIsrael 2019 in Tel Aviv, and at a post-event tour organized by the Israeli Export Institute, doctors talked about their innovation strategies and the idea of “sustainable innovation.”

Sheba Medical Center’s ARC program

Israel’s Sheba Medical Center recently launched its Accelerate, Redesign, Collaborate, or ARC, startup accelerator model (we featured the program in our February HIMSS Insights eBook).

ARC both incubates outside startups and spins out internally developed technology.

“Many of the big medical centers are focusing internally, because they want to develop intellectual property and commercialize it,” CMO and CIO Eyal Zimlichman said at the conference. “But we know so many of the brightest ideas are coming from outside. They’re coming from startup companies. And especially in an environment like Israel with so many startup companies around us, if you’re closed to those startups, if you’re closed to innovation on the outside, you’re missing a huge opportunity.”

They run 20 to 30 startups through the program each year, giving each one $50,000. They have about a 30 percent commercialization success rate out of the program. The center also houses a $45 million digital health innovation fund operated in tandem with TriVentures.

The biggest benefit for the startups however is access to the hospital’s data and physicians, and the opportunity to pilot its technology within the hospital’s walls.

“What we’re hearing from them is what used to take us a year to do outside takes us two months inside,” Zimlichman said. “And for a startup company, they’re all on a burn rate, they’re all losing money, and if they could cut that down from a year to two months that would help considerably.”

The goal at ARC is sustainable innovation, and the hospital has been successful enough that it’s beginning to export its model to other countries, with ARC Ottawa set to open in Ontario, Canada this summer.

But Zimlichman warned that it’s a difficult goal.

“Sometimes you see a beautiful innovation center being built,” he said. “It could cost $100 million, lots of glass and steel, and it looks fabulous. But then when you come back to visit them five, six years later many times the innovation center is closed. Why that happens is people expect that innovation will pay for itself very quickly. They think we’ll innovate, we’ll commercialize, we’ll have some funding that returns, and we’ll use that to sponsor innovation. That takes a while.”

At Sheba, he was lucky to have “the wheel already spinning” thanks to older commercializations of molecules and medical device technology, Zimlichman said. But his advice to hospitals looking to create sustainable innovation from scratch is to look for partnerships that are mutually beneficial without an exchange of money. For instance, working with a co-working company like WeWork.

“If you have real estate in your hospital and you don’t have a building that you want to occupy, and you have that company come in and build a building on that real estate, they would build it for free and bring in the startup companies inside to work with you,” he said. “This would create the rent for them, but you would pay zero to have an ecosystem on your campus with startup companies coming in, working with your clinicians, and creating something that might have an upside as well. That’s one example of how you have different stakeholders and all of them have a need. The way is to work in a fashion where everybody gets what they need without having to put in $100 million in advance like many of the rich systems do.”

Rambam’s MindUp program

At Rambam Medical Center in Haifa, their approach to incubating startups is a case in point for Zimlichman’s vision.

MindUp, located in a building just a few minutes’ drive away from Rambam’s campus, is a startup incubator run by a partnership of Medtronic, IBM, Pitango, and Rambam.

“The first three are what I call the business partners,” CEO David Shwarzman said during tour. “They’re the ones who invested the actual dollars that I use for operations and investment. Rambam is a different story. Their investment, because they’re a government hospital, they don’t have the money, they don’t have the regulatory approval to invest money in an incubator, so their investment comes in the form of in-kind services.”

Interestingly, the Israeli government does subsidize the other three companies’ investments. Which is part of the appeal for them. Additionally, MindUp takes equity in startups and the companies hold equity in Mindup, which allows them to reap the benefits of early stage investment while reducing the liability.

MindUp has no cohorts and no demo days. They require companies to stay for at least two years, but otherwise let them move at their own pace, providing them with some funding, but also administrative and accounting support, specialized equipment, and a relationship with Rambam.

The incubator is not afraid to take a hands-on role, sometimes adding Rambam doctors or scientists to founding teams to boost their chances of success.

Commercialization with a global eye

The goal of these hospitals’ support of innovation is to commercialize products and then get a piece of that revenue to help support the hospital.

“We don’t need to be shy, as a not-for-profit health system, about saying we’re looking for a revenue stream to come out from innovation because that revenue stream will push out more innovation, and as you know innovation is difficult to sustain if you do not have the right resources at hand,” Zimlichman said.

In order to do that, most Israeli startups aren’t thinking about selling their products in Israel’s 9 million-person healthcare market. Most have set their sites on the United States, as well as other regions like Europe or Canada.

In addition to its work with Israeli startups, Sheba works with a number of health systems in North America including the Mayo Clinic, Massachusetts General, and Mount Sinai Medical Center. In these programs, the two hospitals take a joint stake in whatever ideas come out of the projects.

“The big advantage is just having two groups of clinicians sit down and take notes, think out what the needs are, and design a solution that would be applicable not just to Sheba, but to our partners in the US,” Zimlichman said. “Many of the startup companies formed from those ideas are looking at the US market. They’re not looking at the Israeli market, that’s very small. If you’re working from square one with a US partner, that has been a design partner, that goes a long way. Two hospitals together is a huge value, two hospitals together from different countries is a huge value, and two hospitals together where one is actually representing the market is a huge value.”


Editor's note: This story was reported in Tel Aviv, Israel on a trip paid for by the Israeli Export Institute, an organization funded in part by the Israeli government, which covered airfare and lodging for reporters. MobiHealthNews Editor in Chief Jonah Comstock also participated as an onstage speaker at MEDinIsrael 2019. As always, MobiHealthNews maintains its editorial independence and made no promises to the Israeli Export Institute about the content or quantity of coverage.

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