At Health 2.0 Venture Connect, strategic investors from Providence St. Joseph Health, CareFirst Blue Cross Blue Shield, and Johnson & Johnson reflect on their experiences.

Investing in your own disruptor: The opportunities and challenges of strategic investing

By Jonah Comstock
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(L to R) Michael Brown, Dan Galles, Stacy Feld, and Indu Subaiya chat on stage at Health 2.0 VentureConnect. (Photo by Jonah Comstock).

In the world of healthcare there are many stakeholders: hospitals and other providers, insurers and other payers, and, of course pharma and medical device companies. But one thing all these stakeholders have in common is that they’re increasingly moonlighting as investors.

At the kickoff of Health 2.0’s Venture Connect event today in Santa Clara, California, three of these strategic investors — representing venture arms of Providence St. Joseph Health, Carefirst Blue Cross Blue Shield, and Johnson & Johnson — spoke about the realities of their dual roles, and what they’re seeing in the health tech investment world these days.

One of the biggest challenges of strategic investing is when you find yourself backing disruptors— and you’re the one they’re trying to disrupt.

“In a way we’re cannibalizing ourselves,” Dan Galles, a partner at Providence Ventures, told moderator Dr. Indu Subaiya. “…Hospitals aren’t going away, but from an economic perspective they’re kind of a gorilla on the back of us. We know know that a lot of the services we’re developing need to be outpatient. We need to push care outside the hospital, which will lead to a need for redesign.”

An illustrative example is Providence’s partnership with One Medical.

“Historically, cannibalization or challenging our own organization is something we might have been much more protective about. Now, we made an investment in a company that we announced a big partnership with, One Medical, who I’m sure have ruffled a lot of feathers across our organization with our primary care physicians. So they’re launching centers that are cobranded with us. Our view is, we need to be where our patients are. We need to get them into our system, work with One Medical to provide that experience, and then wrap our system around that to make it a better experience for our patients as well as bring more patients into our system.”

If an industry is headed for change, it's better to understand and embrace that change, even if its a potentially threatening one.

“I think it’s really important to know the context for investing and whether something would be targeted toward something that’s disruptive innovation vs something that’s more incremental and core focused,” Stacy Feld, VP of Consumer Venture Investments at J&J Innovation, said. “At J&J, … we look at equity investment as a way to identify those things that would be truly transformative or disruptive of categories that we’re already in or we see ourselves growing into. And I think knowing that as an entrepreneur, knowing who you’re talking to, being really crisp about what’s the context for the innovations you’re trying to actualize, is critical.”

Michael Brown, senior corporate development advisor at Carefirst, said that the payer world is leaning into one particular brand of disruption: the move from per member per month pricing as a default to paying for engagement.

“[We] really want to pay per engaged member,” he said. “Have they downloaded the application or the intervention and stayed with it? And how do you display that stickiness — not only have they downloaded it, but did they stay on for six months? And then from our standpoint, can we track any clinical outcomes and say ‘Did they lower A1C?’ and build that into their validation. So there’s that strategic value there.”

Being a payer with access to claims data is a major benefit of strategic investing, Brown said, because not only can they have a clearer view of portfolio companies’ efficacy data, they can also share that data with the companies.

Ultimately, strategic investing offers both opportunities and challenges. Maximizing the former while navigating the latter will increasingly be the business of most providers, payers, and pharma companies.