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Innovation Case Studies: Small Hospital Venture Funds

Healthcare providers are finding their “play it safe” culture isn’t conducive to breakthrough innovation.

Facing the inevitable deflationary pressures being put upon the healthcare system, innovation is critically needed. Having spoken with several innovation groups in health systems, most examples of “innovation” are decidedly uninspiring. Primarily, it is due to the fact that virtually all of their decisions have to go through the prism of how new ideas will fit with current businesses — a guarantee that will doom so-called innovation to be little more than incremental improvements. Consequently, increasing numbers of hospitals and health systems are smartly allocating money to venture funds that have free reign to find truly disruptive new businesses.

Health systems have taken various approaches such as becoming a Limited Partner in venture funds like Health Enterprise Partners. Some of the larger systems, such as HCA and Dignity Health, have their own venture arms. A new development is a much smaller organization establishing their own venture fund. Implicit in this approach is a much more hands-on approach than as an investor in a 3rd party venture fund. Rex Health Ventures is an early example of venture-capital investment funds in the country started by a community, nonprofit hospital (Rex Health Care). The fund is being launched with an initial $10 million investment from Rex Healthcare and will help finance the most promising innovations among new medical services, tools and technologies.

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