Over the past year, Providence Health & Services, a 159-year old not-for-profit Catholic health care provider, has quietly built a sophisticated venture capital arm that could pass as a fund at any large technology company.
In addition to the $150 million fund, Providence Ventures employs a staff of about 100 employees, who write code and are tasked with inventing ideas to improve and lower the cost of health services.
Driving the operation is not only a panel of healthcare experts, as you might suspect, but A-list technologists and entrepreneurs, who are giving up more traditional jobs to work in a field that’s notorious for red tape and bureaucracy.
Providence Ventures is run by Aaron Martin, a former Amazon exec who previously built the company’s self-publishing and print on-demand business for Kindle North America.
More recently, Providence hired Mike McSherry, the former CEO of Swype, which famously built a mobile keyboard that allows you to quickly input text on touchscreens using your finger. McSherry left Nuance Communications a year ago after it acquired Swype for $100 million in 2011.
McSherry, a long-time entrepreneur, along with a few of his original teammates from Swype, are serving as entrepreneurs-in-residence at Providence, tasked with coming up with the next big development in healthcare.
How is Providence attracting this talent?
“I was working on some real cool stuff for Kindle when I left, but I found myself thinking in my off cycles, ‘What could I do with healthcare?’,” said Martin, who was first introduced to the idea of joining Providence more than a year ago by Mike Butler, president of operations and services for Providence Health & Services. “What got me interested was the mission.”
Providence Health & Services employs more than 76,000 people, and posts annual net operating revenue of more than $12 billion. It is the third largest not-for-profit health system in the United States, operating 34 hospitals in Alaska, California, Montana, Oregon and Washington, including Swedish Medical Center in Seattle.
It is big, and with that comes bureaucracy. But Providence Ventures is looking to wipe those layers of bureaucracy away throughout healthcare, creating more efficient systems that will ultimately benefit patients and providers.
McSherry said he joined Providence Ventures because of the challenge and scope of the project.
“Our charter is to look at the whole world of healthcare. It’s basically up to us to define the problems that we think are worth solving,” he said. “It all comes down to us coming up with an idea that we think is worthy of tackling.”
McSherry first got exposed to the healthcare system while on the board of Pacific Medical Center, aka PacMed, which is the Seattle-based health system known by its distinctive Beacon Hill tower. (Only by coincidence is that where Amazon’s Seattle headquarters was located until recently.)
PacMed and Providence formed a partnership a year ago aimed to improve health outcomes for people, while reducing costs.
Martin said Providence Ventures’ goals came about due to the trend in high deductible health plans, in which patients have more responsibility for the cost of their care. Given that they pay more out of pocket, patients have become much more selective about where they go, prompting them to comparison shop for healthcare just like they do for other major purchases in their lives.
To that end, Martin said it’s important for Providence to be ahead of the curve, and to identify things that would disrupt the industry before someone else does it. The concept is similar to his role at Amazon, which was willing to introduce the Kindle and self-publishing, even though it had a growing and profitable physical book business.
“In the past, healthcare has been a B2B system,” Martin said. “In the future, it’s going to be a consumer-focused business. They’ll be able to vote and choose. To have a say in the future, you have to be willing to disrupt your own business models. That’s what got me interested in the company.”
As part of this effort to disrupt the industry, Providence Ventures is currently piloting about a dozen new technologies with startups or through its internal Consumer Innovation Group.
One pilot program coming in the fourth quarter includes an internally-built mobile app that provides content to women who are pregnant or just delivered a baby. Additionally, it will provide lactation support via video chat, no matter when the mother is having problems.
Providence also operates as a traditional venture fund, and has made roughly a half dozen investments over the past year.
One example is a company called Sqord, developer of a wearable device that has the goal of lowering childhood diabetes by keeping kids active. During a pilot in Snohomish County, every local fifth and sixth grader got a Sqord and participated in a challenge to increase their physical activity.
The company, which was founded in Durham, N.C., ultimately relocated to Seattle to be closer to Providence.
Over the past week, Providence has made two more investments: One is San Francisco-based Omada Health, which is developing a diabetes prevention program used by Providence Health & Services. It received $48 million in a third round of funding. It also invested in Kyruus, which raised $25 million to help patients find the appropriate healthcare provider.
Yet another area that Martin oversees is the Digital Innovation Group, which is an internally focused software company.
That group is led by Mark Long, who in addition to working at a handful of healthcare technology companies, also worked at Amazon for a short period of time.
Long is in charge of hiring developers to write code, with the goal of helping early-stage companies more easily integrate into Providence’s platforms. It’s considered a necessary step since healthcare systems are so archaic, and therefore are difficult to work with.
In all, Providence Ventures has 100 employees today in Seattle’s Bank of America tower, but Martin believes that could double over the next year as it tackles the healthcare system from all different angles.
He said Providence isn’t the only institution that is investing in these kinds of resources, with other recognizable names, like Stanford, John Hopkins and the Mayo Clinic, also being very proactive.
But, in general, Martin believes “we’re pretty far ahead in terms of our thinking now.”