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The Xealth team — and office dogs — inside the company’s office in Seattle’s Smith Tower. (GeekWire Photo / James Thorne)

Is there big market for prescriptions beyond drugs? Several investors with deep experience in health are betting on it — joining in a new $11 million funding round for Xealth, a digital health startup building a platform that lets doctors prescribe everything from wheelchairs and insulin monitors to articles and Lyft rides.

Xealth CEO Mike McSherry. (Xealth Photo)

Founded by two Seattle startup veterans and spun out of Providence Health & Services, Xealth uses patient data to recommend services from a variety of vendors for possible prescription. The company wants to make its marketplace available to hundreds of thousands of doctors and nurses, letting them issue digital prescriptions, such as apps and digital media, or anything else they want to prescribe beyond a traditional drug.

If a patient is overweight and doesn’t have a history of eating disorders, for example, Xealth might recommend that a doctor prescribe a service from Weight Watchers.

Xealth’s Series A funding round drew new investors McKesson Ventures, Novartis, Philips and ResMed. Those names are notable in that they represent many of the medical supplies, digital therapeutics and devices that can be prescribed over Xealth’s platform.

“I’m a huge fan of strategic investments,” said Mike McSherry, Xealth’s CEO and co-founder, in an interview at the company’s headquarters at Seattle’s Smith Tower, explaining why he likes to seek out investors from inside the industry, not just traditional venture capital. Xealth’s investors also represent a huge slice of the healthcare market: collectively, they take in almost $350 billion in revenue, McSherry said.

McSherry has followed this approach before, with success. He was previously CEO of Swype, maker of a popular swipe texting keyboard, and Swype’s early investors included Nokia and Samsung, key players in the world of mobile devices.

Following an $8.5 million round in June 2017, Xealth’s total cash raised now stands at $19.5 million, and the new round brought back prior investors Threshold Ventures, Providence Ventures, Froedtert and the Medical College of Wisconsin Health Network, and the University of Pittsburgh Medical Center.

McSherry and Xealth co-founder Aaron Sheedy make for unlikely healthcare innovators. The pair have been working together for more than two decades, tracing their roots back to a shared office at Microsoft in the 90s. They worked together at Swype, which sold to Nuance Communications in 2011. McSherry became Nuance’s VP of advertising and content and Sheedy its VP of mobile product. They took the plunge into healthcare after McSherry was invited by Providence CEO Rod Hochman to be an entrepreneur-in-residence at Providence Ventures in 2015.

Founded two years later, Xealth now has 40 employees, up from 12 in 2017.

Xealth’s marketplace lives inside of hospitals’ electronic health records systems. (Xealth Screenshot)

The company reflects a broader surge in interest in health by people and companies from the tech industry. The frenzy around digital health has been stoked by significant entries into the space from the likes of Apple, Amazon, Google and Microsoft. Venture investment in digital health grew 42 percent last year to $8.1 billion, according to a report from Rock Health.

Xealth was founded with a mission to be the ultimate marketplace for doctors to prescribe anything and everything digital. But the company says its platform is more than a marketplace: It also routes the flow of data from services back into the hospital’s electronic health record system. Xealth is currently tracking data from 40,000 sleep apnea patients who are using CPAP devices for Providence St. Joseph Health.

“If you can more seamlessly engage with the patients digitally, like they’re used to in their consumer lives, you’re providing a better patient experience,” McSherry said. “But that also gives the hospital system a 360-degree view of the patient’s health.”

Last year, Xealth debuted a service from Amazon for products that could be prescribed through its marketplace. What seemed like a simple integration — a surgeon could send a patient a link to buy a product for recovery, for example — was practically revolutionary in a world where doctors often hand their patients a photocopy of the product they recommend.

Not surprisingly, navigating tech-style disruption in healthcare is complicated. Amazon’s service on Xealth doesn’t use the e-commerce giant’s recommendation engine; instead, doctors manually curate the products they want. And to avoid conflicts of interest, Xealth doesn’t get affiliate payments from Amazon.

McSherry said that other e-commerce sellers would soon join the platform. The startup currently offers services from 30 digital health vendors. One recent addition to Xealth’s platform is Proteus, which sells pills with sensors that monitor a patient’s drug adherence.

Xealth also recently added Duke Health and Baylor Scott & White Health as customers. The startup makes money by licensing its platform to healthcare providers. Competitors include Redox and Sansoro Health, both of which integrate third-party applications into electronic health records systems.

McSherry made it clear that using data to make recommendations is central to realizing Xealth’s ambitions. It just has to make sure that healthcare providers are on board. Over time, McSherry said, the company should know what works best for patients down to an individualized level.

“We didn’t get into this to play small ball,” he said. “We’re going to have a huge data set that works to optimize the best patient care and clinical recommendations for patients.”

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