PULLING THE PLUG
The hospital behind a tool to manage diabetes shutters the company despite promising results.
Cone Health, a small not-forprofit health care network in North Carolina, spent several years developing a digital tool called Wellsmith to help people manage their diabetes. But after investing $12 million, the network disclosed last year it was shutting down the company even though initial results were promising, with users losing weight and recording lower blood sugar levels.
The reason did not have to do with the program’s potential benefit to Cone’s patients, but rather the harm to its bottom line. Although Cone executives had banked on selling or licensing Wellsmith, Cone concluded that too many competing products had crowded the digital health marketplace to make a dent.
“They did us a tremendous favor in funding us, but the one thing we needed them to be was a customer, and they couldn’t figure out how to do it,” said Jeanne Teshler, an Austin-based entrepreneur who developed Wellsmith and was its CEO.
Eager to find new sources of revenue, hospital systems have been experimenting as venture capitalists for health care startups, a role that until recent years only a dozen or so giant hospital systems engaged in.
Health systems officials assert that many of these investments are dually beneficial to their nonprofit missions, providing extra income and better care through new devices and software and other innovations, including ones their hospitals use.
But the gamble at times has been harder to pull off than expected. Health systems have gotten rattled by long-term investments when their hospitals hit a budgetary bump or underwent a corporate reorganization. Certain devices or apps sponsored by hospital systems have failed to be embraced by their own clinicians, either out of skepticism or out of habit.
“Even the best health care investors can’t reliably get their health systems to adopt technologies or new innovations,” said James Stanford, managing director and co-founder of Fitzroy Health, a health-care investment company.
Wellsmith was premised on a shift in insurance payments from a fee for each service to reimbursements that would reward Cone for keeping patients healthy. That change did not come as fast as hoped.
While they lack the experience of longtime venture capitalists, health systems posit that they have advantages because they can invent, incubate, test and finetune a startup’s creations. Children’s Hospital of Philadelphia, for instance, parlayed a $50 million investment into a return of more than $514 million after it spun off its gene therapy start-up Spark Therapeutics.
But sustained commitment is harder when the return on investment is not clear or immediate.
Cone tested Wellsmith on 350 employees with Type 2 diabetes and reported encouraging results in 2018. Users’ physical exercise had increased on average by 24 percent and their A1c levels, which measure the percentage of red blood cells with sugarcoated hemoglobin, had dropped by 1 point on average. “We believe that the future will be carried by those who can invest in and create models of care like Wellsmith,” said Terry Akin, Cone’s CEO at the time.
But Cone grew apprehensive about Wellsmith’s commercial prospects, especially when other companies started pitching similar products. In its 2018 financial statement, Cone wrote that “management has determined that the existing technology will not be marketed for sale and licensing.”
In October 2020, Cone decided to end its relationship with Wellsmith.