Ven­ture cap­i­tal’s bold move into pop­u­la­tion health

Modern Healthcare - - NEWS - By Dave Barkholz

Rahul Jain got the en­tre­pre­neur­ial bug when a med­i­cal school friend and for­mer class­mate found it dif­fi­cult to take seven med­i­ca­tions a day to bat­tle a blood dis­or­der. If his friend couldn’t man­age that reg­i­men, how could se­niors tak­ing even more pills—of­ten with no su­per­vi­sion—man­age their daily load, thought Jain, a Duke Univer­sity eco­nom­ics grad­u­ate. An idea for a new busi­ness was born.

His re­search quickly dis­cov­ered im­proper med­i­ca­tion ad­her­ence causes 125,000 deaths and wastes $100 bil­lion an­nu­ally in avoid­able hos­pi­tal­iza­tions. Jain joined forces with his friend Nick Valilis and others to cre­ate Tower View Health, a low-tech pre­scrip­tion man­age­ment ser­vice.

The 2-year-old busi­ness at­tracted $2 mil­lion in seed money last year to launch the com­pany.

Jain ex­pects more ven­ture cap­i­tal to flow into his startup early this year to fi­nance an ex­pected ex­pan­sion be­yond the nearly 1,000 pa­tients that in­sur­ers have lined up to use the ser­vice.

“We’ll be look­ing for more fund­ing in the spring,” said Jain, whose four founders were just named to the Forbes “30 Un­der 30” list.

Main­tain­ing med­i­ca­tion ad­her­ence for chron­i­cally ill pa­tients is a cru­cial part of the pop­u­la­tion health man­age­ment strate­gies be­ing adopted by health­care sys­tems across the U.S. Stay­ing on their meds helps keep pa­tients out of hos­pi­tals, which in turn helps health sys­tems and other providers meet the re­im­burse­ment cri­te­ria in their new value-based pay­ment con­tracts.

That’s why start-ups like Tower View that of­fer prac­ti­cal so­lu­tions for man­ag­ing pop­u­la­tions are at­tract­ing se­ri­ous in­vestor in­ter­est. Global pop­u­la­tion health man­age­ment as an in­dus­try is ex­pected to grow from $11.1 bil­lion in 2015 to $31.6 bil­lion by 2020, ac­cord­ing to a Jan­uary 2016 re­port by the re­search firm Mar­kets and Mar­kets.

Rahul Jain (right) joined forces with a friend and others to cre­ate Tower View Health, a low-tech pre­scrip­tion man­age­ment ser­vice.

There are so many com­pa­nies with promis­ing tech­nol­ogy that just 11% of com­pa­nies to­day de­sir­ing to grad­u­ate from the seed-money stage can at­tract a mul­ti­mil­lion-dol­lar in­vest­ment.

Ven­ture cap­i­tal firms are chas­ing that growth. Rock Health, which tracks health­care ven­ture fund­ing, re­ported last week that nearly $200 mil­lion was in­vested in pop­u­la­tion health man­age­ment start-ups last year, mak­ing it one of the top six fields in health­care at­tract­ing new money. Over­all in­vest­ment fell slightly to $4.2 bil­lion in 2016, down from a record $4.6 bil­lion in­vested the pre­vi­ous year.

The term pop­u­la­tion health has dif­fer­ent mean­ings in dif­fer­ent set­tings. Most ma­jor health sys­tems and in­sur­ers see it as man­ag­ing the health­care of large groups of peo­ple, of­ten the chron­i­cally ill, to en­sure they are get­ting care at the right time in the ap­pro­pri­ate set­ting. To do that, hun­dreds of com­pa­nies have sprung up or started di­vi­sions to pro­vide the data an­a­lyt­ics and soft­ware tools to help hos­pi­tals, physi­cians and in­sur­ers man­age that care.

Dreamit, a Philadel­phia-based ac­cel­er­a­tor that in­vests in promis­ing start-ups and in­tro­duces them to ven­ture cap­i­tal­ists, is bullish on pop­u­la­tion health play­ers, said Karen Grif­fith Gryga, part­ner and chief in­vest­ment of­fi­cer. Of 80-plus com­pa­nies in its health­care port­fo­lio, which is Dreamit’s largest seg­ment, one-third are in­volved in pop­u­la­tion health and 25% of its to­tal in­vest­ment is in pop­u­la­tion-health start-ups, Grif­fith Gryga said.

She said a health­care in­dus­try that uses some of the world’s most-so­phis­ti­cated tech­nol­ogy to di­ag­nose and treat ill­nesses is “decades be­hind” in us­ing data and an­a­lytic tools to as­sist clin­i­cians with man­ag­ing pop­u­la­tions.

More­over, the move from fee-for-ser­vice to putting providers at fi­nan­cial risk for care is only go­ing to work well for those that can put data to work to help main­tain pa­tient health. “Op­por­tu­ni­ties are huge for the in­dus- try,” Grif­fith Gryga said.

Ven­ture cap­i­tal­ists are in­vestors who bet early on promis­ing com­pa­nies and are gen­er­ally will­ing to wait sev­eral years for a re­turn on their in­vest­ment. They typ­i­cally take an eq­uity po­si­tion in a com­pany of 6% or more in ex­change for a few mil­lion dol­lars to com­mer­cial­ize a prod­uct or ser­vice.

That first big break­through in fi­nanc­ing is get­ting harder to come by, though, Grif­fith Gryga said. There are so many com­pa­nies with promis­ing tech­nol­ogy that just 11% of com­pa­nies to­day de­sir­ing to grad­u­ate from the seed­money stage can at­tract a mul­ti­mil­lion-dol­lar in­vest­ment, she said. That com­pares with one in four com­pa­nies two years ago.

To help com­pa­nies in its early-stage port­fo­lio reach ven­ture cap­i­tal in­vestors, Dreamit of­ten takes their key per­son­nel on road shows to make their case to po­ten­tial fun­ders, Grif­fith Gryga said.

Those in­tro­duc­tions are cru­cial for Tow­erView, Jain said. His firm re­ceived $50,000 from Dreamit in 2014 and was put into a 13-week ac­cel­er­a­tor pro­gram that in­cluded busi­ness ad­vice and a se­ries of road shows.

Dreamit took no eq­uity at the time, in­stead get­ting notes that al­lowed it to buy fu­ture eq­uity at a dis­count, he said. That can run from 10% to 20% of what other in­vestors are pay­ing. Dreamit has since in­vested an­other $150,000 in Tow­erView.

Tow­erView’s prod­uct is a rel­a­tively low-tech ap­proach to get­ting pa­tients to take their medicine on time, Grif­fith Gryga said. “It isn’t brain surgery,” she said.

The com­pany ar­ranges with a pa­tient’s phar­macy to re­ceive a 28-slot med­i­ca­tion tray of their daily med­i­ca­tions that lasts a week. The pre­sorted tray is then put in a cel­lu­lar-con­nected pill­box that senses when a pa­tient misses their med­i­ca­tions and sends a text, phone and in-box re­minder to pa­tients, loved ones and case man­agers. Tow­erView also han­dles the pre­scrip­tion re­fills.

In a 2015 ran­dom­ized con­trolled trial con­ducted by Penn Medicine in Philadel­phia, a test group of pa­tients achieved 99% ad­her­ence com­pared to 70% be­fore the pa­tients en­rolled in the pro­gram. The trial was funded by In­de­pen­dence Blue Cross in Philadel­phia.

Ad­her­ence was mea­sured by pre­scrip­tion re­fill rates, the same way that the CMS mea­sures med­i­ca­tion ad­her­ence, Jain said. Those re­sults en­abled Tow­erView to win eight con­tracts with Medi­care Ad­van­tage and man­aged Med­i­caid plans, Jain said.

With more than 25 mil­lion Amer­i­cans 65 and older tak­ing at least five med­i­ca­tions per day, the op­por­tu­ni­ties for small com­pa­nies sell­ing med­i­ca­tion ad­her­ence tech­nolo­gies is al­ready vast. The ag­ing baby boomer gen­er­a­tion is

Car­ing for el­derly pa­tients in less ex­pen­sive set­tings— an­other key to suc­cess­ful pop­u­la­tion health man­age­ment strate­gies—is on the radar screen of pri­vate eq­uity firms.

ex­pected to drive that num­ber to more than 30 mil­lion ul­tra-high med­i­ca­tion users within 10 years.

Car­ing for el­derly pa­tients in less ex­pen­sive set­tings— an­other key to suc­cess­ful pop­u­la­tion health man­age­ment strate­gies—is also on the radar screen of pri­vate eq­uity firms. In May, pri­vate eq­uity gi­ant Welsh, Car­son, An­der­son & Stowe led a group that paid $196 mil­lion to buy home se­nior-care com­pany In­nov Age.

Welsh Car­son was at­tracted to the com­pany, which was not-for-profit at the time, be­cause of its fo­cus on a CMS-des­ig­nated plan for frail se­niors to keep them in their homes called the Pro­gram of All-In­clu­sive Care for the El­derly, or PACE, said Tom Scully, Welsh Car­son gen­eral part­ner who served as CMS ad­min­is­tra­tor be­tween 2001 and 2004. PACE is a cap­i­tated, holis­tic way of man­ag­ing that pop­u­la­tion that in­cludes ev­ery­thing from trans­porta­tion and home nurs­ing to adult day care and meals. “I’ve al­ways loved PACE,” Scully said.

His firm out­bid other suit­ors with the plan to help CEO Mau­reen He­witt build the com­pany far be­yond its cen­ter in Den­ver and satel­lite op­er­a­tions in Al­bu­querque and San Bernardino, Calif. In­nov-Age’s client base av­er­ages 80 years old and is 85% women. The com­pany touched 93,000 lives in 2015.

Welsh Car­son hasn’t set a time­frame for when it plans to get a re­turn on the in­vest­ment, Scully said. But with the growth of the se­nior pop­u­la­tion and the mar­ket for PACE around the coun­try, he said an ini­tial pub­lic of­fer­ing in four years or so wouldn’t be out of the ques­tion.

Dr. Betty Rabi­nowitz, CEO of Ea­gle-Dream Health in Rochester, N.Y., said pop­u­la­tion health is crowded with start-ups, all of which are look­ing for ways to prove them­selves and grow. Ea­gle-Dream pro­vides data an­a­lyt­ics and soft­ware that al­low clin­i­cians and prac­tice man­agers to track pa­tient ad­mis­sions and dis­charges, iden­tify high-risk pa­tients in their pop­u­la­tions and com­pare cost, qual­ity and clin­i­cal vari­a­tions be­tween providers in their net­works.

Cus­tomers in­clude the Univer­sity of Rochester (N.Y.) Med­i­cal Cen­ter, the Greater Ma­comb PHO physi­cian net­work in sub­ur­ban Detroit and the Mas­sachusetts Health Qual­ity Part­ners, Rabi­nowitz said. Ea­gle-Dream stayed close to home rais­ing its money for growth. It is com­plet­ing a $6 mil­lion eq­uity place­ment funded by more than 50 in­di­vid­u­als who now own about one-third of the com­pany.

Rabi­nowitz said the com­pany will use that fund­ing to grow and hope­fully sep­a­rate it­self from the pack. “It’s al­most like the wild west,” she said.

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