By Andrew Dunn, Healthcare DIVE | March 4, 2019
Industry-leading nonprofit health systems like Ascension, Providence St. Joseph and Cedars-Sinai have launched affiliated venture capital firms with increasingly more cash to fund start-ups. But the mixture of medicine and financial investment presents the potential for ethical pitfalls.
Deals involving at least one healthcare provider-linked corporate VC fund totaled roughly $1.3 billion last year, a record high nearly triple the amount recorded five years prior, according to data provided to Healthcare Dive by PitchBook, a financial data firm.
Health systems defend their corporate VCs, noting a separation of clinical and investment decisions along with general policies designed to prevent improper influence. Yet the potential for conflicts of interest looms, ethicists said in interviews — particularly when a health system’s hospitals adopt products from companies staked with funds via the affiliated VC.
“If you have a venture program that is really gearing up with some serious investments and they are going to use those devices in their own institution, I would say that’s a matter of concern,” said Jeffrey Flier, dean of Harvard Medical School from 2007 to 2016, in an interview.
“That doesn’t mean it would be done dishonestly, it just means that maybe they should promote doing it elsewhere, not in their own institution.”
A mixture of medicine and finance
The case of Gauss Surgical, a private medical device startup, illustrates how some of these questions can play out in practice.
Corporate VCs affiliated with nine hospital systems have invested in the company since its founding in 2011. A majority of those VC funds were launched in the past five years. A tenth system, Memorial Hermann Health System, invested directly in Gauss. All 10 systems also use — to varying extent — Gauss’ flagship Triton device in clinical practice.
A software platform designed to process images, Triton is used to quantify blood loss, typically during childbirth. Studies have shown standard practices, such as visually estimating or weighing bloody materials, to be inaccurate, leaving an opening for an improvement.
Between the 10 health systems invested in Gauss, 16 of their hospitals use Triton, according to Gauss. Overall, more than 50 U.S. hospitals use the device today, the Los Altos, California-based startup said.
Those running the funds invested in Gauss acknowledge the need for full disclosure to avoid any real or perceived conflicts of interest, particularly when their hospitals are using the device.
“It’s fair to ask why nonprofit systems have venture funds,” said Darren Dworkin, managing director of Summation Health Ventures, a joint VC arm for Cedars-Sinai and MemorialCare that launched in 2014 and has invested in Gauss.
Still, Dworkin, also Cedars’ chief information officer, argued the fund helps fill an investment gap for businesses like Gauss with promising ideas that might not otherwise have received financial backing.
“If there was perfect liquidity in the capital markets for all great ideas, maybe the case can be made that focus can be in other areas,” the exec said in an interview.