Providence St. Joseph Health leaders took advantage of their stage time at the J.P. Morgan Healthcare Conference in San Francisco on Tuesday to unveil a second $150 million healthcare venture fund.
The Renton, Wash.-based health system’s venture capital arm, Providence Ventures, will use the fund, called Providence Ventures II, to target early and growth-stage companies focused on information technology, technology-enabled services, medical devices and healthcare services.
Aaron Martin, the health system’s chief digital innovation officer and Providence Ventures’ managing general partner, said the second fund will likely include 15 investments over the next five years, with up to $10 million going to each company. That would bump Providence Venture’s total number of portfolio companies to 30. Martin joined Providence Ventures from Amazon in 2014 when the fund announced the launch of its first $150 million investment.
Providence Ventures chooses its portfolio companies by identifying problem areas within Providence St. Joseph Health and figuring out whether there are companies offering solutions, Martin said. If existing heavyweights like Microsoft or Epic Systems Corp. can’t help, it’s probably a novel problem that a smaller company is working on, he said.
“We start with our big problems and work our way backwards from that, and then we go out and find best-of-breed companies to help with the problems we don’t have solutions for,” Martin said.
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And if something is tripping up Providence St. Joseph Health, the country’s third-largest health system, it’s probably an issue for other health systems, too, Martin said. Leaders from 84 health systems have visited Providence Ventures’ Seattle headquarters over the past two years to check out its digital solutions, some of which have adopted the same ones, he said.
“It just accelerates the adoption of useful technology across the market,” Martin said.
Providence St. Joseph Health CFO Venkat Bhamidipati said he’s seen valuations go up on all of Providence Ventures’ existing portfolio companies, and expects to see exits in the next couple of years. Venture funding is a riskier investment strategy than, say, putting money in a fixed income treasury portfolio, but it brings a much better return, he said.
“Collectively the portfolio is performing really well for us in terms of return expectations,” Bhamidipati said.
Providence St. Joseph Health is also customer in all of its portfolio companies, Bhamidipati said.
For example, one of those companies is Kyruus, which helps match patients with the most appropriate providers to fit their needs. For at least the past three years, Providence St. Joseph Health has combined its customer relationship management system with Kyruus’ provider match tool to make sure they’re referring patients to the right providers, said Dr. Amy Compton-Phillips, Providence St. Joseph Health’s chief clinical officer.
“They’re the backbone of our patient experience center,” she said.
Another Providence Ventures portfolio company, IRIS, has technology that identifies patients with retinal diseases associated with diabetes. Compton-Phillips said she visited a Portland, Ore., clinic that serves low-income patients last December to see it in action.
“It was really exciting to see this entire circle of how you can use an investment to simplify health for people that we serve actually in the clinic where it’s needed,” she said.
Providence St. Joseph Health also announced Tuesday a new partnership with San Francisco-based One Medical, a technology-enabled primary-care provider, that the health system said will expand services in Los Angeles and Seattle.
One Medical is a unique, membership-based practice designed to make care more accessible for patients with more than 60 offices in major cities nationwide. The partnership will allow both providers to better coordinate primary and specialty services for One Medical members in both cities.
Mike Butler, Providence St. Joseph Health’s president of operations, said in a statement that the health system is constantly looking for innovative ways to serve more people and deliver care where patients want it.
“Partnerships like this one are part of our organization’s strategic plan to transform for the future and advance our vision of health for a better world,” he said.