Hospital systems are dipping their toes into venture capitalism as a way to put their money to work funding healthcare-related startups that could produce useful health technology.
But it’s a bumpy road as hospitals are often caught between altruism and profit margin, according to an analysis of 990 data from Kaiser Health News:
Eager to find new sources of revenue, hospital systems of all sizes 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 system officials assert many of these investments are dually beneficial to their nonprofit missions, providing extra income and better care through new medical devices, 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. Some health system executives have belatedly discovered a project they underwrote was not as distinctive as they had thought. Certain devices or apps sponsored by hospital systems have failed to be embraced by their own clinicians, out of either skepticism or 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.
Though their tax-exempt status is predicated on charitable efforts, nonprofit health systems rarely put humanitarian goals first when selecting investments, even when sitting on portfolios worth hundreds of millions of dollars or more, according to a KHN analysis of IRS filings. Together, nonprofit hospital systems held more than $283 billion in stocks, hedge funds, private equity, venture funds and other investment assets in 2019, the analysis found. Of that, nonprofit hospitals classified only $19 billion, or 7%, of their total investments as principally devoted to their nonprofit missions rather than producing income, the KHN analysis found.