One of Orange County’s legacy health systems is collaborating with others in an effort to advance innovation in healthcare by developing products and services stemming from inventions and ideas of doctors and employees.The Innovation Institute, based in La Palma, is a for-profit, limited-liability company separate from Irvine-based St. Joseph Health, which launched it in January with a $40 million investment.
The institute waited to announce the venture until it hired staff, purchased software and worked on intellectual property policy and other legal issues, according to Francine Marlenée, the institute’s integrated communications manager.
It’s set up ultimately “to improve care delivery and reduce costs,” said Joe Randolph, the institute’s president and chief executive. “I did a lot of research before we put the Innovation Institute business model forward.”
The institute has three major prongs:
■ An incubator that will shape ideas for products and services germinated by doctors, employees and outside inventors. The institute, for related expertise, has allied with Cleveland Clinic Innovations, the commercialization arm for inventions at the Cleveland Clinic, an Ohio-based academic medical center.
■ An enterprise development group comprised of companies that serve hospitals and health systems, including Technology Associates, a biomedical engineering company that services all of the medical equipment at St. Joseph Health. The group is designed to provide revenue, as well as profits, to be invested in innovation development.
■ A growth fund for raising capital from outside investors that will in turn invest funds in emerging healthcare businesses and assets.
Randolph talked to health system peers across the country as he developed the model, and he said he found they were looking for ways to cut 20% to 30% from their cost structures.
Collaboration is a key feature of Innovation Institute.
There are plans to eventually have seven investors—“we call them member-owners,” Randolph said.
The institute announced Marriottsville, Md.-based Bon Secours Health System, a $3.4 billion hospital operator, as the second owner on Oct. 24. Bon Secours’ chief executive, Richard Statuto, ran St. Joseph Health prior to the arrival of current Chief Executive Deborah Proctor.
Bon Secours, which operates hospitals in six states and has more than 25,000 workers and affiliated doctors, “will benefit from shared research and development of new products and services,” Statuto said in a news release.
“He and his team are very interested in what we’re doing, so they invested,” said Randolph, who worked under Statuto at St. Joseph Health, which was then known as St. Joseph Health System.
The institute’s member-owners will be faith-based and secular nonprofit health systems, Randolph said.
“I’m hoping that with the next year and a half that we will be able to fill those remaining five slots,” he said.
The institute also wants its partners to be willing to “focus on innovation that may not have as great a return but could have a significant benefit back to the community where those systems reside,” Randolph said.
He pointed to Proctor as being the brainchild behind the institute. She and St. Joseph Health’s board of trustees helped form the venture.
“I’ve always been passionate about innovation in my previous roles as COO and CFO at St. Joseph [Health],” Randolph said. “Deborah wanted me to come up with a model that would help St. Joseph pursue innovation.”
One of the institute’s goals is to find new revenue sources for hospitals and health systems that will be investor-owners.
The enterprise development group is being designed as “the economic engine that will sustain us to underwrite and support innovation,” Randolph said.
Besides the biomedical engineering company, it also owns Petra Integrated Construction Strategies, which offers construction management and strategic planning services.
The enterprise development group’s companies will perform services previously provided by outside contractors for St. Joseph Health.
“Something that was a cost center for St. Joseph is now a revenue center for the Innovation Institute,” Randolph said.
The institute will invest profits from those endeavors back into the innovation incubator.
It picked Cleveland Clinic Innovations as its partner because it had “the best track record in the nation in terms of healthcare product development,” Randolph said.
Dr. Thomas Graham, the Cleveland Clinic’s chief innovation officer and vice president of orthopedic surgery, spoke last month at a kickoff event at the St. Joseph-Orange campus for the institute.
Graham shared his thoughts on developing products—he has nearly 40 patents on implants and other medical devices.
Innovation Institute has an exclusive relationship with Cleveland Clinic Innovations on the West Coast and within Catholic healthcare systems, according to Randolph.
Institute organizers could have started from scratch to form the incubator but instead partnered with an established healthcare innovator.
“We had a make-versus-buy decision,” Randolph said.
The incubator will utilize outside and internal “subject matter experts” to evaluate an idea’s viability. If it’s deemed viable, the incubator will help its inventor with things such as securing patents, as well as obtaining financial rewards.
“We’ll incubate it to the point that it becomes a product, royalty or service,” Randolph said, adding that inventors will get 40% of any profits.
He said the institute’s lab will develop prototype products but wouldn’t necessarily manufacture them. Its executives will be looking for partners to help it bring its ideas to market. ■