The rise of health system-based innovation centers

We’ve all heard the phrase “innovate or die.” But when it comes to healthcare, a number of systems are taking a slightly different approach; call it “innovate to live.”

Health systems have set up innovation centers to find the next great idea that will improve care, cut costs, and maybe even generate some revenue. The structures and budgets of innovation centers can vary widely, but they generally have for the most part, they all have a dedicated staff to help develop and test new products and services.

“This is distinct from [general] staff doing innovation off the side of their desk with no additional training or support, which is probably the most common model,” Onil Bhattacharyya, a physician at Women’s College Hospital in Toronto, told Healthcare Brew.

At least 110 of these centers have been set up by health systems across the US, according to the Journal of Medical Internet Research, up from about 25 innovation centers operating a decade ago, said Bhattacharyya.

In a peer-reviewed paper published in February 2022, Bhattacharyya and his co-authors attributed the rise of innovation centers to value-based payment reforms “creating incentives to experiment with ways to deliver care that are independent of current processes.”

Generally speaking, a health system’s return on its investment comes in two forms: cost savings, and less commonly, revenue. “Innovation centers typically do not make money, but the ones that do either own a share in a spin-off company, or they launch companies that generate revenue,” Bhattacharyya said.

For example, the innovation center at Mount Sinai Health System in New York helped to develop technology that uses artificial intelligence to aid doctors in improving cancer diagnoses and treatment through an analysis of patient risks. From there, Mount Sinai spun out a company, PreciseDx, to further develop the AI.

Executives at those three innovation centers did not share their budgets with Healthcare Brew, and most innovation centers didn’t provide budget numbers to Bhattacharyya’s team, either, he said. But some did offer a peek at examples of their ROI.

Revenue generated by the innovation center Mount Sinai Innovation Partners often fluctuates, said Erik Lium, who is the chief commercial innovation officer at Mount Sinai Health System and president of Mount Sinai Innovation Partners. The innovation center’s revenue reached about $75 million in 2020 but fell to $16 million in 2021, Lium wrote in an email, adding that it was forecast to rise to over $50 million 2022.

In addition, the health system holds about $165 million in equity in more than 40 companies spun out of its innovation center.

University of Pittsburgh Medical Center Enterprises is one of the nation’s largest innovation centers with more than 200 staff. Based in a tech-centric part of the city, Bakery Square (where a Google campus is also located), it focuses on building new things from scratch in-house, as well as investing in outside companies, said Brent Burns, an executive vice president at UPMC Enterprises.

One company it developed and invested in to the tune of $38 million—Evolent Health, which partners with healthcare providers to improve care quality and lower costs—went public for $1 billion in 2015. UPMC’s shares are valued at about $181 million as of Dec. 16.

Even if there isn’t a big payday, a health system could claim success if an innovation improves care or saves lives—and they’ll still see a financial return as a byproduct.

“The goal…always comes back to trying to create solutions that benefit patients,” Lium said.