CHCF’s Investing Initiative

CHCF’s Investing Initiative

As Director of the Innovations for the Underserved Program for the California HealthCare Foundation (CHCF), Margaret Laws oversees the CHCF program-related mission investing initiative. For example, CHCF funded a demonstration project that used text messaging to keep kids with asthma out of the emergency departments. However, when grant funding ran out, these programs couldn’t expand or sometimes even continue.

CHCF’s investments are geared to improving healthcare delivery in underserved communities with rural low income Medicaid beneficiaries. This past year, the focus has been on health IT and service model innovation that would be able to help these beneficiaries.

Next year, the goal is to place a special focus on mental and behavioral healthcare, dual eligibles, and people with complex chronic conditions. However, CHCF doesn’t support the development of devices, biotech or pharmaceuticals because they feel that don’t have experience in those areas.

CHCF’s goal is to work with promising companies that will have an impact in the safety net and help these companies through the early stages to be able to attract more traditional financial investors. CHCF provides the capital, relationships and the know-how in the operations and financing of safety net institutions so that a company can take on the new market.

Last year, the Foundation made their first co-investment with the Kresge Foundation in Direct Dermatology. This is a company provides dermatology specialty care at an affordable price to safety net providers through telemedicine.

The funds provided are helping Direct Dermatology take their service to more Medicaid programs, community health centers, and other providers serving low income population around the state and country. Direct Dermatology has made it possible for people who were waiting 6 to 12 months for a consultation to get consultations in 24 to 48 hours,

This year on June 27 CHCF issued an RFP to be funded out of CHCF’s “Better Chronic Disease Care (BCDC) program. The program’s initiatives are to:

  • Foster partnerships among insurers, hospice, or palliative care providers in the state
  • Develop initiatives to increase access to palliative care through health insurance programs and products
  • Test different approaches to providing and reimbursing community-based palliative care
  • Identify models that could be scaled and spread throughout the state.

These objectives will be pursued through a planning grant phase and potentially an implementation grant phase. Up to 10 planning grants of up to $50,000 per partnership will be awarded through this RFP process with RFPs due August 8, 2014.

Direct-to-consumer telemedicine: Has its time come?

Direct-to-consumer telemedicine: Has its time come?

It was 1999, and I was speaking at a prestigious academic center’s ‘Innovations in Dermatology’ symposium.  I presented work we had done on a web application that would allow a non-dermatologist (primary care doctor or other front-line provider) to upload images of a patient’s skin as well as some history.  Subsequently, a dermatologist could review both the history and the images and enter a diagnosis and recommendations on the same website.  My talk was greeted with intense scorn by one audience member (“You are cheapening our specialty,” he told me) and general lack of enthusiasm by most of the others.

Fast-forward to 2014.  Dermatologists share digital images via email and a number of social networks thousands of times a day.  If the specialty is cheapened, I can safely say it is not due to this activity.  So far, we’ve not created any ‘cutaneous radiologists’ which was another fear of nay sayers at the time.  In fact, the American Academy of Dermatology has an officially sponsored software application that members can use to provide volunteer teledermatology services to underserved clinics, and is planning on promoting this concept in the coming year. What a difference 15 years makes!

I use this story to set context for a thoughtful discussion on one of the most controversial telemedicine questions of our current time.  Is it safe and effective care for providers to evaluate and prescribe for patients that they’ve never met face-to-face?

Join me in thinking through this question.

1.  Most health care requires authentic relationships.

You don’t have to go very far to find graphic stories about folks who form relationships online.  These relationships become quite ‘close,’ then the parties meet face-to-face and find that one or both was being highly deceptive with their online persona.  It seems safe to conclude that the possibility of fraud in online relationships is much higher than in person.  Most clinicians feel that forming a relationship with their patients is a core part of providing quality health care.  Until this authentication challenge is solved, it’s hard to imagine many health care interactions with new patients being conducted in an online environment.  Some of you may be thinking that ubiquitous, embedded videoconferencing solves this and certainly adds a great deal of value beyond text-based interactions.  But I don’t know if we can say applications like Skype and FaceTime are the complete answer.

2.  How do we define quality care in this new environment?

When you go to a hotel, you expect clean sheets and towels, a warm shower, a bed you can sleep in, and comfortable room temperature.  What are the same minimum quality requirements for an initial doctor’s visit?  As doctors, we’re taught that this includes a complete medical history and physical exam relevant to our specialty.  As a dermatologist, I am not expected to do a complete neurological exam (you should be thankful for that) but unless you decline, I am expected to do a complete skin exam, even if you come in for a 4 X 4 cm patch of poison ivy on your arm.  This is something that I really cannot do online, even with current state-of-the-art technologies.

The idea of allowing patients to upload images of body moles or facial acne for evaluation by providers they have not ever met gives many of my colleagues great consternation. (Even more controversial are image analysis scientists who are creating applications that can analyze these images without human intervention.  More on that phenomenon at a later date.)  My colleagues fret that a patient will send them an image of a mole that is benign, but ignore a mole that is an incipient melanoma.  To me, this seems less onerous than the authentication issue.  Patients are capable of managing their own risks when these risks are spelled out.  For example, it seems perfectly reasonable to alert an individual that she may be missing an important lesion if she chooses to submit an image over the Internet, rather than come in for a complete exam.  A closely related fear or objection is one of physician liability.  In this context, the doctor is not only afraid they will provide substandard care by not doing a complete physical exam, but that they may be held liable for that omission.  Once again, spelling out that a patient is taking accountability for those aspects of his care not addressed in an online interaction seems reasonable to me.  I think the liability concerns are overstated.

3.  Is the technology up to the task at hand?

There is not a general yes/no answer to this question.  It is medical problem specific.  The answers are in the realm of clinical research.  Taking you back again to the late ‘90s, we (and many others) did painstaking clinical studies to empirically test whether a set of digital images is of sufficient quality to be a diagnostic tool in lieu of an in person exam.  There now exists a body of literature that demonstrates this equivalency, with the possible exception of some pigmented lesions.  We also carefully examined the feasibility that patients could take their own, clinically accurate, facial images of acne. Are there other examples?  Can a psychiatrist do an initial evaluation of a patient via interactive video?  I am not up on this literature, but my guess is that it has been studied and the answer is yes.  There are probably a few other examples as well.

Where does this leave us in my logical analysis?  To provide a quality care experience online without having met the patient in person, I content that the following criteria would need to be met:

1.  Identify a medical problem that has a diagnostic data set, easily and reliably acquired by a consumer/patient.

2.  Assure that the patient is capable of understanding that the online interaction is problem specific and may carry risks, particularly for omission of care involving other health problems.

3.  Assure that the treatment decisions for the specific condition at hand are algorithmic and do not require an authentic relationship (i.e., the problem is transactional or of low emotional value to both provider and patient).

This is exactly what some folks have done with two fledgling companies, Direct Dermatology and DermatologistOnCall.

They accept images of facial acne and if they are comfortable making a diagnosis, will prescribe a limited array of therapeutics for these patients.  Both are gaining some traction, indicating that there is consumer demand.  Interestingly, since acne images involve the face, it makes it much less likely that an individual can assume a fraudulent online personality.  And even if they decided to have their friend send in facial images what would be the point — to clandestinely procure a prescription for a topical antibiotic?  I’d say there is not much risk on the authentication side in this model.

Another interesting comparison is the rise of retail clinics. These were initially scorned by primary care providers, but consumers are drawn to the convenience.  The repertoire of problems is limited, as are the therapeutic options. Patients are made aware of these limitations and the associated risks.

Perhaps Direct Dermatology and DermatologistOnCall are the vanguard of a new set of medical services that are like retail clinics but delivered in an online environment.  I’ll watch their evolution with great interest.  And I think the risk of cheapening our specialty is low.

Health foundations adopt impact investing to drive change

Health foundations adopt impact investing to drive change

Health-care foundations in the Bay Area and elsewhere are increasingly turning to “impact investing” — plowing money into for-profit companies, seeking a financial as well as a social return.

Oakland’s California HealthCare Foundation started with a $10 million fund in late 2010. It’s invested about 75 percent of that money in eight entities — including seven for-profit companies. The rest of the initial funding will likely go to augment those early investments, which so far have taken the form of low-interest loans or convertible debt, as opposed to traditional grants.

“We’re looking for entrepreneurs serving a market of underserved people,” explained Margaret Laws, director of CHCF’s Innovations for the Underserved program.

A key area of interest is entrepreneurs working to make community health clinics more efficient and effective.

As the Affordable Care Act expands access to Medicaid (Medi-Cal in California), it puts more pressure on those clinics to meet the needs of more patients. “Community health centers will bear the brunt,” Laws said.

Locally, CHCF has invested in three South Bay companies, Palo Alto’s Direct Dermatology, Santa Clara’s CareInSync and LifeWave Biomedical in Los Altos, and three San Francisco for-profits, PipelineRx, iRhythm Technologies and Propeller Health.

PipelineRx, a virtual pharmacy oversight company, helps small hospitals, many of them rural, ensure they’re prescribing the right dose for the right patient at the right time, Laws said.

“We invested in that company pretty early,” she said, when it had 14 customers. Now it has more than 70, and “just raised a big growth round of capital.”

Similarly, Direct Dermatology is using $740,000 from CHCF and another $500,000 from Kresge Foundation to bolster its management team and “deploy our services to rural and underserved areas in California and now Hawaii,” said co-founder and CEO David Wong, M.D.

It links about 250 primary care clinics statewide with dermatology specialists, most of them in urban areas like San Francisco, Los Angeles and San Diego, who can diagnose conditions remotely using electronic images.

More in the works

Early this month, CHCF said it will work with the much-larger Kresge Foundation to invest at least $5 million in companies that have technologies to help community clinics improve access and efficiency.

A big investment along these lines in a company “with Bay Area roots” is expected shortly, according to foundation officials, but they’re mum on the details.

“It’s definitely a trend in the field,” said Peter Long, CEO of the San Francisco-based Blue Shield of California Foundation, the philanthropic arm of Blue Shield of California. His foundation hasn’t made for-profit investments itself, Long said, but it works closely with CHCF and others who have taken that step.

The Blue Shield foundation typically works with organizations doing good work that isn’t necessarily “financially viable” without outside assistance, while the new CHCF innovation fund is meant to help companies with potentially scalable models that could ultimately make a big dent in seemingly intractable social problems.

Sometimes CHCF identifies organizations that can use Blue Shield’s approach, Long said. Sometimes Blue Shield sends potential investment opportunities to Laws’ group.

“We definitely are participating, but we don’t see it as a space where we’re going to be a big player,” Long said.

More broadly, philanthropic foundations such as the California Endowment, Robert Wood Johnson Foundation, and Kresge are making impact-investing moves, sometimes in for-profit companies and sometimes in nonprofit organizations, according to a CHCF report in December.

In 2012, for example, 13 foundations and three other organizations made such “impact investments,” the study reported, investing $81.2 million.

Oakland-based Kaiser Permanente has long made investments in for-profit enterprises through its KP Ventures venture capital arm.

Its current portfolio includes HealthCatalyst, iRhythm Technologies, Agile Therapeutics, Astute Medical and others. Portfolio companies that have gone public or spun off include Broadlane, Calypso and Zonare.

Kaiser’s unit operates more like a traditional venture capital firm, but CHCF’s focus is finding for-profit companies it believes have a chance to scale up in ways that will help safety net facilities and similar organizations do a better job of doing what they do.

Sometimes that means piggybacking off other investors or plowing the ground so others can later join in.

“Working with the usual suspects is probably not going to uncover the most innovative solutions,” Laws said, noting that some of CHCF’s best opportunities are coming from health care venture companies, generally “things that are too small or a little too early” for the VCs.

That’s the niche she’s looking for, if it helps the foundation serve its mission in a socially and financially responsible way.

Obamacare Gives Boost to Startups Focused on Health Care for Poor

Obamacare Gives Boost to Startups Focused on Health Care for Poor

Foundations are backing makers of products and services for the poor (Illustrations by 731)

Bay Area dermatologist David Wong can’t forget a patient he met during a trip to California’s Central Valley in 2009: a farmworker with a bleeding lesion on his right forearm who died within six months of Wong’s diagnosis of metastatic melanoma. The man lived less than two hours from San Francisco, and Wong says he was appalled by the “marked difference in the access to care as well as the quality of care patients were receiving.”

That experience led Wong and a fellow dermatologist to launch an online clinic in 2010. Direct Dermatology uses photos patients upload to diagnose growths, rashes, and other skin problems, usually in less than a day and at what Wong says is about half the cost of a regular doctor visit. The Palo Alto business, which has nine employees and a network of 20 dermatologists, has performed more than 10,000 consultations. Its services are covered by Medicaid and some private insurers.

Wong is one of a “huge, huge number of entrepreneurs working in health-care IT and services who really want” to improve services for poor, uninsured, and Medicaid patients, says Margaret Laws, director of the California HealthCare Foundation’s Innovations for the Underserved program. Few venture capital firms have shown interest in funding these types of startups, so donors are helping to fill the gap with grants, loans, and equity investments. Direct Dermatology got just over $1.2 million in 2012-13 from the California HealthCare Foundation and the Kresge Foundation in the form of convertible debt.

Businesses and nonprofits seeking to improve health care for the poor received more than $81 million in debt and equity investments from foundations in 2012, according to a December 2013 report from California HealthCare, which is dedicated to improving access to care. Although there is no historical data on this type of funding, Law believes the numbers are going up, propelled by the Affordable Care Act’s goal of insuring all Americans. The Obama administration is projecting that in 2014 more than 19 million people will join Medicaid, the national health-care program for the poor, now that 25 states, plus the District of Columbia, are expanding eligibility criteria for the program.

Before Obamacare, hospitals and clinics resisted incorporating entrepreneurs’ new products into their systems, says Veenu Aulakh, executive director of the Center for Care Innovations, a San Francisco nonprofit that acts as an intermediary between health-care providers and startups. There’s “now a sense of urgency” about adopting innovations that make them more efficient, she says.

Sims Preston, chief executive officer of Morrisville (N.C.) startup Polyglot Systems, says the 2010 health-care law has helped his four-year-old company sign up more than 300 pharmacies, 200 clinics, and a handful of hospitals as customers. Polyglot’s software, available in 18 languages, prints instructions for taking medicine in formats that patients with low literacy levels can understand. The shift to reimbursing for quality of care, rather than quantity of care, “means the mission that we’ve been on now has a business case to support it beyond simply the moral case,” says Preston, whose company has received about $2 million in grants from the National Institutes of Health.

Propeller Health, a four-year-old startup in Madison, Wis., that makes hardware and software to help sufferers of asthma and other respiratory diseases manage their conditions, is also partially backed by California HealthCare. Asthma attacks are a leading cause of emergency room visits and hospitalizations in the U.S., where 25 million people—many of them children in low-income families—are afflicted, according to the American Lung Association. The 22-person business received a second investment of mostly convertible debt from California HealthCare in June, for a total of just over $1 million from the foundation. Propeller Health co-founder and CEO David Van Sickle says the increase in demand for technology like his is linked to the Affordable Care Act’s efficiency push. Insurance companies are willing to pay for Propeller’s product because it reduces trips to emergency rooms, producing “savings of between $700 to $1,000 per patient, per year,” he says.

Purple Binder, a four-person Chicago startup that helps health-care workers find community services for patients, also credits Obamacare with making its online tools more compelling: “As health-care providers take on more risk, they need to leverage existing resources to keep their patients healthy,” says Joseph Flesh, the company’s co-founder and president. For instance, using Purple Binder, a pediatrician can connect a needy mother with a local church that’s handing out diapers. The startup makes money by selling subscriptions to providers and through paid listings on its site.

New York-based business accelerator StartUp Health is using a $500,000 grant it received in December from the Robert Wood Johnson Foundation to advise entrepreneurs around the world on how to build businesses that improve access for the poor. “If we’re really going to solve the big challenges in health care, we have to focus on bringing innovation to the underserved communities” that make up a large percentage of medical spending in the U.S., says Unity Stoakes, president and co-founder of StartUp Health. “It’s not just a market that needs to be served. There is a real business opportunity.”

That’s why Direct Dermatology’s Wong is confident he’ll eventually be able to raise money from venture capital firms and strategic investors such as health insurers for expansion plans that include hiring at least six more employees this year. “There’s a lot of financial incentive for adoption of solutions like ours,” says Wong, prompting “interest not only from foundations but from traditional investors.”

Margaret Laws on Mission Investing

Margaret Laws on Mission Investing

Margaret Laws

In her former role as director of the Innovations for the Underserved program for the California HealthCare Foundation (CHCF), Margaret Laws oversaw the organization’s program-related investing initiative.


Q: How did mission investing get started at your organization?A: A convergence of three main aha moments led to CHCF’s launch of a mission investing program three years ago. First, for a long time, we’ve funded HIT-related programs to improve access to health care and to lower costs. Companies doing interesting things using HIT would ask us: We share your goals; can we work with you? But we didn’t have a good way to work with them.

Second, like many foundations, we were funding successful, innovative programs. For example, we funded a demonstration project that used text messaging to keep kids with asthma out of the emergency department. But when grant funding ran out, those programs couldn’t expand or sometimes, even continue. This was problematic because our goal was to sustain and scale innovations, not just demonstrate that they work.

Third, we realized that by working only with our usual partners — university-based research centers and other nonprofits — that we were cutting out some of the most entrepreneurial, innovative organizations in health care.

Q: What are your focus areas?

A: CHCF’s investments are geared toward meeting our organizational mission of improving health care delivery for underserved communities, and this past year, we’ve been focused on HIT and service model innovations that can do that. We don’t support the development of devices, biotech, or pharmaceuticals because we don’t have experience in those areas. Our service delivery experience in Medicaid, rural, low-income, and other underserved environments is an asset that we bring to a syndicate of investors. Next year, we’ll continue to look broadly but will place a special focus on mental and behavioral health care, and care for dual eligibles and people with complex, chronic conditions — areas in which we have confirmed the need for innovative approaches with safety-net providers in California.

Q: Besides money, what do you contribute to investees?

A: Often, our nonmonetary contributions can be equally or even more important than the funding. Typical early-stage companies and safety-net providers don’t organically meet each other. We provide the networking opportunities. We’ll do personal introductions or have companies present at conferences or on webinars where safety-net providers are the audience. We also provide technical assistance: financial analysis or planning. We also work with companies to help them understand Medicaid or community health center finance, reimbursement, and policy issues. This is a major focus area for the foundation and an area that is not well understood by companies.

Q: Describe how your work complements traditional investors.

A: We want to take promising companies that we think will have an impact in the safety net and get them through one of the big “valleys of death” — this early stage where they need to get enough traction, data, and proof of value to be attractive to more-traditional financial investors.

With companies that already have traction in the commercial market, we partner with traditional investors to take that company into a market like Medicaid that is often much less familiar and almost certainly less lucrative. The likelihood that these companies would take on a challenging, unfamiliar market while they’re still trying to get established is not high. We provide the capital, relationships, and the know-how in the operations and financing of safety-net institutions to help a company take on that new market.

CHCF is different from traditional investors. Our primary purpose for the investment is mission impact, not financial return. We don’t have thresholds we have to hit for profitability margins. A venture investor might love a company’s idea and product but not invest because the market isn’t big enough. We can be a good source of capital in these situations.

Q: Do you allow for partnering in investments?

A: We made our first co-investment last year with The Kresge Foundation in Direct Dermatology, a company that provides dermatology specialty care at an affordable price to safety-net providers through telemedicine. Our funds are helping Direct Dermatology take their service to more Medicaid programs, community health centers, and other providers serving low-income populations around the state and country.

We’re launching another initiative with Kresge that focuses on technology and services that improve access in community health centers. This initiative is a response to the ACA and the dramatic increase in the numbers of people — those newly insured — going to community health centers, which were struggling to provide access to services to begin with. We are interested in co-investing with other domestic health care foundations that share our goals.

Q: How do you measure impact?

A: We are looking for how a company will provide new or much more timely access to 100,000 people in California annually and/or how that company will lower costs by $25 million annually. We’ve set specific metrics that we hope are meaningful targets that relate to our foundation’s overarching goals.

We’ve seen real impact. With Direct Dermatology, people who were waiting 6 to 12 months for a consultation are now getting consultations in 24 to 48 hours. Direct Dermatology has detected skin cancer and other conditions for which timely treatment is important. The application is being used in regions without a lot of dermatology specialists and in regions where specialists don’t see Medicaid patients. This is an example of capital from a foundation helping to scale a service to serve more Medicaid plans and more providers — and ultimately, patients — who have a real need and demand for more-efficient care.

A Bright Future for Digital Health Startups in 2014

A Bright Future for Digital Health Startups in 2014


Other sectors of health care innovation may be falling behind digital health.

Underwhelming numbers showing health care’s share of venture capital funds have many people painting a grim picture of the future of health care innovation.

But while there are clear indications that the money situation is changing, that doesn’t mean health entrepreneurs are going out of business – the environment of health innovation is simply changing. Many of its newly successful occupants can credit alternative thinking and the digital boom for their triumphs.

“I’ve lived through the Internet generation – I helped take a company public in the ‘90s – and what I’m seeing with what is happening now is much more exciting,” says president and co-founder of StartUp Health, Unity Stoakes. Others may be predicting a lull in health startups but Stoakes says we are entering an “epic decade of transformation in health care.”

Stoakes’ company helps entrepreneurs navigate the world of health care innovation. They run the StartUp Health Academy, where specially-selected startups receive three years of instruction in best practices and get connected with possible funding sources, customers and other startups. It also has the StartUp Health Network, where over 10,000 entrepreneurs, investors, and health professionals can connect. Blueprint Health and Rock Health have models similar to StartUp Health, and all three tout impressive portfolios of satisfied users.

One of StartUp Health’s success stories is Direct Dermatology, an online dermatology clinic launched in 2010. It was inspired by inaccessible dermatologists worldwide.

“Wait times to see a dermatologist, even in urban areas, are over a month. In rural areas it’s over six months and, in many cases, patients have no access whatsoever,” says Dr. David Wong, Direct Dermatology’s co-founder and CEO. In the case of skin cancer, this wait can mean the difference between life and death.

The concept of Direct Dermatology seems very straightforward. A person or their doctor can send a photo of their skin to a board-certified dermatologist, and receive a diagnosis and treatment recommendation.

Wong says there were many challenges in bringing this startup to fruition. Payments schemes are complicated, technologies differ between medical sites, and laws vary by state. Many of these are common challenges for health care entrepreneurs and are specific to the health care field, which is why Wong says working with a company like StartUp Health is invaluable. The ability to discuss and solve these issues alongside other innovators is something both he and Stoakes say is a distinct advantage of this type of collaboration.

Digital health startups may also benefit from a substantial influx of talent from other technology sectors, and the reason might be as basic as the desire to create meaningful products.

“It’s one thing to build a successful company that sells widgets,” says Stoakes. “It’s another to completely transform an industry that’s broken, that’s saving people’s lives, and improving people’s happiness.”

The increased diversity of funding sources helps digital health companies, too. While venture capital is still a major part of the investor makeup, digital health startups also receive money from angel investors, challenges, and even crowdfunding sites. All are eager to invest in medical products with quicker turnarounds than their less-technological counterparts.

Wong’s own Direct Dermatology is backed by nonprofits, such as the California Healthcare Foundation and the Kresge Foundation.

More traditional forms of health care innovation may be seeing a reduction in funds, but that doesn’t mean health care startups are losing momentum. The landscape is changing, and those that change with it have been able to find incredible success.

“The opportunity in health care is so wide, it’s a market segment that is in desperate need of innovation,” says Wong.