Bloomberg News

Kravis Backs N.Y. Startups Using Apps to Cut Health Costs

December 05, 2012

Kravis Backs N.Y. Startups Using Apps to Cut Health Costs: Tech

An NYU Langone Medical Center employee hails a cab for an 83-year-old patient being discharged. Aidin is among young companies chosen by New York’s health-care technology startup-accelerator program, funded by insurers and venture capitalists to prevent overspending on medical care. Photographer: Chip Somodevilla/Getty Images

When his uncle was hospitalized with Alzheimer’s disease, Russ Graney struggled to find him a home- health aide. The patient stayed in the hospital for three extra days while the search dragged on, raising costs for the family.

Graney and Michael Galbo, who had a similar experience when his grandmother had hip and knee surgery, decided there had to be a better way. They teamed up to found Aidin, a startup whose website lists and assesses specialized-care providers to simplify the patient-discharge process.

“It’s really hard to get that information,” said Galbo, 27, who has known Graney, 28, for eight years. “We had to go out and visit 10 to 15 of these providers individually. We’re trying to give patients that information more easily.”

Aidin is among young companies chosen by New York’s health- care technology startup-accelerator program, funded by insurers and venture capitalists and aimed at preventing overspending on medical care. As the state moves away from old-fashioned paper medical files, it’s boosting the efforts of entrepreneurs by becoming the first in the U.S. to give app developers the code behind its system of shared electronic-health records. That, in turn, is intended to streamline care and reduce costs.

“Providers are looking for products that will help them manage the new system,” said Anuj Desai, director of business development at the New York eHealth Collaborative, a nonprofit organization that aims to use technology to improve health care. “The current vendors don’t give them the right tools. The new networks demand innovation.”

New York state is the “first and only” to open its system’s application programming interface, or API, to startups, Desai said.

Taking Lead

The New York Digital Health Accelerator’s $4.2 million program is just one way the state is taking the lead in the push to use technology to streamline health-care processes and cut costs. The accelerator gets its money comes from investors such as health-insurance company Aetna Inc. and the Partnership for New York City Fund, which was started by Henry Kravis, the billionaire co-founder of private equity firm KKR & Co (KKR). Other investors include Janssen Research & Development LLC and New Leaf Venture Partners LLC.

Giving the startups early access to the electronic-records technology will let companies pare spending in a state where health care cost $8,341 per capita in 2009, one of the highest rates in the U.S., according to the website Statehealthfacts.org. The accelerator program gives the startups $300,000 and mentoring from health-care providers to help improve the state system’s network. The API will be made available to all companies in February, Desai said.

Chosen Companies

Startups such as AdhereTx Corp., which runs a website to help keep track of medications for patients with chronic diseases, and Cureatr Inc., which makes a secure group-messaging system for health-care professionals, are also among the eight that were chosen in October for the accelerator program.

New York has pushed ahead with this effort even as privacy advocates express concerns that the increased sharing of digital health records could put patient information at risk. Application developers aren’t bound by the federally mandated privacy and security restrictions that are imposed upon health- care providers, and should have no right to access that information via health-information exchanges, said Deborah Peel, a physician and founder of Austin, Texas-based Patient Privacy Rights.

“That’s a crazy idea,” she wrote in an e-mail. “Open access to health data by people with no knowledge of privacy rights or the sensitivity of health data is a prescription for disaster.”

Certifying Security

Still, Desai said the API will let app developers access a summary of a patient’s electronic health record, which comes from the statewide health-information exchange. The New York eHealth Collaborative will certify that the apps are secure, and the apps will only access data that patients have already agreed to have shared, Desai wrote in an e-mail. The startups have to sign a data-use agreement covering federal privacy rules, he said.

Aidin co-founder Graney got a taste of the industry in his previous job at a Boston private-equity firm. One of the company’s investments was in a health-care staffing company.

Through his uncle’s experience, he saw how little information patients receive when choosing post-acute providers. Aidin’s Web app tells discharge planners and patients what providers are available, along with ratings that gauge readmission rates, customer satisfaction and how well they follow best practices.

“Going through the hospital discharge from the patient perspective, and seeing all the work and effort it required not only of us as a family, but also from the hospital staff, really highlighted to me how urgent this problem was,” Graney said.

Cottage Industry

As a result of New York’s efforts to foster electronic- health records, a cottage industry of health-care IT startups has cropped up to build apps to make sharing and interpreting data easier for doctors and hospitals. From 2007 through the end of the third quarter, New York area health-technology companies raised $324 million in venture capital, making the city the third-biggest metropolitan area for the industry behind Boston and San Francisco, according to the National Venture Capital Association.

New York-based Liazon Corp., which operates a private health-benefits exchange, raised $18.2 million in funding in April from firms such as Bessemer Venture Partners, Fidelity Biosciences and Bain Capital Venture Partners LLC.

Blueprint Health, a health-tech incubator, announced its first group of startups this year.

New Leaf Venture Partners led a $10 million round for Truveris Inc., a New York-based maker of software for businesses to manage health-care costs, in February.

‘Unsustainable Path’

“Everyone understands that health-care spending is on an unsustainable path,” said Philippe Chambon, a managing director at New Leaf. “We are finally now in the situation where there is the legal framework and the dollars where we can change the system in a way we would never have done in early 2009.”

New Leaf, which has about $1 billion under management, has 30 percent of its fund invested in health-care technology companies. In 2005, its portfolio included only one such investment. The firm, with offices in New York City and Menlo Park, California, has put $350,000 into New York’s digital- health accelerator program.

Even as investment soars, one risk with health-care companies is that adoption of new technology may be slowed by regulation, and startups may find it challenging to grow quickly in the slow-moving industry, New Leaf’s Chambon said.

“What you have is a more complex business environment where you cannot expect things to move at the normal Internet speed,” he said.

Business Models

While some startups have tried to create consumer business models, Chambon said he’s more comfortable backing companies like Truveris, which helps manage information between companies.

Health startups also face an industry that requires lots of time and money to gain customers -- insurance companies and doctors, many of which are reluctant to try new technology.

“In order to get a big market share, you need to get multiple clients,” said Sonia Ben-Yehuda, co-founder and president of startup MedCPU Inc., which counts 10 medical providers as customers for its software that interprets free- text notes and electronic health records. “You can’t be the best-kept secret in the industry. You have to be exposed.”

Dave Chase, chief executive officer of Avado Inc., said he has noticed providers becoming faster to adopt new tools. His company, which lets clinicians and patients securely communicate and manage health information and has an office in New York, is participating in the accelerator program.

Speedier Adoption

Having access to the API will make it easier for providers to share patient information, which is important for people with illnesses like diabetes, which often involves visits to multiple doctors, Chase said. Large providers are making decisions to adopt new products in six weeks, he said, where it was common for the process to take 18 months.

“I used to joke that health care was where tech startups went to die,” he said. “Because of all the pressure on providers, they’re moving at light speed.”

Some New York-based health startups have already seen some success. ZocDoc Inc., which runs a website where patients book appointments, has raised $95 million since Chief Executive Officer Cyrus Massoumi co-founded it with Nick Ganju and Oliver Kharraz in New York City in 2007. Peter Thiel’s Founders Fund was an early investor.

Doctors pay $300 a month to be listed on the site. Two million patients used the system in October, and the company recently opened a second flagship office in Phoenix, Massoumi said.

“Five years ago, everyone said the health-care industry doesn’t change and that physicians are slow to adopt technology,” he said. “We’ve always said that wasn’t true.”

To contact the reporter on this story: Ryan Faughnder in New York at rfaughnder@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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