Michael Ellenby

In 2017, healthcare spending in the U.S. 

, nearly twice the amount as in other wealthy countries but with worse outcomes. People started suspecting the culprit to be a fee-for-service model, prompting a push toward an 

 model instead. Under this structure, healthcare organizations get paid based on the results of the care they provide, not based on the fact that they provide care at all.

As the industry experiences these changes (read: upheaval), the need for it to adapt gets a lot more serious. Because of this, major healthcare enterprises are increasingly turning to startups and spinouts for a necessary dose of accelerated innovation.

A few organizations are innovating already. Phoenix Children’s Hospital is a great example. In 2015, the organization started the Phoenix Children’s data lake, which pools information from 67 different hospitals to form one massive information repository. Healthcare providers can analyze millions of records through the platform and use the information to deliver better care. In fact, one hospital division was able to 

 and cut the use of nephrotoxic medications by 20% using this process.

Innovations in healthcare operations can also have a big impact. Banner Health recently 

 created by a startup to keep emergency room patients up-to-date on their wait times, for example.

And even though FDA approval cycles and costs can present obstacles to organizations looking to create innovations like these, they shouldn't deter good ideas-many startups still clear the hurdle. Solera Health, a startup platform that 

connects patients with non-medical wellness programs

, raised $42 million in a Series C round.

There are some best practices for maximizing partnerships between your corporation or managed care organization (MCO) and startups or spinouts. To instill a culture of innovation within your organization and do just that, consider following these four steps:

When working with large organizations, start with learning exactly what the goals are for innovation (strategic, financial, or cultural). Often, this thesis isn’t clear, and the results reflect that. Whether the organization is looking at bringing startups into its fold or spinning up new operations outside of it, it has to understand that clear objectives are attainable objectives. Armed with an investment thesis that identifies pressing problems and 

outlines an approach of need-based innovation

, organizations can get down to business.

Corporations and MCOs are held together by policies, procedures, and structures, which don't work well for startups or spinouts because they create 

long sales cycles that outlast their runways

. If you’re trying to spin out new products and new businesses from within, allow that offshoot to be separate from its parent company and allow it to make its own rules and mistakes.

Because bigger organizations sometimes discourage experimentation because “failure is not an option,” executives have to see the difference in their approach to working with enterprise partners versus working with outside organizations that learn through rapid failure and iteration. If there isn't buy-in from the top down, new spinouts or partnerships with startups are destined to fail.

The startup/spinout environment is vastly different than the corporate world with its investment cycles, accelerated decision-making, speed to market, tolerance for risk, organizational structure, and “build, measure, learn” cycle that enables rapid improvement. Instead of getting in the way, drop the reins and let that outside partner do its thing. The 

 is a great example of the magic that can happen when obstacles are removed. It's helping health startups get to market with funding, mentorship, and exposure to investors.

Whether with large corporations or MCOs, there are typically four categories that hinder innovation: culture, leadership, people, and structure. These barriers often just get stronger and more concrete if approaches to innovation and innovation partnerships aren't implemented the right way.

Opportunities are everywhere, but they aren’t always obvious and don't just smack you in the face. In fact, one of the ripest areas for startups and spinouts is in the non-medical space of MCOs. Healthcare organizations sometimes tend to focus too much on delivering healthcare solutions to the point that they don't focus enough on normal operations. Innovations in the space often occur in business models. This kind of solution can show high returns both in terms of safety and economic impact at a potentially low cost.

A consultant once said: “The problem is never the problem. It’s always something else.” This advice holds up. Whether internally or externally, give any spinouts and startups the freedom to find problems in your business that are most in need of solutions. When AdhereTech saw that older patients were having trouble remembering to take medications, for example, it 

 that reminds them to do just that with text alerts or phone calls.

Too many people associate startups or spinout organizations with a “move fast and break things” mentality. In reality, they’re often the best way to fix issues in large, slow-moving healthcare organizations. If you run the right innovation process and structure, you can move fast without breaking much of anything.

As the world undergoes the changes associated with this new outcomes-based compensation model, the providers that embrace startups will undoubtedly emerge as the winners.

Michael Ellenby is the director of corporate innovation at 

, a Los Angeles- and Phoenix-based venture builder that partners with industry experts, entrepreneurs, and corporate innovators to build the next wave of high-growth tech companies.

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These best practices can instill a culture of innovation within your organization.

Author | Michael Ellenby

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