• • Despite recent advancements in digital health, there is a reversion to pre-pandemic adoption levels, especially in telehealth. Companies that raised money in 2021 are facing challenges in realizing their potential, prompting a value reset in the digital health sector.

• • Cleveland Clinic’s venture arm focuses on supporting technologies, achieving a good risk-adjusted return on investment, and promoting adoption across healthcare. Success stories include innovations in stroke treatment and streamlined healthcare payments.

• • Successful solutions are created from a combination of proprietary data, clinical expertise, and a deep understanding of specific applications. Clinical expertise and collaboration with healthcare professionals are keys to successful implementations, as is the need for a patient-centric approach.

(edited for clarity)

Hello, everybody. Welcome to another Meeting of the Minds podcast. I am Chris Hemphill, and I’m joined today by JD Friedland who is the managing director of Cleveland Clinic’s venture arm.

Great to be here today, I’m really excited about our conversation.

JD Friedland is leading a lot of investment efforts at Cleveland Clinic. He is looking at the broad landscape to understand the factors that lead to success in digital health investment today. Not everybody in our audience is an investor or running a fund to buy digital health companies. But I think another part of this is for practitioners, the doers, the folks in the field, or even the people who are running companies to just get an idea about some of the important success factors moving forward.

There’s been a lot of change. In the first half of 2021, digital health investing was around $30 billion. Fast forward to 2023 and we’re sitting at $6.1 billion for the first half. What happened?

That’s about an 80% reduction in dollars invested year to date this year versus last year. And anyone who looks at that charts says, What the heck happened? You know, 2021, I would argue, was by far one of the more robust markets we’ve ever seen in digital health. You had tremendous amounts of money moving into digital health, you had tremendous valuations at which private companies were able to raise money from venture firms and from strategics, and 12 months later it’s like we’re on the other side of the planet. We were talking before we started about one of the prime examples of the adoption of technology and healthcare that we saw during 2021 was telehealth and the adoption of remote care. And I should correct myself. It was 24 months ago, not 12 months ago, but it’s still a pretty significant drop off. But what’s crazy about what we’re seeing in healthcare is there’s almost a reversion to pre-pandemic adoption of telehealth as a technology. And so I think some of the expectations when you start to draw those extrapolation lines about adoption and revenues for some of the companies that raise money in 2021, the vast majority of those companies have not been able to realize the potential that investors expected when they invested in those companies two years ago. There’s a value reset that’s really happening around digital health. And so I think the venture community is really trying to understand what the landscape is and where we go from here. As a strategic investor, Cleveland Clinic has multiple reasons to be involved as an investor in the sector. We want to support technologies, we obviously want to get a good risk adjusted return on our investment. But it’s also important for us to promote and support adoption across healthcare as one of our core missions at Cleveland Clinic, but also to find technologies that are going to augment and support the mission of Cleveland Clinic as a healthcare institution.

So I want to dig a little bit deeper into Cleveland Clinic itself. One thing that I love is when people who are using a technology are also making the decisions around that. Could you talk about the venture arm and perhaps its relationship to how digital health practices flow throughout Cleveland Clinic?

Great question. And let me clarify, our venture’s effort is really part of a broader effort at Cleveland Clinic called Cleveland Clinic Innovations. So innovation is actually one of the six founding principles on which the Cleveland Clinic mission is delivered. Our whole office does a variety of things from soliciting ideas for invention or discovery from our clinicians and our researchers evaluating those inventions, translating and transforming those ideas into actionable licensable patentable or patented intellectual property. For us to be smart about what matters to Cleveland Clinic, we have to be in regular contact with our clinical institutes. We’re getting information and asking questions and receiving input from our leaders across our organization on what matters the most to Cleveland Clinic, what are our highest priorities, what are the biggest problems?

I gotta say that there are probably people out there listening and getting very jealous. And I think that jealousy might come from the fact that you mentioned different names of different departments, teams and parts of the organization that are traditionally siloed and aren’t working with each other.

So that’s really important, too. Cleveland Clinic operates on what’s called the clinic model. So I’m not a doctor, and I’m not a scientist. I didn’t really understand what that meant when I got to Cleveland Clinic. So the best analogy that I have come to terms with is think of Cleveland Clinic as a large university with different schools of specialty within that university. So we have a lot of engines of growth and innovation and opportunity that exist across Cleveland Clinic. But the point you’re making, which is a great one, is how do all of the different colleges sort of work together in that university analogy that you use, and part of that is our senior leadership in making sure that there’s regular communication and exchange of ideas. But part of it also is what we’re trying to do in innovations, which is really enact a level of engagement across Cleveland Clinic to understand what our biggest problems are. What are the ideas that some of our institute leaders and our researchers are trying to tackle? And how does that dovetail with problems that we have? And how does that dovetail with the problems that the healthcare industry are having? Or the challenges that we’re facing in the healthcare industry? So how can we bring those solutions to bear? Or how can we bring external solutions to bear on the biggest problems that we’re facing as an organization?

You’re painting the picture of these interconnected units, where you bring an area of expertise to the table, clinicians bring a different area of expertise to the table, then there’s research arms and the like. Are there examples that come to mind as really powerful, successful innovations that your team is proud of? 

We have a portfolio company that was started by Andre Machado, who’s the head of our Neurology Institute. One of the areas that he’s very well known for is stroke, and the causes and the impacts of stroke, and how patients can or cannot recover from stroke. So he identified that by placing an electrode and delivering deep brain stimulation to patients who have suffered from stroke and what’s called hemiparesis, which means partial paralysis of an extremity, their arm or their leg, he could actually use that deep brain stimulation to re-strengthen those neuronal pathways, and help patients who could not lift their arm or make a fist re-engage in daily activities. And through phase one research that we actually just published earlier this year in Nature Medicine, we’re able to show that depending on the location, the strength and the frequency of the signal that is delivered to that patient, in concert with physical activity, we were able to see material recovery in these patients well and beyond what we would have expected to see through physical therapy alone. We were able to work with a large strategic partner, Boston Scientific, as a co-investor with us in this business and the Jobs Ohio Innovations Fund, which is a state sponsored venture fund in Ohio, we’ve continued to support this company and support the management team to continue to perfect the technology. We’re now launching a Phase II clinical study to demonstrate in a larger pool of patients the ability to deliver that kind of solution.

Another example I might give is another company in our portfolio called Avaneer, which was put together by Cleveland Clinic and six other strategic partners. We basically came together and said, you know, we have this payment mechanism, where whenever a payer and a provider and a financial institution have to deal with a claim, we go through a clearinghouse, and it’s incredibly inefficient, with each payer and each provider speaking their own language. So we push our data into a clearinghouse in our language, that claim gets pushed to a payer to an insurance company in our language, it gets translated. When it gets translated, something’s missing, it gets pushed back through the claims clearinghouse back to Cleveland Clinic that we left something out or something wasn’t right, or the code was wrong, it’s incredibly inefficient. It’s great for the claims clearinghouse because they’re guaranteed to be the middleman. So the idea behind Avaneer is, what if we were able to create trusted, direct connections between payers, providers, and financial institutions to create near instantaneous, prior authorizations and adjudications of patient encounters. Speaking from the patient’s perspective, they don’t have to wait to see if they’re allowed to see their doctor, they could actually walk out of their doctor’s office, and they’re handed what’s called their EOB, our explanation of benefits, which is something you’d get like a week or two weeks after your doctor’s office, and all that EOB says is your claim is paid for. So you can now focus on why you’re there in the first place is to see your doctor and deal with your medical problem and not have to worry about the financial side of the equation. We launched this company about three years ago. Today we have a live solution involving both CVS MinuteClinic at Aetna, and then Cleveland Clinic is operationalizing five million of our patients using the solution so we can create those direct connection pathways with our insurance companies and accelerate our ability to collect our payables but as importantly, significantly improve the patient experience.

As exciting as that is to hear there’s an avenue for people to raise problems to become organizational change, it just seems like there’s a bigger existential reality when we’re confronted with an 80% decline in available funding. Could you talk about that new landscape? What’s going to thrive and survive?

If you’d asked me this question two years ago, I probably would have told you telemedicine is here to stay. And we don’t need doctors offices anymore. And we’ll start giving up real estate because we don’t need it anymore. Again, we see more of a reversion of a significant return of labor to in person encounters. And I think there’s a lot of value from the Cleveland Clinic’s perspective, that human touch, like that physical contact of a nurse or a doctor being able to be in the room with you and be able to diagnose or explain to you what’s happening with your medical condition. So I’m not saying that there’s not a lot of value to that. But we have had a perpetual challenge in the healthcare industry with respect to a mismatch between labor supply and labor demand. Healthcare is a labor intensive business, as I mentioned before telehealth could have and may still be able to alleviate that to some degree, but we’re reverting back to pre pandemic encounter patterns. And so for Cleveland Clinic, that shortage of manpower is exacerbated. And it’s been accentuated by what happened during the pandemic. And, frankly, it’s been exposed to be not just a theoretical problem, but a practical problem we’re dealing with every day. Irrespective of what the investment climate is, or whether digital health is in favor or out of favor as an investment vehicle by the venture industry as a whole, it will always be a critical feature for Cleveland Clinic and for our peer organizations as well, because it presents the clearest and best opportunity for us to solve some of our biggest problems.

We were talking earlier about the labor challenge and people exiting the workforce. Is there any kind of spark or glimmer that you’re seeing?

The good news is we didn’t go to zero. So there’s still dollars out there. There are different valuations. There’s a different level of enthusiasm today. I’m hopeful that, you know, when we have transformative technologies that impact not just healthcare but society as a whole, that can really be a game changer. And it is to be determined. But there are some people who believe that generative AI could be that solution that transforms our economy, transforms how humans interact with the world and transforms healthcare. So imagine now, instead of having an individual that you have to speak to in North Dakota, or in India, who is walking you through your health care bill, you can have an AI bot that can provide that same level of interaction to provide you with the answers that you need in a fraction of the time. One of the things that Cleveland Clinic is looking at is how can we leverage AI capabilities to supplement that workforce shortage? We’re not talking about eliminating jobs, we’re talking about satisfying the demand for work, that the people don’t exist to fill those jobs. And then we can take that workforce that we have, and redirect it to their highest and best use.

Major point on not eliminating jobs.

I can only speak in healthcare. It is absolutely the focus to use the limited people and focus them on the things that we need people doing. And can we redirect some of their activities that they otherwise would have been doing to technology, automation and artificial intelligence.

I was watching a presentation from the CEO of FQHC. She said that even if we were to triple our workforce, we still wouldn’t even be able to meet the demand.

That’s right. I forget what the number is. I know Cleveland Clinic is in the 1000s of headcount. If we were to fully staff all of our 27 hospitals and all of our facilities around the country and around the world, it is 1000s of people that we would need to fully staff it. So it’s a fixed pie right now, in terms of where do we find the labor? How do we use technology to become a force multiplier with respect to the labor force that we do have, while simultaneously continuing to actively recruit, and train and upgrade our workforce so that we can not only accomplish the job that’s required for Cleveland Clinic today, but the job required for tomorrow.

How do we as healthcare decision makers and investors not fall for the hype of, you know, a flashy demo? What are some of the fundamentals that you’re looking for? And I’m asking this for not just the investment perspective, but the people that are making decisions. How do you know that tech is going to be around in the next three, five years? 

So this is the part of the episode where your audience is gonna say, All right, well, here’s where JD gets very self serving. But the truth is, and I do believe this, the value in Chat GPT is not in the mechanics of large language models and being able to create human-like responses in an interactive system. It’s having that proprietary data, having the understanding of the proprietary need and the application for which that solution can be developed. Almost anyone can develop a very simple solution and create a cool demo. But can you develop a very specific solution for dealing with ADHF patients and helping a patient in post discharge care manage their care, so they don’t end up back in the emergency room or back in the hospital in the next 30 days? And having the clinical insight, having the experience, having the deep clinical data set, and having access to some of the best minds in the world for that specific application, will enable that technology to be useful in a specific application and specific situation. To me that’s going to differentiate a generative AI solution, which I would say runs the risk of becoming commoditized as a technology in and of itself, but applying that commodity which is right now quite valuable to a specific solution with the right kind of intelligence, the right kind of expertise and the valuable data is I think what creates a differentiated solution in the space.

But if you’re bringing a lot of clinical expertise to the table, that’s a gigantic differentiator for you all.

I’ve been working in healthcare for long enough to have seen many technology companies over the last few decades try and have limited success with respect to bringing the transformative capabilities that they have been able to bring to other industries to healthcare. Healthcare is a unique industry. It’s something like 16% of the economy and is one of the, if not the, single largest contributor to the US economy in terms of labor, and in terms of revenues. But it’s a cottage industry. There is no Amazon of health care. When I go for health care, yes, I go to Cleveland Clinic, but I go to my doctor, I go to my doctor’s office or I go to the hospital, and there’s a small team of people there that works with me. That interaction that I have with the team, even if it’s virtual, is not something that is replicable in a factory like situation. You can’t bring the same capabilities that technology companies have used to transform other industries to healthcare. I’m not saying that healthcare can’t be transformed. I wouldn’t be sitting in this chair if I didn’t believe that it could be. But it has to be different. And it needs to take into account the clinical expertise and the clinical encounter. That’s a necessary element of being able to deliver health care effectively.

We did an interview with Heather Hudnall, the chief nursing informatics officer at NTT Data. What really stood out is just the conversation on how often technology decisions are made, investments are made, companies are created without consulting doctors on one hand, and nurses on the other hand. They are being left out of the conversations.

When I first came to Cleveland Clinic, I went and saw my first doctor. And he was sitting behind a screen, a monitor. And he’s asking me questions, and I hear these grunts. He’s clearly getting more and more agitated. And at the end of the encounter he told me he was retiring. And I was like, was it something I said, something I did?! He had basically kind of been forced into a situation to adopt technology in a way that’s not intuitive, and that had disrupted his ability to engage in his workflows. Now, he was an older physician, he’s probably close to retirement anyway. The new generation of doctors is used to using computers and used to putting in data in EMRs and corresponding with the patient electronically, with chat and otherwise. And that’s great. But some of those things are going to take years, if not decades, to really fully transform healthcare. And we’re really looking for solutions that will transform over a few years, or maybe even sooner.

We’re going to give you a magic power right now. If there was one thing that you could change about the way health care is delivered, what would that be?

I’d want to get rid of that disintermediation, empower the patient to control the dollars that are used for their care and the care for their family. And I think that would smooth out the disruptions that we see in healthcare today.

Well, thank you so much. How can people keep up with you?

I’m on the Cleveland Clinic innovations website. And you can email me at Friedlj3@ccf.org.

For the folks that want to dig in a little bit deeper, because we talked a lot about disseminating digital health hype: We actually had a really good conversation with Dr. Quyen Ngo, who leads Hazelden Betty Ford‘s Butler Center for Research to explain how to interrogate the research behind digital health solutions to determine if they are effective, equitable, and ethical. We’ll see you next time.