In the two years since Jeff Semenchuk took the reins in the newly created position of chief innovation officer for Blue Shield of California, the nonprofit health insurer with $20 billion in revenues has stepped up its investments in startup companies.
As one of California’s largest insurance providers with more than four million members, Blue Shield plays an outsized role in technology adoption among physicians, hospital networks and patients. With that in mind, and with the acceleration of entrepreneurial activity around the multitrillion health care market, Semenchuk was brought on board after serving as chief executive of Yaro (now Virgin Plus) and CIO of Hyatt Hotels and co-founder of Citi Ventures.
Semenchuk said he sees Blue Shield as working to create a new health care system: “It’s not to perpetuate the health care system we have today.” Increasingly, startups have a role to play in that revisioning of health care services in America, according to Semenchuk.
“What I would say has happened over the last two years is that we have really focused on transformational innovation,” he added.
Investing in those transformational technologies involves taking cash directly from Blue Shield’s balance sheet for investments. The company doesn’t operate a corporate venture capital fund in the traditional sense, instead making strategic investments under the auspices of Semenchuk or Chief Financial Officer Sandra Clarke.*
Over the last year-and-a-half, Blue Shield has invested in roughly 10 companies, with one-third of the firm’s investments going to technologies designed to improve the internal operations of the insurer and at health care providers that it works with. “The other two-thirds are about providing service and care to our members and providers,” said Semenchuk.
One investment that Semenchuk said was indicative of the Blue Shield approach to investing was OODA Health. It’s a company whose work simplifies both the patients covered by insurance plans and health care providers, says Semenchuk, by consolidating payments and making the process easier for everyone.
Basically OODA works as a unified payment service for members’ medical bills. As soon as the bill comes in, for medical care, OODA pays it off and then sends that money to providers. The company works with insurers like Blue Shield to determine how much of those bills are covered by the insurer and then sends a bill to the customer for the remainder.
“[We say] here’s all of your medical care this month would you like to pay the amount back to Blue Shield,” said Semenchuk. Health care providers get reimbursed quickly for the services they provide, and patients get a consolidated bill instead of receiving one for each independent practitioner that works in a health care facility.
Another company that Semenchuk called out as emblematic of his investment thesis is Notable, a startup providing HIPAA compliant notation services for physicians via an Apple Watch app. The software captures interactions with patients and structures those interactions in a way that’s easily integrated with electronic medical records. Semunchuk noted that the service can save doctors up to 90 minutes a day.
For Blue Shield, the work with startups allows the insurance provider to influence how these startups navigate health care in ways that are mutually beneficially, according to the insurer’s CIO.
“It gives us deeper access and influence as these new capabilities are being created, increasingly, by early stage companies. [And] it gives us a chance to influence the direction that they go,” Semenchuk said. “A lot of these companies don’t have the deep expertise that Blue Shield has.”
For a company to receive Blue Shield’s cash, it must already be working with the insurance provider. Typically the company looks for entrepreneurs who have a track record in health care. “We favor companies with proven, seasoned and serial founders and business leaders,” said Semenchuk.
Typical investments for the firm will range between $1 million and $5 million over the life of a company, and never more than $10 million, according to Semenchuk.
However, Blue Shield does have another business line that’s going to be working more directly on deploying — and potentially acquiring new technologies in its for-profit spinout, Altais.
Founded by a longtime Blue Shield executive with an undisclosed, but presumably sizable commitment from Blue Shield, Altais is the insurance provider’s big bet on the future of health care.
As Dr. Jeff Bailet, the company’s chief executive, wrote when he announced its launch last year:
First, despite the many disparate technology solutions out there, none of them provide everything that’s needed for a practice to run smoothly, and it is challenging to integrate these solutions into physicians’ daily workflows without placing more burdens on them.
Second, under the growing infrastructure and financial demands, physicians are increasingly having to consider selling their practices to gain access to these new innovative tools and technology — often having to trade away the benefits and autonomy they’ve grown accustomed to in independent practice.
Altais will disrupt this paradigm. We will support physicians and clinicians and offer them a comprehensive set of transformational capabilities, remaining payer-agnostic in the process and driving value-based care. Our focus is twofold:
- Design comprehensive customized solutions and provide access to a suite of innovative services and tools in a financially sustainable way.
- Offer flexible partnership and ownership options to physicians and practices with a full range of affiliation and employment models while maintaining professional gratification.
*This post was updated to indicate that Blue Shield of California’s chief financial officer is Sandra Clarke. Robert Kolodgy heads The Blue Cross Blue Shield Association (BCBSA).