Article originally pulished on Medium.com

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How will US hospitals navigate the ongoing tug of war of investing in innovation VS. maintaining financial reserves in a challenging market?

With my wife deciding to go back to school to become a nurse, COVID happening and seeing loved ones navigate our health system; I got very interested in investing in the healthcare space a few years ago. Since then we have made investments through both our accelerator fund and seed fund in companies like Blooming Health, Kiira Health, PatchRX, Remo Health, Finni Health, Wally Dental and more that have yet to be announced.

While the current landscape presents countless opportunities for improvement and innovation, some of which our portfolio companies are tackling, Naomi Goez, a Senior Associate at Forum Ventures, and I decided to dissect the space through the hospital lens, and more specifically, the battle to save hospitals’ operating margins.

Kaufman Hall’s latest National Hospital Flash Reports have found that hospital operating margins have begun to rebound since operating in the red throughout the last year, thus entering a new reality of financial performance, suggesting that 2023 may be “the year hospitals redefine their goals, mission, and idea of success” according to Erik Swanson, SVP of Data and Analytics at the firm. This therefore creates a tug of war for hospitals to navigate: investing in innovation to improve status quo and to drive better health outcomes VS. maintaining financial reserves.

I believe three areas in particular intersect the need to sustain margin recovery while implementing innovation, thereby presenting a potential path to address conflicting priorities and creating unique opportunities for building and investing:

• Staff management: Increased operating costs driven by the reliance on temporary labor & expensive travel nurses due to low retention rates and fluctuating demand have been affecting hospitals’ bottom line and resulting in significant losses. Existing institutions are struggling to provide timely hospital admission, surgeries, and meet demand for boarding in the emergency departments. Other smaller hospitals, often in rural areas, were forced to close their doors, leaving entire communities in healthcare deserts. I believe that there is an opportunity to remedy part of these issues by tackling turnover and burnout to shift the employee composition away from costly travel/ temporary and towards permanent staff.
• The evolution of digital healthcare: We live in an increasingly hybrid world across almost every vertical — work, commerce, fitness — and healthcare is no different. Despite healthcare’s infamously slow adoption rates and dropping valuations post the 2021 bubble burst, an anticipated $15-$25B in venture funding is expected in 2023. We are also seeing institutions take on this movement, evident in Mount Sinai’s LLM based Check Symptoms and Get Care app features. Identifying steps in the patient journey that can go entirely digital as well as opportunities for integration with in person care delivery has the potential to remove existing friction, reduce admissions/ readmissions, and increase patient engagement. A good example of this integrated approach is our portfolio company, Remo Health, who recently wrote about their hybrid approach to dementia care.
• Workforce productivity and operational efficiency as a direct contributor to health outcomes: AI utilization presents a potential $360B in savings from annual healthcare spending, and a few use cases including facility navigation and customized discharge instructions are already being explored at reputable institutions such as Boston Children’s Hospital. At Forum we are exploring this through the lens of improved detection and medical imaging interpretation and driving operational efficiencies; and we’ve made a couple of investments that are not yet announced publicly. We are excited to continue pursuing this path and learn more about how health systems are leveraging AI to drive better health outcomes and improve their operations.

Over the next few months, we will be conducting a deep dive of each area through conversations with healthcare professionals, founders and industry leaders to explore the ways in which innovation can help address this difficult reality for health systems.

I am excited to bring you all along, share our takeaways, and welcome any introductions to relevant players in the space.