100health Aims to Incubate Health IT Startups, Put Madison on Map
The ambitious talk of turning Madison, WI, into the nation’s premier hub for healthcare and healthtech startups has grown louder in recent weeks. Now add 100health to the conversation.
The new company, housed in downtown Madison co-working space 100state, is part think tank and part startup incubator. 100health will work with healthcare providers, insurers, and other organizations to research and identify problems that can be solved using technology tools. Then 100health will form startups that will build software to fix the problems. Its staff will serve as founding team members to help entrepreneurs develop the initial product, and the companies will pull from a pool of entrepreneurs in 100health’s network to further staff the startups as they grow.
100health will not invest funds in its portfolio companies, but will take an equity stake likely ranging from 5 to 20 percent, said co-founder Niko Skievaski, who last year co-founded 100state. Startups will receive office space at 100state, some money to cover operating costs, and connections to a network of business mentors and investors.
100health already has three companies in its portfolio, Skievaski said. Patient Proxy is like a TurboTax for generating health proxies and living wills. Inc.Well helps companies design corporate wellness programs and better track results. The third company, ICD-10 Illustrated, created a book that pokes fun at some of the bizarre and ridiculous medical diagnoses in the international medical code system.
This year 100health aims to hire about five to 10 staff and recruit about 100 entrepreneurs to its group of so-called “disruptors in residence,” which would give it the resources to work with more than a dozen startups at any given time, Skievaski estimated.
Skievaski started 100health with James Lloyd and Luke Bonney. All three are former employees of Epic Systems, the Verona, WI-based electronic health records software provider that optimists say will be a key driver of health IT innovation in the Madison area. That’s because an estimated 1,200 Epic employees quit the private company each year (it currently employs about 6,800), essentially providing an entrepreneur feeder system of highly educated software engineers and other professionals. People from this talent pool have received an intense education in the business of healthcare while with Epic and often have their own ideas for improving the industry.
At least, that’s what 100health’s co-founders are counting on. They’re not alone in believing Madison has the ingredients for a thriving health IT startup ecosystem: an anchor in Epic, quality healthcare systems that have shown early interest in partnering with 100health, a respected computer science program at the University of Wisconsin-Madison, and a relatively low cost of living, to name a few. 100health envisions Madison following the path of cities like Austin, which has established itself as a tech startup hub, buoyed in part by the economic engine and talent generator that is Dell.
“There’s going to be certain cities that emerge as the leaders in certain areas,” Lloyd said. “I really feel like Madison has the potential to be the healthcare IT hub for the entire United States.”
That’s a lofty goal that will take time to develop. Local healthtech startups face the same barriers that most Wisconsin entrepreneurs must overcome, like a lack of nearby institutional investors. But Madison’s nascent health IT startup scene is starting to grow, often led by Epic veterans. (Xconomy has reported on the launch of two such companies in the last week, Branch2 and now 100health.)
“If we do what we want to do and we’re successful [with 100health], we’ll be the beginning of the next round of companies and organizations that continue the community on this path and start to really become a name that gets talked about at a national level,” Bonney said, referring to Madison.
There has been an explosion of such organizations in the past five years, as the Y Combinator and Techstars model of three-month startup boot camps has grown more popular and become more specialized in sectors like digital health, hardware, and clean energy.
Xconomy is among the observers that have suggested there’s an accelerator bubble that will pop at some point. (My colleague Wade Roush made this prediction more than two years ago.) Whether that plays out or not, 100health’s co-founders initially considered following a similar accelerator model, but later decided they didn’t want to compete in such a crowded sector.
Why not join the fray? For one thing, those programs are often backed by major healthcare players like Blue Cross Blue Shield and Kaiser Permanente. 100health will begin raising funds in the next month or so, but at this point it doesn’t have a deep-pocketed backer. Epic might seem like a logical choice, but it is unlikely to make such an investment because that’s not part of the company’s mission, Skievaski said. (Epic founder and CEO Judy Faulkner has a notorious focus on running her business—which has never taken on debt or outside investment—and doesn’t seem inclined to make any gestures to support the local healthtech industry, as a recent article in Isthmus, a Madison alternative weekly publication, pointed out.)
Furthermore, 100health’s co-founders are skeptical that healthtech lends itself to a three-month accelerator model. Startups making consumer or business apps can put out products and pick up customers more quickly and easily than health IT startups that are working with health systems that are often slow to adopt new technologies and require months to hammer out a contract. It takes about five minutes to choose between Dropbox or Google Drive, but it could be a six-month, $100,000 project for a hospital’s chief information officer to pull the trigger on a software solution meant to reduce readmission rates, Lloyd said.
“This high switching cost means it ends up that there’s lots of companies solving the same problem, with a low penetration rate,” Lloyd said. “None of them can gain a real stranglehold on the market.”
The advantage of 100health’s model, its co-founders say, is in forming relationships with hospitals and health clinics and first identifying a problem to solve. This should make it easier for the ensuing startup to get a foot in the door with healthcare providers, ensuring a built-in pilot customer who can help the startup craft the product so it’s scalable.
“It gets over the risk-aversion problem within healthcare because they’ll know you,” Skievaski said.
But that’s no easy feat. 100health has a lot of work to do in forming those industry relationships, expanding its pools of entrepreneurs and mentors, and building a brand. To those ends, the company is meeting with healthcare executives this week at the Healthcare Information and Management Systems Society conference in Orlando, FL, Skievaski said.
One mentor already on board is Frank Byrne, president of St. Mary’s Hospital in Madison. He’s excited by the prospect of a hungry group of talented young professionals with various backgrounds, from IT to engineering to clinical settings, working together to “transform” healthcare.
The biggest obstacle to their success will be his own peers, Byrne said.
“I worry about some of these great ideas, that there won’t be people in positions of leadership in healthcare delivery that will have the courage to take the risk to implement them and try them and help make them better,” Byrne said. “I worry that some of these incredibly bright, energetic people who are going to help with these ideas will get discouraged if the first thing they try doesn’t work or isn’t successful for reasons beyond their control, and that they’ll give up. We need them.”
Skievaski’s measuring stick for 100health’s success won’t be how many investment dollars its startups raise—that’s another differentiator from most accelerators—but rather if they create products that are used by healthcare systems to improve care delivery and lower costs. The amount of avoidable healthcare costs—with estimates ranging from billions of dollars to trillions in the U.S. alone—makes healthcare ripe for disruption by entrepreneurship, Skievaski said.
Everyone knows this, of course, but few have been able to do much about it. “We know there’s going to be massive change that will need to happen” in healthcare, Skievaski said. “We want to accelerate that process. If one or two or three of our companies can be a substantial part of it, that would be successful.”