The Innovation Institute, LLC: Joseph Randolph, President and Chief Executive Officer

by HCE Exchange on October 25, 2013

Joe-Randolph-thumbAs healthcare in the United States undergoes a transformation from fee-for-service to value-based care, the need for innovation and unconventional thinking has never been greater.

In January 2013, The Innovation Institute was launched with the express purpose of being a central node for creative, groundbreaking thought. Joseph Randolph, president and chief executive officer, said the idea for the Institute was sparked by the realization that his colleagues at different health systems around the country were facing the same challenges under reform, mainly oriented around cutting 20 percent out of their cost structures.

“We must find new ways to operate and focus on transformational innovation rather than incremental change,” Randolph said. “Our existing system is broken, and we need to think differently to move forward. The same thinking that created our broken system will not result in solutions needed to fix it. We need a collaborative model that allows us to tap into the creativity of our employees, physicians, and business partners.

“Oftentimes, innovation occurs when there’s a burning platform, and I think the healthcare reform issue provided that burning platform that calls for change,” he continued. “Hospitals and health systems, for good reason, are very risk averse. They focus on standardization and incremental change. In order to focus on transformational innovation, you really need to be separate and distinct, so you have the ability to be nimble, take risks, and not get bogged down in day-to-day operations.”

An industry-wide need for innovation

The Innovation Institute was launched by St. Joseph Health, where Randolph had been serving as chief operations officer. St. Joseph provided the Institute with its initial funding of $40 million and with the blessing of the St. Joseph Board and the full backing and support of the system’s chief executive officer, Deborah Proctor.

As Randolph researched his idea for the Institute, he discovered there were fewer than two dozen centers around the country devoted to innovation, and most of these centers were focused internally.

Therefore, the mission for The Innovation Institute is to focus on innovation in collaboration with others, doing more with less, for more people.

The vision of The Innovation Institute is to be a vehicle that fosters innovation and growth for the member-owners and investors. To that end, the model is intended to have seven non-profit systems as “member owners.”

Since launching in January, Randolph has been in dialogue with several system leaders across the country who are interested in the Institute’s three-pronged model. The Institute should be closing with its second health system in early October.

A three-pronged approach to innovation

This model devised by Randolph and his team consists of three elements.

The first element is the Innovation Lab, which isn’t anything like a traditional laboratory.

“It’s not a lab with microscopes or a wet lab,” he explained. “It’s an incubator where we can grow the most promising ideas from our employees, physicians, and business partners.”

Researching other innovation labs across the country led the Institute team to the Cleveland Clinic, which had the best track record, Randolph said, in the commercialization of new products and new ideas. To harness this, The Innovation Institute signed an alliance agreement with the Cleveland Clinic to manage the concept to prototype to end-product process.

Randolph said his team plans to work with the employees and physicians at each of the member-owner health systems to commercialize their ideas and concepts. They also plan to use social ideation and crowdsourcing to collaborate on challenges and solutions.

These ideas will provide new revenue sources, not just for those systems, but also for the Institute, the investors, and the inventors.

“We’re going to tap into technology companies that are interested in becoming underwriters of the lab,” he said. “They’ll have marketing rights and the ability to partner with us on intellectual property. We will showcase their products and innovations in the Lab.”

Furthermore, the Institute plans to establish a nonprofit foundation that will essentially serve as a development company to raise philanthropic support to pioneer innovative products for underserved communities.

The second element, the Enterprise Development Group, is focused on making the Institute itself financially viable during its early years.

The Enterprise Development Group is a portfolio of service companies that allow for best-practice sharing and cost savings. These are overhead-type services that most health systems either provide in-house or purchase as an outsourced service.

By purchasing the service from The Innovation Institute, the member-owners can capture margin that otherwise would go to the outsourced company and share in cost savings from scaling and sharing the service among several hospitals.

The Innovation Institute has three service companies presently in the EDG division, including Tech Knowledge Associates (biomedical engineering), Petra (construction management), and Healthcare Design and Construction (hospital construction).  Management is also looking at several other tuck-in acquisitions to enhance the portfolio.

These three companies were previously either cost centers for St. Joseph or a purchased outsource service. Now these companies sell services to others and are revenue centers. Through these companies, The Innovation Institute is profitable and is ahead of its financial projections after only six months.

The third element is the Growth Fund, which will enable the Institute to channel money raised from private investors into companies with innovative product ideas that will provide returns. The Institute has seeded the fund with about $10 million and is in the process of raising the balance of the capital with outside private investors.

A collaborative model for innovation

Ultimately, Randolph and the Institute envision this three-pronged model as providing fuel for collaboration and communication within the healthcare community. The Innovation Institute believes a unity of ideas will inspire the solutions demanded by healthcare reform.

“Bringing people together to collaborate rather than having them work in silos could be a great benefit of the model that we’ve put together,” he said. “I’m hopeful that we’ll be able to change the industry from the inside rather than having others outside the industry dictate what the changes need to be.”

-by Pete Fernbaugh

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