Give us a brief introduction to Independence Blue Cross, its group and partner organisations.
One in three Americans have their health insurance coverage provided by a Blue Cross Blue Shield licensee, as do 85 of the Fortune 100 companies, making it one of the top and best-known national brands in the country.
Independence Blue Cross is a 75-year-old licensee of the Blue Cross Blue Shield Association (BCBSA) and operates as a health insurance company located in southeastern Pennsylvania.
Independence services 2.5 million members within the five-county area surrounding Philadelphia and almost 10 million members nationally through its various subsidiaries, making it one of the larger plans within the association.
Our subsidiaries include:
- AmeriHealth, a group of health companies, provides non-Blue Cross Blue Shield-branded health insurance products in Pennsylvania, outside the five-county southeastern region, and New Jersey.
- AmeriHealth Administrators, a national third-party administrator, serves self-funded health plans for groups of 100 or more employees. The company provides comprehensive benefits management services, such as claims payment, health management, and consumer-directed health plan options.
- AmeriHealth Caritas brings access to healthcare to nearly 2.7 million people through Medicaid managed care plans and administrative services. Including pharmacy benefits management and behavioural health care, AmeriHealth Caritas touches nearly 7 million lives in 16 states and the District of Columbia.
- AmeriHealth Casualty Insurance offers workers’ compensation insurance coverage to employers in the mid-Atlantic region.
- AmeriHealth Casualty Services offers workers’ compensation insurance, third-party claims administration and non-occupational disability insurance in the mid-Atlantic region.
For additional information on Independence Blue Cross, see our annual report.
What key technology and new business models do you see as an opportunity or threat to current business and where changes are occurring?
With advent of the Affordable Care Act, the health industry is facing its largest regulatory change since the beginning of Medicare in the 1960s. Coupled with the unsustainable growth in healthcare costs, shifting demographics driving demand, and the increasing responsibility of the consumer to manage their health, the health insurance industry is undergoing fundamental and extraordinary change. As such, we are actively looking to the startup and early-stage company ecosystems to assist us address these changes.
Specific areas of opportunity include:
- Improving the end-to-end member healthcare experience.
- Engaging members in managing their own health.
- Improving the care delivery model, especially through application of data and analytics.
What type of venturing process do you use?
We utilise an integrated approach for our venture efforts, which is referred to as our strategic innovation portfolio or SIP. The capital has been allocated from our balance sheet and is managed by two individuals who have significant venture capital experience, but whom are part of the corporate development and innovation (CD&I) department within the company, rather than via a separate legal entity or department. The capital is managed similar to a traditional or institutional venture firm in that we are actively tracking, managing and evaluating opportunities. We are also actively involved with our portfolio companies post-closing, in order to add value to those organisations, typically through some type of vendor, governance or advisory relationship.
The CD&I department itself functions as the internal investment banking group for the overall organisation and is charged with helping Independence to identify, evaluate and execute opportunities ranging from joint ventures, minority investments, acquisitions and divestitures. Members of the CD&I team are also involved in developing programmes focused on sponsoring and organising innovation campaigns, contests and collaboration opportunities with organisations in the broader community, facilitating innovation with Independence associates through a multitude of offerings, from idea generation to experimentation, and providing a collaborative space to support innovation in Philadelphia and our industry.
What is your venturing structure and how does it relate to the business units?
Our efforts are both strategic and financial in nature, with strategic trumping our financial objectives. While we target venture-like returns from the SIP, we are driven to bring strategic value to the overall organisation.
We look to have a strategic relationship with all our portfolio companies prior to or as part of our investment efforts, rather than solely driving towards financial return. In this way we are able to introduce and identify opportunities to our business units in line with strategic goals. As a corporate venture investor, we cannot solely bring our venture capital and entrepreneurial experiences to the table, but we also look to drive value to our portfolio companies through a combination of revenue, product feedback and guidance, and introductions through our ecosystem of partners.
In addition to our direct investment efforts, there is a percentage of the capital allocation, which is intended for strategic limited partnership. These limited partner relationships with proven institutional venture investors focused on the health technology and services industries – rather than biotech or devices – are to broaden the number and type of innovative technology and service opportunities bringing value to our members. These relationships are intended to go beyond the typical or traditional passive financial commitment and allow for an active bi-directional exchange of information and investment opportunities.
Give us some order of magnitude to the investment and portfolio size.
The SIP, which is part of our Centre for Healthcare Innovation, has been allocated a total of $50m to date. Since its announcement less than two years ago, in February 2014, we have completed four minority investments in early-stage healthcare technology companies ranging from a predictive analytics to managing chronic conditions more effectively. We actively look to partner an institutional investor syndicate, rather than leading the round ourselves, and do so with the intention of being an involved partner both within the syndicate and with the portfolio company rather than simply being a passive investor seeking financial returns. Therefore, SIP-related investments tend to focus on smaller early-stage venture-like investments rather than participating in larger buyout-like opportunities.
Introduce the members of the team.
There are 10 members of the overall CD&I team with varying areas of focus and experience, all within the company’s headquarters in Philadelphia. Day-to-day management of the SIP is primarily by two individuals – myself and another professional. Both of us were brought in from outside the organisation and had extensive venture capital experience.
However, we were brought in to be part of the CD&I team prior to the formal strategic evaluation or formation of our venturing effort rather than to stand up the organisation’s effort.
Other members of the CD&I team have extensive investment banking and consulting experience and were also from outside the organisation. Independence’s most senior executive leadership team is actively engaged in our efforts as well, providing guidance, feedback and ultimately investment authorisation.
How does the venture team connect and work with the business team?
We strive to have a strong understanding of our business unit’s strategy so that we can better identify opportunities which are in line with it. This involves an open and frequent dialogue – quarterly as well as monthly updates and check-ins – across multiple levels of the business unit, including screening for initial interest, and development of the strategic relationship up to, and ultimately support for, the investment.
Which partners do you work with?
We work with a wide range of partners from academic institutions such as the University of Pennsylvania, to investing alongside other large corporations, including other health insurance companies in the BCBSA as well as institutional venture capital firms. Our sourcing efforts look to leverage a wide range of partners, including investment bankers, venture capitalists, angel investor groups, tech transfer consultants, attorneys and various trade organisations.
All our sourcing partners have been effective to varying degrees to date, but our best source of completed investments so far, particularly in comparison with our overall portfolio, have been our internal business units. Given the SIP’s investment focus on aligning with the organisation’s strategic focus, coupled with frequent communication with our business units, we have found that the business units frequently introduce us to early-stage and startup companies they have heard about, have become familiar with or even have started to use as vendor or pilot.
Illustrate what you have described with a couple of examples of recent investments and collaborations.
Two examples come to mind coupling our partnering efforts with our minority investments.
Through our Dreamit Health Philadelphia collaboration and sponsorship with the University of Pennsylvania Health System, we were introduced to a group of outstanding young entrepreneurs with a medication adherence company called Towerview Health. Fast forward several months, through their drive, determination and frequent consultation with our medical management business units and medical directors, they enhanced and tailored their product to the point where within the year following Dreamit Health, they are in flight with a pilot with our members looking to improve their health through increased medication adherence.
While not a minority investment as yet, members of Independence as well as the SIP were actively engaged with the startup community and mentored the Dreamit Health Philadelphia companies throughout the accelerator process. After completion, the company continued to work with members of the CD&I team and our business units to advance the Towerview adherence product to the point of being pilot-ready. Consequently, we are looking forward to seeing the results of that pilot within the year.
Another example involved our identification of a west coast-based, startup company focused on predictive analytics utilising big data. We introduced our analytics business unit to the company and they were intrigued enough to run a pilot testing their performance. The strategic relationship and business unit alignment was accentuated when the company was selected to continue its effort via a vendor relationship with Independence. Once that alignment was established, the SIP participated in that company’s next venture capital round alongside known and reputable institutional venture capital firms, including one of which the SIP brought to the table.
What do you do to relax?
I am married with two young children – ages 11 and 7 – so family activities keep me busy, though I do enjoy the occasional round of golf or ski trip. I also am an adjunct finance professor at a local university and am involved with a paediatric cancer charity – all of which is to say I do not do much in the way of golf or skiing.
You can listen to this and other interviews on a podcast available at gaulesqt.podomatic.com
Andrew Gaule leads the GCV Academy, developing the capabilities and expertise of organisations leading open innovation, venturing and corporate venturing programmes to drive strategic benefit. He also supports innovation programmes and collaborations in innovative new value chains in global organisations.
To contact Andrew Gaule and for future interview ideas, email andrew.gaule@aimava.com or Toby Lewis tlewis@globalcorporateventuring.com.