Exploring Critical Business and Legal Issues across the Healthcare and Life Sciences Industries
Exploring Critical Business and Legal Issues across the Healthcare and Life Sciences Industries

Hospital and Health System Innovation Summit: Lessons Learned: Diligence, Detours and Data, Oh My

Industry leaders shared first-hand lessons learned from their work on recent innovation related projects. We covered a range of case studies, highlighting lessons learned around mission alignment, conflicts of interest, diligence considerations, data ownership and de-identification, and strategies for protecting a minority investor.

Below are the top takeaways for Hospital and Health System Innovation Summit: Lessons Learned: Diligence, Detours and Data, Oh My, click here to access the full webinar.

Access the PDF here.

Mission Alignment
It is essential for a hospital and health systems to adopt a formal innovation strategic
plan that aligns with its overall strategic mission and vision and clearly articulates it
specific innovation goals and prioritizes focus areas. Hospital and health systems
pursue innovation initiatives largely to support the clinical mission and drive revenue
growth and diversification. “I think that alignment with the strategic mission of the
organization is key because that really drives and helps shape the culture of innovation
as an organization. We define innovation in terms of in three buckets, the research
based, hospital based and external or open innovation,” said Kolaleh Eskandanian,
Vice President and Chief Innovation Officer, Children’s National. “So research based
is the traditional model of a transfer, to identify inventions in the labs and help with the
translation of that discovery to the market space.”

Partnerships are Essential Partnerships and Drive and Shape Innovation.
There is widespread recognition that today’s complex, multi-dimensional and
technology-driven innovation requires partnerships and collaborations among
stakeholders who bring different resources and expertise to the effort. Very rarely, if
ever, can any single stakeholder provide all the ingredients and resources. However,
picking the right partners and the right partnership/collaboration approach is key. “I
think a key step is figuring out what are the role of partnerships. And then thinking
about what that portfolio looks like over time and how it contributes to innovation,” said
Mai-Tal Kennedy, Principal, Vantage Partners. “What types of partnerships you’re
going to want to have in your innovation center, and then how you build to be able to
meet the needs of those relationships.”

Understand Possible Conflicts of Interest
Conflicts of interest must be evaluated at the front end and continuously revisited and
re-evaluated during the full life cycle of the innovation, from early research &
development and design and implementation of co-investment vehicles through
commercialization and deployment in the hospital/health system’s clinical and
operational setting. “The potential for conflicts in commercialization of home grown
innovation can be particularly challenging and complex if investment interests,
royalties and compensation arrangements exist between and among the hospital and
health systems, its officers and directors (and/or their families), and employed and
voluntary members of the medical staff,” said Bernadette Broccolo, Partner,
McDermott Will & Emery. Failure to properly identify, assess and manage conflicts can
undermine the integrity of research data supporting commercialization, which in turn
can result in denial or withdrawal of FDA pre-market approval, create research subject
and patient safety risks (and associated liability), lead to false claims liability and civil
money penalties in connection with the submission of claims for reimbursement for the
innovation by government reimbursement programs. An equally important and very
real consideration is that failure to manage conflicts is of great interest to the media
and the plaintiff’s bar and can also create significant reputation and public relations risk
not only for a hospital and health system but also for other stakeholders as well.
Oversight of potential conflicts in innovation by an independent committee with board
authority has proven to be an effective step in achieving a disciplined and effective
conflict of interest management plan.

Data Strategy Supporting Innovation
Robust, complex data of various types is one of the most valuable assets hospitals
and health systems bring to the innovation table. “Many innovation partnerships begin
as a data collaboration. One challenge is making sense of the data because most
innovation initiatives depend on the aggregation and analysis of a lot of data coming
from a lot of different sources and in various forms. Contributing or licensing that data
to support the innovation endeavor also presents significant privacy compliance
challenges that require careful planning at the outset and throughout the entire
innovation life cycle, not the least of which is the HIPAA prohibition on the sale of
identifiable data,” said Bernadette Broccolo, Partner, McDermott Will & Emery. An
essential ingredient for managing the privacy risk will be development of an effective
and sustainable de-identification strategy. Key due diligence and contracting
questions in that regard include what de-identification method will be used, whether it
meets HIPAA and other application de-identification standards, who is going to deidentify
the data, whether and how often the de-identification will need to be
revalidated, who will be the cost, and who bears the risks associated with
impermissible re-identification.

Health IT Solutions Need to Focus on Problems to Solve
Emerging health technology companies often fail to make clear what problems they
are trying to solve. To be successful, it needs to be clear what problem you want to
solve and you need to be adept at convincing health systems they want to buy your
solution. “Where they fall down is going too many directions simply saying, well, our
solution can do that and it could do that and it could do that,” said Adam Gale,
President, KLAS. “It’s really seeing these emerging technology companies not make a
clear bet on what they’re really going to do, what problems they’re really going to
solve, and then they just end up, I’ll say mushy – they do one thing over here and they
do another thing over here with a different provider, and they don’t do any of them as
well as they could or should.”

To catch up on all of the panels in our Hospital and Health System Innovation Summit, please click here.

Hospital and Health System Innovation Summit: Pandemic to Partnership: The Impact of Covid-19 on Innovation

In this interactive discussion, health system innovation leaders addressed the impact of COVID-19 on health systems’ plans to pursue innovation efforts; the lasting implications of the pandemic; and the prioritization of innovation efforts and investments post-COVID-19. McDermott Will and Emery’s Partner Kerrin B. Slattery moderated this discussion featuring insights from Lisa Prasad, Vice President and Chief Innovation Officer at Henry Ford Health System; Damon Broyles, Vice President of Clinical Innovation at Mercy Technology Services; Anders Brown, Sr. Vice President and Managing Director at Tegria (founded by Providence); and Chris Coburn, Chief Innovation Officer at Mass General Brigham and President of Partners HealthCare International.

Below are the top takeaways for Hospital and Health System Innovation Summit: Pandemic to Partnership: The Impact of Covid-19 on Innovation, click here to access the full webinar.

Access the PDF here.

Innovation Efforts have Accelerated
In the face of the pandemic’s vast and varied challenges, health systems have prioritized their efforts to adapt and innovate strategically. COVID-19 has accelerated innovation efforts and should be extracted to other areas moving forward. “An enormous part of innovation is recognizing the unmet need,” Mr. Coburn said. “In a sense, seven billion people now recognize at least one unmet need. For our providers and the folks supporting them, the issue became organizing ourselves and setting priorities. We created 19 groups against all the principal areas of need. Those drove innovation and allowed us to set overall priorities.”

Renewed Focus on Population Health
The intense demands of combatting the pandemic fueled creative thinking and innovative solutions. For example, Henry Ford Health System’ used virtual reality technology to train healthcare workers on the many different types of ventilators put into place. “COVID-19 really gave unprecedented meaning to population health,” Ms. Prasad said. “The ramifications will be felt for years and maybe decades to come.”

Importance and Maturation of Virtual Care
COVID-19 has permanently changed healthcare culture, and the focus on virtual care will be maintained in the coming years. One significant area is patient triage, Mr. Brown said. Early in the pandemic, the influx of COVID-19 patients placed tremendous pressure on health systems’ phone bank and in-person triage capacities. As a result, many health systems turned to chatbot frameworks and other innovative virtual solutions to triage patients safely and efficiently.

Communication is Key
COVID-19 has emphasized the importance of standardization and communication within health systems to allow for more rapid change and business agility. It has been a crash course in quick decision-making for many health systems and rolling out rapid system-wide change efforts. “That reduction in intransigence in the organization is something that, because of the increased need for consolidation and reinforcement of communication at our health system, we can hopefully sustain a little bit better going forward,” Dr. Broyles said. Increased system agility will make future innovation efforts easier.

Recognizing the Importance of Data
COVID-19 has heavily underscored the value of data in healthcare—and the challenges that must be overcome in order for it to be aggregated and used effectively. Innovations have proven and will continue to prove useful in collecting data. “Making sense of the data that this industry has—not just as a way to solve the boutique or localized problems that we have in a physical space or with a patient, but really making changes in the system holistically—is really going to be a frontier of work that everyone has to lock arms on and try to advance,” Mr. Brown said.

To catch up on all of the panels in our Hospital and Health System Innovation Summit, please click here.

Hospital and Health System Innovation Summit: Nuts And Bolts: How to Invest in Innovation

There has been increased interest by hospitals and health systems in creating innovation centers and making innovation center investments, which are helping to transform the healthcare landscape. As they enter this space, hospitals and health systems must first decide how to organize to capitalize on and commercialize innovation opportunities to get innovations into the routine of patient care.

Joined by leaders from Health Innovation Strategies and Winter Street Ventures/Commonwealth Care Alliance, we discussed the fundamental types of investment structures from the health system perspective, including types of vehicles used by health systems, tips for aligning investment priorities with the health system mission, and collaborations with third parties to accelerate innovation.

Below are the top takeaways for Hospital and Health System Innovation Summit: Nuts And Bolts: How to Invest in Innovation, click here to access the full webinar.

Access the PDF here.

There are many options for structuring an innovation center and there is no one-size-fits-all model.
Innovation centers are often custom-built around the organization’s needs and with the input hospitals and health systems receive from their clinicians, board, patients, and community. Determining what innovation model to pursue involves weighing the amount of financial risk the entity will take on, the complexity of the venture, and the expertise available to guide the center’s development. To date, the most common innovation structures that have emerged are direct investing and direct investing through a subsidiary, which carries different legal and business implications.

Direct investing considerations
Hospitals and health systems may opt for direct investment to avoid the complexities of forming a separate entity. Direct investments allow hospitals and health systems to clearly define roles and responsibilities and have authority over investment decisions and funds. By directly investing, hospitals and health systems can directly integrate investments with clinical care and research operations. However, entities that adopt a direct investment model may be less insulated from tax, financial, litigation, and compliance risks.

Direct investing through subsidiary considerations
Direct investing through a subsidiary can help insulate the system from tax and litigation risks by more clearly establishing a firewall between clinical operations and research and the innovation investment, setting clear lines of authority and accountability, and streamlining the decision-making process of the investment function. This model can also create a vehicle to attract specialized expertise and co-investors, generate an entrepreneurial culture, and promote active involvement by internal inventors.

Forming a fund can “supercharge” an innovation center’s investment.
Formation of a “fund” is another option that can allow hospitals and health systems to have shared involvement in the innovation initiative. This approach carries many of the benefits of direct investing through a subsidiary, such as clear authority lines and streamlined decision-making. However, a system must weigh their goals in being a strategic investor against their obligations to the investors they partner with. At times, there may be tensions between strategic and financial returns.

There are also many opportunities to form a fund by partnering with existing fund managers who can bring experience to innovation pursuits.
Some systems are entrusting existing fund managers to manage investment initiatives. Systems have wide latitude to negotiate for a beneficial innovation structure. For example, as an anchor investor, hospitals and health systems may negotiate for preferential or participation in fund economics, such as reduced management fees and carried interest payable in connection with their investment in a fund. Systems may negotiate to receive a better “most favored nation” right so that the rights they receive are equal to or better than the rights received by other investors in the fund. Other opportunities for anchor investors include negotiating to receive equity in the sponsor’s management company, preferential co-investment rights, the right to serve on the fund’s Limited Partner Advisory Committees, consent rights over fundamental transactions, and more.

To catch up on all of the panels in our Hospital and Health System Innovation Summit, please click here.

Advancing Primary Care in Washington, DC, in 2021

Guest post by Mara McDermott, Vice President at McDermott+Consulting.

With the 2020 election almost in the rearview mirror, clinicians and policymakers alike are turning their attention to the 2021 agenda. For primary care providers, 2021 will hopefully bring COVID-19 recovery and response efforts, additional opportunities to pursue value-based payment arrangements, and ongoing deployment of telehealth and virtual technology.

The 2020 presidential election is expected to bring about a change in administration. However, the “blue wave” Democratic sweep projected by some pundits and pollsters failed to materialize. Instead, in Washington, DC, we will have a closely divided US Senate, with the final balance of power to be determined by two run-off races in Georgia. The US House of Representatives will remain in Democratic control, but by a smaller margin. The narrow margins in the House and Senate will likely constrain the extent to which Democrats are able to advance progressive policy changes. Instead, both sides of the political aisle in Congress are likely to focus on bipartisan areas of agreement. For primary care clinicians, this environment may be encouraging, as members of both parties share goals around protecting and advancing primary care across the country.

COVID-19 Response

When the new Congress begins and President-Elect Biden is inaugurated in January 2021, COVID-19 relief is expected to be at the top of the agenda. Expect President-elect Biden and the incoming Congress to pursue economic and public health relief. Clinicians across the country who have faced depressed revenue as a result of the pandemic look eagerly ahead to another relief package that could provide additional funding for practices experiencing dramatic shortfalls.

Value-Based Payment Arrangements

The COVID-19 pandemic has underscored the vulnerability of a fee-for-service payment system that rewards clinicians for volume. It has also highlighted the potential opportunity associated with models that blend or rely on pre-payment or a per-member-per-month approach. The Trump Administration advanced several delivery models that continue to test the effectiveness of such approaches. Expect the Biden Administration to continue to advance these types of models while putting its own stamp on the details.

Telehealth and Virtual Care

The pandemic also sparked significant uptake of telehealth and virtual health across the United States. In 2021, Congress and the administration will need to determine which of these temporary telehealth waivers can endure beyond the pandemic. Stakeholders will need to continue to educate policymakers about how telehealth services fit into the broader care continuum and to define the policy goals of extending existing waiver flexibilities.

Prepare for an Active Year in Primary Care Policy

Expect 2021 to be another active year in primary care policy. We anticipate significant developments in both the administration and Congress that will shape the delivery of healthcare services for years to come.
Join Mara McDermott as she and her co-panelist discuss “How Can Primary Care Advance Under a New Congress & the Next White House?” at the 2020 Primary Care Collaborative Annual Conference on December 1, 2020.

Five Questions with a Health Lawyer: Emily Jane Cook

Emily Jane Cook
Practice Focus Area: Federal and State Healthcare Regulation and Reimbursement
Office: Los Angeles
Years at Firm: 11

What is your favorite part about practicing healthcare law at McDermott?
Without a doubt, it is the people – both our clients and my fellow McDermott attorneys. Due to the nature of our work we are on the phone (and now video!) for many hours every day, often discussing extraordinarily complex issues. The work itself is rewarding, made even more so when done in collaboration with such brilliant clients and colleagues.

What is the biggest opportunity and greatest challenge facing clients in your area of focus today?
The answer to both is “change.” Federal and state fee for service programs have been around for decades, but they are always changing. The constant change provides both risks and opportunities for our clients, but often whether or not a particular change may be a risk or an opportunity is unclear – or may be different for different clients. Keeping on top of all of the changes – both proposed and actual is endlessly challenging for our clients. Helping them sort through the ever-changing laws, regulations and guidance is one of the many ways in which we provide value to our clients.

What kind of client work gets you most excited when it comes across your desk?
The type of work I find most rewarding is helping clients get from A to B in a compliant manner. Clients come to me when they have determined that a particular business goal may not be compliant with federal or state healthcare laws. Often there is no clear answer, path forward (or both), and the client looks to us to guide them. I do truly enjoy getting to know the client’s business and operations staff, learning about the project and end goals, and working with the client to get as close to the originally-planned project as possible in a manner that meets the client’s needs as well as applicable state or federal healthcare regulatory requirements.

What is the proudest moment of your career to date?
Prior to joining McDermott, I was with the US Department of Health and Human Service (HHS). At HHS, I was responsible for reviewing federal healthcare program reimbursement policies that had the potential to affect rural healthcare providers and rural communities. In that role, I was able to draft regulations and preamble text. My proudest career moment was the first time I saw my words published in the Federal Register – and that is also one of the moments that helped me realize that I needed to become a health regulatory attorney!

What is an interesting fact about yourself that others may not know?
I was a college radio DJ for six years – through college, grad school and during my post-grad school fellowship with HHS (WXDU in Durham, NC and KVCU in Boulder, CO). I still try to keep somewhat on top of new bands, but it was definitely much easier when I was planning out the playlists for my shows every week. I really miss going to see live bands and it is one of the things I am most looking forward to post-pandemic.

Click here to learn more about Emily’s practice.