The Innovation Institute: A Unique Business Model For Healthcare Innovation


By Larry Myler – Contributor

Innovation in general has been an attractive field of research for me over the last several years. But healthcare innovation, specifically, has been of particular interest because of the changes and challenges this industry is experiencing. So, when I recently had the opportunity to stop in and examine the work of The Innovation Institute, a growing organization dedicated exclusively to healthcare innovation, I jumped at the chance. What I found is a new model for innovation that could serve as a guide, not only in healthcare, but in other industries as well. The Innovation Institute is headquartered in La Palma, California, with a second location—The Innovation Lab (where I conducted my interviews)—in Newport Beach. Here is my report.

Before I even made it to the reception desk in The Innovation Lab, a rack of surfboards caught my attention. Larry Stofko, Executive VP The Innovation Lab, matter-of-factly explained that, “being so close to the Pacific Ocean almost necessitates the boards,” and that, “surfing is almost certainly a catalyst for creativity.” This sounded almost scientific to me, and I began to think I might enjoy my time at the Innovation Lab. Seated in the conference room was Joe Randolph, President and CEO of The Innovation Institute, who began explaining the rationale behind his organization. “I used to be CFO and COO at St. Joseph Health System,” Randolph began. “And I realized that if innovation in healthcare was ever going to take off like it should, we would have to come up with a drastically different model to facilitate it.” He then went on to give details of how The Innovation Institute was structured, how it operates, and the ways in which it is different from standard practices. These can best be described in four areas.

Detached Culture.  Healthcare culture is (thankfully) risk-averse, while the process of innovation demands reasonable risk and fast failure. Deborah Proctor, President and CEO of St. Joseph Health System (a founding member of The Innovation Institute), remembers, “We needed a separate place to nurture innovation outside of our organization, because risk-aversion was in our DNA. New ideas couldn’t get to the surface because of our culture, but by letting innovative ideas take root and grow in an outside company, we’re finding that our culture is being positively affected. People now believe they can be a part of an innovation process that works.”

This notion of shielding innovations at the most vulnerable point in their life cycle by removing them from an environment that is rightly driven by other pressing priorities, could be an effective strategy in all industries.

Different Financial Models. The Innovation Institute is a for-profit company with the goal of vetting, patenting, prototyping and selling (or licensing) innovative medical devices and healthcare-related software applications. In contrast, the health systems that are members of the Institute are non-profits. These two seemingly incongruent financial models actually work well together for the same reason the two different cultures are compatible. Operating under the same non-profit status as the member organizations could potentially result in under-funding critical needs in the innovation process. And future profits will allow the Institute to be self-sustaining as its product portfolio begins to bear financial fruit.

Shared Ownership. The Innovation Institute is offering ownership to seven health systems. Four of those slots have been filled and three are still open as of this writing. Current members include St. Joseph Health System, Bon Secours Health System, Children’s Hospital of Orange County (CHOC) and Franciscan Missionaries of Our Lady Health System (FMOLHS). The prospect of owning a double-digit percentage of the Institute, although not cheap, seems to hold some appeal for member systems. Matt Gerlach, Executive VP and COO CHOC, describes his organization’s motivation for becoming a member. “We have an innovation center of our own, but we don’t have the infrastructure to take innovations from the idea stage to market. Also, our board liked the financial model behind the Institute. Our investment will pay for itself in a few short years.” Rich Statuto, CEO Bon Secours, echoes that sentiment. “Our team members can hand off their great product ideas to the Institute, we can concentrate on what we do best—serving patients—and everyone gets a financial return in the end.”

The Same Mission. All of the participants I spoke with, whether at the Institute or in the member systems, seem to be motivated by the mutual goal of better patient care. As I interviewed executives on both sides of the equation, this became quite obvious. But the quality-of-care impulse behind innovation was never more apparent than when I spoke with a few of the inventors themselves. Eric Alcouloumre, MD, an ER Specialist at Hoag Memorial Hospital, had an idea for a point-of-care product that would reduce the risk of infections from the improper disposal of sharp instruments such as scalpels and needles. He took the idea to several venture capital groups with no success. He was about to give up when he read an article about The Innovation Institute, submitted his application online, and began working with the Institute team. “I just want this product to be available so patients and medical staff can be free of this persistent health risk,” says Alcouloumre. “And now it’s finally happening.” I heard similar stories from pediatrician Connie Bartlett, DO, who has an idea for a wearable product that will streamline the process of collecting vital sign data, and Scott Rogoff, a physical therapist who invented a unique ankle-therapy device that will improve how an estimated 25,000 sprains per day can be treated. In none of these conversations was money ever mentioned as the motivation for inventing a solution.

Will this experiment work?

The business model is unique and appears to be viable. Early results would indicate that it should be very successful. The Innovation Institute was launched in January 2013 and the Lab, opened in November 2013, has already received 220 idea submissions. Approximately one-third of those submissions have progressed to patenting and proof of concept, while twelve products are currently in use—either in pilot studies or for sale on the market.

I will follow up on this venture when further results are in, but the next time I go to the Innovation Lab in Newport Beach, I will not spend the entire day in interviews. I’m going surfing.

Larry Myler: Adjunct professor in the Rollins Center for Entrepreneurship & Technology at BYU, author of Indispensable By Monday, CEO of iDeal Talent Source, a recruitment firm.