How AVIA Hopes to Save Hospitals Lots of Money

John Pletz–(Crain’s Chicago)–Most people try to avoid getting caught in the middle. Not Eric Langshur. He can’t wait to get between big hospitals and startups that are trying to reinvent health care.

“Every CEO and CFO of every hospital around the country is facing pressure on reimbursement and revenue,” says Mr. Langshur, who a year ago launched AVIA, a hybrid incubator and investing and consulting firm in Chicago. “No hospital board is saying, ‘Let’s continue business as usual.’ “

The Affordable Care Act, blamed (or credited) for so much these days, isn’t really what’s giving Mr. Langshur his opening. Instead it’s the Obama administration’s earlier effort to speed up the health care industry’s switch to computerized medical records, first with financial incentives and soon with penalties for laggards. There’s also the digital revolution, which makes more things possible, as well as reduced reimbursements from insurers and the government, which, in turn, are forcing cost-cutting.
The hitch for hospitals is knowing which vendor has useful technology. As for startups, it’s hard to get an audience with a big institution. “Hospitals are in the business of providing care, not evaluating early-stage companies,” says Mr. Langshur, 50, Avia’s CEO. “It’s more efficient to let us do it.”

The startup has signed up 40 customers, mostly hospitals such as Northwestern Memorial HealthCare and UCLA Health System. They’re paying AVIA $50,000 to $250,000 annually to find new technology that can help them improve care and cut costs.

AVIA also is an investor in health care startups through a holding company. It has made undisclosed investments in three: HealthFinch of Madison, Wis.; WiserCare of Los Angeles; and San Francisco-based Health-Loop. HealthFinch, for instance, developed software for physicians to automate prescription refills.

AVIA’s backers include Chicago-based investors Pritzker Group Venture Capital; 7wire Ventures, a venture fund run by former Allscripts Healthcare Solutions Inc. executives Glen Tullman and Lee Shapiro; and Jumpstart Ventures, a fund led by ContextMedia Inc. founder Rishi Shah. Other partners are Providence Health & Services in Renton, Wash., and Memorial Care Innovation Fund of Long Beach, Calif.

“We get value from both sides: early-stage companies that could be investments, and by extending our network on the provider side,” says Adam Koopersmith, a partner at Pritzker Group, which counts a half-dozen health care investments, including Analyte Health Inc. and Retrofit Inc.

AVIA also offers hospital clients the opportunity to invest. Mr. Langshur declines to say how much capital has been committed. He faces plenty of competition, from giants such as Cleveland Clinic, Kaiser Permanente and IBM Corp. Locally, there are incubators, such as Chicago-based Healthbox, and venture funds launched by industry heavyweights, such as Chicago-based Health Care Service Corp., the parent of Blue Cross & Blue Shield of Illinois.

“Hospitals have a lot of external options for innovation,” says Chris Coburn, vice president of innovation at Boston-based Partners HealthCare, a $35 million fund backed by Brigham & Women’s and Massachusetts General hospitals. “If you have a distinctive offering, there’s the ability to make a mark. But there’s a lot going on, a lot of established players already.” Mr. Langshur is betting that the knowledge gained from working with big hospitals will give AVIA an edge in recruiting startups.

AVIA already has screened hundreds of companies and hopes to build a database of startups and providers of new technology. AVIA grew out of Abundant Venture Partners, launched in 2011 by Mr. Langshur and Andrew Swinand, former president of Starcom MediaVest Group. Mr. Langshur founded CarePages Inc., which allowed families to set up Web pages to keep friends and family informed about loved ones during long hospital stays. The pair created Abundant to invest in or start companies that do well by doing good.

AVIA has a staff of 10, including consultants from McKinsey & Co. and a recently hired chief medical officer who had been head of surgery at Scott & White Healthcare, a large hospital and insurance network in Texas. AVIA’s challenge is the state of hospital budgets, which are tighter than ever. Dr. Molly Coye, chief innovation officer at UCLA Health System, says the firm’s fees are “in the range of hiring one more staff person, but you get more for it.” The real test for Mr. Langshur will come later this year. That’s when he has to persuade Ms. Coye and others to re-up for another year.

John Pletz is a senior reporter and blogger covering high technology and venture capital, with a focus on Chicago’s startup scene.