An Industry in Flux NYC Responds to Change in the Healthcare Sector
Five years after federal health reform became a reality, hospitals, health systems, insurers, and other organizations that make up New York City’s healthcare sector are navigating a raft of historic changes, supported by the city and its primary engine for economic growth, New York City Economic Development Corporation (NYCEDC). These entities employ over half a million New Yorkers and seek new tools and technologies to make the leap from a fee-for-service world to one where fee-for-value is king. As hospitals transform into distributed clinical networks, launch insurance plans, and reach out to patients through everything from smartphone apps to urgent care clinics, the effect of reform (and the market changes that followed it) can be felt in the industry’s demand for innovation and investment — a demand that NYCEDC is working to meet through groundbreaking initiatives.
Trends and Effects
The impacts of federal health reform on New York State (NYS) and its largest urban area have been profound, including an expanded market, a shift to value, lower rates, and key changes to Medicare and Medicaid that are driving the industry to keep patients out of the hospital and healthy at home. By February of this year, 2.1 million people in NYS have gained health insurance through its exchange, NY State of Health.1 Of these, 88% had previously been uninsured. In addition to creating this surge of demand for health services, reform contrived lower payments for care (the effect of changes to Medicare and Medicaid, as well as the creation of competitive healthcare exchanges) and established a system of penalties and incentives to drive down hospital readmissions.
Taken together, these trends are driving dramatic changes in the healthcare industry of New York City. Existing players, such as hospitals and insurers, are pioneering new delivery models even as new market entrants reimagine what healthcare could be. By way of example, the Mount Sinai Health System is the product of aggressive expansion by the Mount Sinai medical center, which acquired the three hospitals of Continuum Health Partners in 2013 to expand its access to the population of a broad swath of Manhattan. For their part, newcomers are redesigning healthcare from the ground up: Oscar (“A better kind of health insurance company”) and Pager (“Now the doctor comes to you”) are just two of these pioneers based in New York City.
Oscar Health Insurance is a health insurance company for the 21st century. Valued at $1.5 billion, Oscar uses technology to streamline the process of receiving care, paying for it, and keeping track of your health. The company’s plans are focused squarely on preventative medicine; all preventative care is covered by the plan, without co-pays or deductibles.
Pager is bringing the house call back. With its network of trusted doctors, Pager provides urgent care wherever you are in New York City, between 8 AM and 10 PM. Through its mobile app, Pager provides even more, including remote medicine and an automated billing experience.
Needs and Interventions
NYCEDC is working hard to help the industry transition. The organization launched strategic reviews of the healthcare and life sciences industry, most recently the NYC Health Sector Study in 2014. Fundamentally, what is happening in healthcare is that service providers are trying to get closer to patients, using investments in technology and new facilities to reach them. For many of the largest hospitals and health systems (the industry’s largest sector), these expenditures can run into the billions of dollars, which means that generating new revenue is a priority. In the context of this spending, healthcare leaders are continuing to try and diversify their revenue through the commercialization of life sciences research, among other strategies. Therefore, NYCEDC is providing assistance to the city’s healthcare businesses across three main areas: healthcare innovation, physical infrastructure, and life sciences commercialization.
Across the nation, the market for healthcare innovation is plagued by high barriers to entry for new businesses and high transaction costs that slow their growth. NYCEDC is targeting these challenges with innovative programs. For growth-stage companies in digital health, a key challenge is gaining access to key decision-makers who can decide whether to buy their product. Pilot Health Tech NYC bridges the gap between proven, market-ready companies and senior leaders at hospitals, payers, managed care plans, and clinic networks. Companies and clients meet through curated matchmaking and can also compete for financial and technical assistance from NYCEDC.
This program has fostered over 500 introductions, awarded $2 million in commercialization assistance, and enabled partnerships that have made a significant impact on the way healthcare is delivered in New York City. Participating companies have raised nearly $170 million and created over 100 jobs to date. Products that have received assistance through Pilot Health Tech NYC include smart pill bottles that track medication adherence, computer-assisted personal diabetes coaching, and smartphone eye exams.
NYEDC provides assistance to the city’s healthcare business across three main areas: healthcare innovation, physical infrastructure and life sciences commercialization.
Although buyers want only to see market-ready technologies, healthcare innovation companies lack a straightforward way of taking a prototype to market and gaining early market feedback. NYCEDC will soon launch a new commercialization initiative that will facilitate pilot projects between development-stage companies and independent clinical sites, including primary care clinics, doctors’ offices, and more. This new initiative will provide a clear path to market for startups based in New York City, who (like their competitors across the country) can only gain access to their first patients through existing hospitals and health systems. In these complicated environments, pilot projects can take many months and even years — far too long for a young company with limited resources. Between 2011 and 2014, the amount of venture capital raised by NYC companies increased by 136%.2 Look for that growth to accelerate in coming years as these barriers are removed by NYCEDC and allied organizations including Junto Health, Medstartr, Health 2.0, and HITLAB.
Yet innovation is not enough. In a tangible industry, many problems can only be addressed through brick-and-mortar solutions. Many New Yorkers within the five boroughs of the city live in neighborhoods where access to quality healthcare is poor. Particularly in these disadvantaged neighborhoods where many people are uninsured or insured only by Medicare and Medicaid, players from health systems to NYS are driving big investments to acquire or build out ambulatory care facilities to reach these patients. Amidst this change, NYCEDC is providing real estate support and technical assistance to a wide range of industry participants, from hospitals to clinics.
These efforts complement a radical transformation of the city’s healthcare settings. Like Mount Sinai, major health systems are acquiring or affiliating with independent hospitals across the five boroughs in a bid to achieve scale and efficiency, even as they are investing in new ambulatory care facilities to move closer to patients. New York–Presbyterian Hospital, for example, is investing nearly $900 million in a brand new ambulatory care facility.3
In the city, major health systems are often anchored by a medical school whose research income helps to support the hospitals and clinics that operate underneath the system’s umbrella. For the Mount Sinai Health System, this is the Icahn School of Medicine at Mount Sinai. For the NYU Langone Medical Center, it is the NYU School of Medicine. Together, the nine “academic medical centers” in New York City receive $1.4 billion per year in research grants from the National Institutes of Health and produce research with a wide range of applicability in commercial endeavors, including biomaterials, synthetics biology, computational drug discovery, and more.
NYCEDC is helping to enable the growth of the commercialization of these technologies through a targeted portfolio of programs. Together with strategic partners GE Ventures, Celgene, and Eli Lilly and Co., as well as investing partners ARCH Venture Partners and Flagship Ventures, NYCEDC has assembled a $150 million Early-Stage Life Sciences Funding Initiative with the intention of funding more than 20 breakthrough companies over the next five years. This new effort complements existing programs to provide NYC-based entrepreneurs and researchers with the know-how and funding they need to commercialize academic work: NYC Bio and Health Tech Entrepreneurship Lab, a mini-MBA for researchers, and SBIR Impact NYC, which provides select companies with one-on-one assistance to prepare applications for federal Small Business Innovation Research grants.
NYCEDC is also working with the private sector to ensure that there is sufficient affordable wet lab space for early-stage companies that emerge from the city’s academic medical centers. Harlem Biospace is an incubator for these companies that was established by NYCEDC in partnership with serial entrepreneur and Columbia University Professor Sam Sia. In March, NYCEDC also announced the Life Sciences Infrastructure Initiative, a groundbreaking effort to dramatically increase the amount of wet lab space through collaboration with the private sector.
An Industry in Flux
In New York City, healthcare is changing rapidly; major players are making historic investments in technology and infrastructure while seeking to commercialize their life sciences research. By enabling innovation, investing in infrastructure, and catalyzing the commercialization of life sciences research, NYCEDC is helping these entities to execute on these strategies. In so doing, NYCEDC is catalyzing the creation and preservation of quality jobs for New Yorkers across all five boroughs.
About the Author
Andrew J. O’Shaughnessy is a senior project manager with New York City Economic Development Corporation, where he leads NYCEDC’s portfolio of health technology programs. He is a graduate of the University of Chicago and a native of Brooklyn, NY.
New York City Economic Development Corporation is the city’s primary engine for economic development charged with leveraging the city’s assets to drive growth, create jobs, and improve quality of life. NYCEDC is an organization dedicated to New York City and its people. We use our expertise to develop, advise, manage, and invest to strengthen businesses and help neighborhoods thrive.
We make the city stronger.
For more information, visit: nycedc.com/healthcare
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