Connected care: how tech enabled delivery models are transforming the healthcare landscape
As the world of medicine becomes more complex, partnerships with mission-driven investors like OMERS allow healthcare professionals to focus more on serving patients and less time on the administrative side of practicing medicine. Technology plays a significant role in these partnerships, not only in the discovery and rollout of treatments and therapies but also in developing support tools that simplify care delivery. Examples include the rise of telemedicine, which many of us became familiar with during the COVID-19 pandemic, electronic health records (EHR) systems that streamline the sharing of patient information among providers, and wearable devices like smartwatches and fitness trackers that allow individuals to monitor their health data in real time, enabling proactive health management. While there are advantages to these partnerships, we believe it's important to balance private investment with public oversight to ensure equitable access and quality care for all patients. Through our global investment platform, and with our members’ values in mind, we aim to strengthen existing systems and support the development of new patient-centric research, technologies, and treatments.
In a recent conversation with Judith Ma, Director, Private Equity, James McGlynn, Managing Director, Private Equity and Marissa Moore, Principal, Ventures, we explored how OMERS is looking at healthcare investment in North America.
Dr. Aw: What role do investors play in supporting healthcare systems and companies?
Marissa: Venture capitalists (VCs) are on the lookout for entrepreneurs at the very start of their journey, offering support to develop their first products, secure initial customers, and begin scaling to become household names. We’ve all heard about the success stories like Uber or Tesla, both of which were backed by VCs. But many successful companies owe their beginnings to the financial support of firms like OMERS Ventures, which believe in a founder’s vision and provide capital to back it. In my role at OMERS, I focus on vertical software and AI, specifically in enhancing resilience in public health and safety, including healthcare and life sciences. My role is to ensure that these investments yield a solid return for OMERS and our members. We want these businesses to grow in value so that our members can enjoy a more rewarding retirement.
Setting aside macroeconomic factors and swings, healthcare stands out as a compelling investment opportunity. There are many aspects of healthcare delivery, payment, and access that are fundamentally flawed, particularly in how modern individuals interact with health systems. This is exactly the kind of challenge VCs look for when seeking innovation and disruption. If something is already perfect, there’s little room for improvement. Healthcare, however, is ripe for modernization and offers significant potential for positive change.
James: In private equity we acquire majority control of established companies with the goal of enhancing their operations, investing for the long term and creating sustainable, market leading businesses. These investments typically have a longer hold period which gives our team the opportunity to partner with management teams and execute growth strategies that help improve the overall performance and value of a healthcare business, without short-term pressures. We employ multiple levers to achieve this growth including providing capital for further expansion, operational improvements, technology investment and strategic acquisitions. We are among the first of the Canadian pension plans to have a direct buyout strategy, and we have decades of experience in healthcare and access to networks, resources, and expertise that can help these companies navigate complex regulatory environments and market dynamics. Currently we have six healthcare assets within our Buyout portfolio, with companies based in both the U.S. and Canada that we’ve supported for many years.
Dr. Aw: Healthcare is such a vast sector – what does your healthcare investment strategy look like?
James: Our strategy centres on identifying market leaders and partnering with them to provide the capital and support needed to build robust healthcare platforms that are differentiated from from the competition. We look for businesses with proven value propositions to patients, payors and providers, where there are sustainable, recurring revenue streams and opportunities for strategic acquisitions. This strategy allows us to build long-term businesses while aligning with our commitment to improving healthcare outcomes for all stakeholders and driving value for OMERS pension members.
Judith: We invest in companies that demonstrate strong strategic alignment among all interested parties – patients, providers, and payors. We believe that companies serving all three groups represent the most enduring business models, ensuring that they continue to deliver value and hence can remain sustainable over time. This also reflects our commitment to making investments that would make our members proud, as these businesses contribute positively to the overall healthcare ecosystem.
We prioritize companies with demonstrated unit economics. We look for companies that scale their operating metrics such as customer lifetime value (LTV) to customer acquisition cost (CAC) and drive positive cohort trends in quality and efficiency. Lastly, strong management teams are very important. We want to work with leaders who can navigate change effectively and proactively anticipate shifts in the market, demonstrating agility and adaptability in their strategies.
Marissa: For software businesses, we invest from Series A, when a product is first developed and in the hands of its first cohort of paying customers, to Series C, where companies are more established, showing significant growth and a solid customer base.
For tech-enabled service businesses, we skew more toward later-stage businesses, specifically those with at least $10 million in annual revenue that demonstrate innovative technology use for faster growth and better profitability, and better gross margins than their peers –around the 60% mark. Most importantly we want to ensure they are delivering better outcomes. Especially if the goal is to enter value-based care contracts, which requires evidence of superior clinical models and technology.
In general, we have a very tight partnership with the founders of any of the companies we invest in, particularly in the early days. We like to be as hands on as we can, and they allow us to be. Depending on the situation, we may hold a board seat or an observer seat, allowing us to help make or influence business decisions. In support of the start-up ecosystem, last year we launched an initiative called The Green Room. This safe space allows founders to pitch their companies to a panel of active VCs and industry experts in a low-stress, low-stakes environment. Participants receive valuable feedback on their pitches – covering style, content, and opportunities. Originally focused on the health tech sector, The Green Room has now expanded to welcome founders from various industries, providing a supportive environment for fundraising practice across several verticals.
Dr. Aw: How is technology impacting the companies in your current portfolio, and any new areas you plan to invest in?
Marissa: Artificial Intelligence (AI) is increasingly playing a significant role in healthcare. From my perspective, this is happening in two ways. If customers expect AI features, businesses should integrate them into their products, through direct interactions like chatbots. More common is using AI to enhance internal operations, where the tech acts as a co-pilot, supporting decision-making vs. taking full control. This includes using AI for operational efficiency and speed of product development. VCs look for genuine tech enablement in their investments. We’re not the type of investors to back a clinic that operates like every other clinic out there. There needs to be a clear way these businesses leverage technology to move faster, achieve better margins, scale for profitability, and engage with customers and patients to improve outcomes.
However, we must be cautious when using AI in patient-facing roles. We wouldn’t want to replace clinicians entirely with an AI chatbot. In the U.S., there are regulatory considerations, like HIPAA, along with privacy and security concerns that would make this extremely challenging. There are also many ethical considerations that exist. AI can often seem more expert than it truly is, and we aren’t in a place where we want to take those sorts of risks with human health.
Judith: Given we play in the health tech space, there are quite a few examples that come to mind. Take Aledade for one, technology is fundamentally shaping its operations by aggregating data from various sources, including electronic medical records and claims data. This integration enables Aledade to provide actionable insights and recommendations to primary care physicians, guiding them on follow-ups and patient interactions. The use of this data-driven approach enhances care delivery, ensuring that physicians are equipped with the necessary information to make informed decisions.
The Aledade team is also focused on incorporating new technologies to streamline workflows. Their acquisition of Curia in 2023 is proof of this commitment, as it aims to enhance the predictive capabilities of their existing technology. By leveraging these advancements, Aledade continues to improve its services, ultimately driving better patient outcomes and more efficient care delivery. With a patient panel of millions, Aledade can identify those at the greatest risk for adverse health outcomes and pinpoint existing care gaps. This insight allows them to refine engagement programs and enhance how they interact with patients.
James: Premise Health, a company we first invested in back in 2018, is one of the largest employer health providers in the U.S. that partners with employers, unions, and health plans to provide advanced primary care to their employees. The company’s strategy focuses on delivering accessible, high-quality healthcare through a comprehensive, member-centered approach. A key element of this strategy is a unified digital platform, the Digital Wellness Center, which combines various healthcare services under a virtual roof. Like Aledade, they use predictive analytics to anticipate member needs and optimize care delivery, along with innovative partnerships with technology providers that enhance Premise’s service offerings and provide comprehensive care solutions. Premise's approach to care delivery is effective, and the data supports this. The company recently released the results of a study that found employees, union members, and dependents using Premise save an average of 30% annually on their total cost of care compared to those accessing care in their communities. These savings were achieved by employing advanced primary care strategies which connects members and their dependents with patient-centered, data-driven healthcare.
Dr. Aw: Judith, you mentioned Aledade earlier, which is a portfolio company helping primary care clinics shift to a value-based care (VBC) model. How are you seeing this shift play out across the portfolio?
Judith: At its core, VBC focuses on rewarding healthcare providers for improving patient outcomes rather than the volume of services rendered, which is characteristic of the traditional fee-for-service model. It encourages providers to prioritize preventative measures and overall health outcomes. This not only benefits patients but also helps payors by reducing costs and managing risk more effectively.
As I mentioned earlier, Aledade provides technology and services that enhances proactive patient care and management, empowering primary care physicians – who often act as the quarterbacks of the healthcare system – to better coordinate care and direct patients to appropriate specialists. We believe that by equipping primary care physicians with the tools they need to succeed in a VBC framework, we can drive better patient experiences and outcomes. As we continue to support these transitions, we’re optimistic about the positive impacts on both patients and the overall healthcare system.
James: The shift to VBC is significant across our portfolio, as our investment strategy has consistently focused on backing healthcare providers that achieve market-leading patient outcomes. Currently, all of our provider assets are actively participating in VBC arrangements across various payors, including government, commercial, and self-funded employers. While this may not have been the core part of our investment thesis, it has naturally emerged from our commitment to delivering the best patient outcomes and reducing costs for patients and customers. As VBC continues to grow, primary care physicians will continue to be at the centre of care and the model can also be extended to specific specialties. We anticipate continued demand for these arrangements, particularly as markets evolve, with a strong emphasis on outcomes and cost reduction.
Dr. Aw: This year, investor caution has meant raising money has become harder for healthcare companies. What type of companies fit OMERS investment criteria?
Judith: While the digital health sector has faced difficulties, we believe it remains an attractive long-term investment area, particularly after the recent influx of so-called "tourist investors" in 2021. Many of these investors were drawn in by the high valuations we saw during the pandemic but have since exited as the market corrected and valuations stabilized. At OMERS, we have a long-standing commitment to the healthcare space, backed by years of experience and a deep bench of expertise within our team. Our thorough research and genuine passion for the sector differentiate us from other investors. We are here to stay and focus on companies with solid fundamentals, sustainable growth potential, and a commitment to innovation in the space.
James: Totally agree. We anticipate a busy 2025 and are positioning ourselves to capitalize on emerging opportunities, particularly in payor and provider services, employer health, and market leading provider assets.
Dr. Aw: It seems like there are a lot of investors working in this space – what makes OMERS value proposition unique?
Marissa: When pitching to a founder, a key differentiator is our extensive experience across various segments and growth stages. We have people that have invested in these spaces in the past and have expertise across many different disciplines. For example, our PE team has deep experience in multi-site healthcare businesses, such as Gastro Health. We can draw upon our collective experience and potentially make connections for our founders. There is also incentive alignment between who our members are and the areas where we invest – healthcare professionals, first responders etc. We are committed to promoting healthy aging and ensuring long, happy retirements, which underscores our entire mission.
Judith: I agree that this alignment is a key selling point – it’s a natural connection between our goals and the interests of those we serve. And on the personal front it’s fulfilling to invest in companies that contribute to the betterment of humankind.
With healthcare spending in the U.S. now at approximately $5 trillion – nearly 20% of the GDP – there's immense potential to invest in innovation and its adoption. This is an opportunity that gets our investors excited. Historically, healthcare has delivered strong returns for OMERS, and our extensive institutional knowledge spans various areas, including growth, venture capital, private equity, and public markets. Navigating the complexities of the healthcare landscape requires a deep understanding of its nuances, and our collaborative approach at OMERS and Oxford allows us to share insights effectively. This combination of expertise and commitment gives us a competitive edge when identifying and pursuing investment opportunities.