Lessons Learned Creating Digital Strategy at Providence

Feb. 22, 2021
Aaron Martin, Providence’s executive vice president and chief digital and innovation officer, describes prioritizing what matters most and scaling it across a large organization

Building a digital innovation hub within a nonprofit health system is a tricky proposition. Aaron Martin left Amazon seven years ago to set up the Providence Digital Innovation Group. He recently discussed how his team identifies opportunities and works closely with clinical and operational teams on solutions.

Martin, Washington-based Providence’s executive vice president and chief digital and innovation officer, engaged in a LinkedIn Q&A with Sara Vaezy, the organization’s chief digital strategy and business development officer.

Martin first said he recalled being surprised when he was contacted by a recruiter about moving from Amazon to a nonprofit health system. But he was impressed that Providence CEO Rod Hochman and President Mike Butler saw several things about digital disruption on the horizon and wanted to get out in front of them. “At that point, believe me, healthcare was not even a twinkle in anybody's eye at Amazon,” he said. “As a matter of fact, I spent, a good hour explaining to my boss at  Amazon, why I was going  to go work for a health system. He was kind of checking me for sanity, at some level.”

The big issue that 51-hospital Providence and other health systems had to confront was digital disruption, and how to get ready for it, Martin said. He has helped establish several approaches, one being a venture fund.

He recalls Hochman talking about being at a conference with a bunch of other CEOs, and some consultant giving a presentation with a very complicated map of the digital landscape. “This was a few years ago, so I'm sure it's 10 times worse today, and he could literally see beads of sweat rolling down the temples of his colleagues,” Martin said. But Hochman thought to himself that now he has a team that engages closely with these innovators, and can understand the difference between what's real and what's not. The ventures team play that role in terms of being a really good screen for things that will be “needle movers,” he said.

Vaezy asked Martin to talk about some of the nuances associated with building technology in the context of a not-for-profit healthcare system, and the innovation model they have created at Providence.

Martin said most health systems starting on this work begin with random, digital offerings being piloted at the clinic level, or even the physician level, with no strategy attached to it, and no way of scaling it.

“The work that Sara and I did when she first came on board in year two or year three, was to think through several different problems. One is we've got to scale digital across a very big, complex organization,” he explained.  “We've got to figure out a way of prioritizing what matters and what will actually add economic or clinical value or customer experience value across the health system. And third, we're also going to be competing or trying to stay relevant relative to much better-resourced organizations that can afford, because of their margin structure, to spend a ton of money on technology. So how do we punch above our own weight? Sara and her team go out and talk to hundreds of people every year, not only within our health system, but across our industry to understand, what are the big kind of needle-moving problems that health systems face.”

The second step, he said, is to work with Providence’s clinical and operations colleagues to prioritize the solution. “Because if it's not important to them, it's not going to happen, and it's probably not important to the health system,” he said, and it's usually not important to patients and our caregivers. “So we try to actually put an economic value or a clinical value on that opportunity. And, by default, when you do that, you're also kind of sizing the market. Because if we're a $26 billion health system, we represent about 5 percent of the entire provider base. You can just extrapolate what that value is for the market of the opportunity.”

The next step, he said, is to figure out where Providence is going to get the technology to solve the problem. First, they check to make sure they don't already have a solution to the problem in house. “We are fortunate to be working with some great technology partners, like, Epic and Microsoft, and portfolio companies in Providence Ventures. “I can't tell you how many times, when I first came on board, I would find two solutions solving the same problem across the health system,” Martin said. “So rationalizing the portfolio of applications really matters from a cost standpoint.

If they don’t have it already, then they try to go find it out in the market. Providence Ventures can go look at the market and try to find best of breed. “We may pilot two of them within our own health system to test the results,” he said, “and then based on that we will create a commercial relationship, and then we may or may not invest in those companies.”

Martin noted that of the 22 active portfolio companies they’ve got, four of them now are valued at over $1 billion, and another of them is quickly heading in that direction, and all the other companies are doing extremely well. “If you start off with a fundamentally large problem, and you test it internally, you're usually going to find a big market opportunity that these technology companies are going after. And you've usually found the best one, if you've field-tested it.”

“If we don't have it, and we can't find it, then at the very last resort, we'll build it,” Martin said.  “We have 120 or so very talented people who come from places like Amazon and Microsoft and various technology organizations. In addition to the operational role that they have in building the websites and apps, they also build new technologies for the purposes of spinning them out as a new companies.” They have done that twice before with a spin-out called Xealth, and they sold a product called Circle to a company called Wildflower.

Healthcare Innovation recently interviewed Xealth CEO Mike McSherry. After serving as an entrepreneur in residence at Providence, he led the spin-out of Xealth, a company that allows clinicians to prescribe digital health assets to patients and track their usage. He discussed how some of the largest integrated health systems in the country became both customers and investors.

“As we speak, we're working on our third spin-out called DexCare, which is an e-commerce platform for healthcare,” Martin said. “We've proven out the model, but the key thing is not to build technology just because you can. The reason we always try to find best of breed first is it's incredibly hard to catch up once somebody's got market momentum,” he explained, “especially in healthcare because the sales cycles are so long and brutal.”

When they build something to spin out, they go through a set of what Martin called “gates.” First, they create the product and make sure that it delivers value. Second, they go sell it to another health system. “That is a good test that we aren’t just falling in love with our own cooking, and that somebody other than us has the same problem, right?” he said. If it passes that gate, they hire a management team. “If you can get an experienced management team interested, there's probably something there. They're signing up for a five- to seven-year commitment, at a minimum. And so that's a big chunk out of somebody life and they have to be really excited about the opportunity,” he said. “Then last but not least, even though Providence Ventures does fund companies and does lead investments in companies, we typically look for an external lead to set a price on the value of the equity and to make sure that we're not putting a price on something we created ourselves.”

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