Q&A: Keith Figlioli, Managing Partner at Venture Capital Firm LRVHealth

As a managing and investing partner at the venture capital firm LRVHealth, Keith Figlioli, M.B.A., M.P.H., has his finger on the pulse of health system transformation and the digital health startup environment. In a recent wide-ranging interview with Healthcare Innovation, he discussed how technology and investment strategies are shifting to adapt to the “new normal” in healthcare and how the AI boom is likely to impact healthcare first.

Earlier in his career, Figlioli served as senior vice president for healthcare informatics at Premier Inc. and played a role on the health IT standards committee of the Office of the National Coordinator for Health IT. He also regularly interviews healthcare innovators for his “Healthcare Is Hard” podcast series.

HCI: Earlier this year, LRVHealth announced a $200 million fund involving 30 health system and payer partners, and it has a theme of “Care Everywhere.” Does that involve a focus on the potential for moving more care into the home?

Figlioli: The home is one site of care, yes. But there's a great graphic that somebody showed me that showed the 1970s healthcare ecosystem, and it was a big hospital tower and a really small doctor's office. And then you saw in 2022 there was a proliferation of sites of care. The average incumbent payer or the average incumbent provider is trying to decide: how do we think about that? There is a lot about thinking through the transformational cycles, including the home, and also what happens with digital — how do you infuse asynchronous and synchronous channels. We went through the same thing with e-commerce. All the big, established players had to figure out digital mechanisms. The same thing is happening in healthcare. We become an extension for these health systems to think about these new problems, and then deploy capital into the market on their behalf to help augment what they're doing.

HCI: Do you get feedback from them or input from them on this direction? Do their areas of concern feed the focus of the fund?

Figlioli: Yes, it is push and pull. Everything that we do is research-focused. We focus in on value areas. For instance, we've been spending a lot of time over the last six or eight months on specialty pharmacy. A lot of the health systems were trying to stand up and own specialty pharmacies; a lot of the PBMs were buying specialty pharmacies, and there's this land grab going on and there's a lot of money associated with that. There's a lot of “moving of cheese,” so we have spent a lot of time in the weeds figuring out how that is going to play out between GPOs [group purchasing organizations], distributors, health systems and payers, and where we should be thinking about investing capital.

HCI: Are we seeing less activity from the health systems themselves creating their own venture or investment funds and business incubators than they were a couple of years ago?

Figlioli: I saw an article that said two health systems are doing less, but I actually don't agree with the premise. Yes, there were a couple of health systems that decided to slow down what they were doing in this area. But I don't think this is about venture capital for them. This is about a way into transformation. If the capital markets and private equity in particular and others are pouring all this money in to try to transform healthcare, if you don't play that game, you're going to have your cheese moved without you being involved. So a big part of why I think a lot of people work with us and work with other players is because they're trying to figure out what the market is telling them. In any corporate role, all day long you are like a horse with blinders on. You're trying to make sure you keep your operation running. I can say this because I'm a former leader of companies, and that was how I ended up in LRV because there were so many things happening when I was at Premier, especially in AI at the time, that I didn't have any visibility into. And I thought, who could I go talk to, who could I go work with and that would be a market translator for me? So you're trying to take those blind spots away. I think we've seen more, not less of health systems and payers leaning into these activities, because they realize they have these blind spots.

HCI: What's the overall environment for digital health startups these days? Is it tougher for them to get their foot in the door with providers and payers? And are more starting to fail now?

Figlioli: I've heard all sorts of crazy numbers, like 10,000 or 11,000 digital health companies have been funded over the last decade. It is much harder right now, in the overall landscape of things. If you think about the majority of these companies, the lion's share of them sell to health systems and payers and they also sell to life science and to employers direct, but I think it's really hard right now. You know, payers have always been long sales cycles and tons of pilots for a lot of these companies. Providers are really leaning on the investments that they make. In a recent Bain report, they said, ‘Hey, look, we're going to spend a lot more money on healthcare,’ but the thing that I didn't see in that report is what's the bifurcation of how much you're spending on maintenance of your existing vendors vs. how much is net new? So I think it's going to be tough sledding. What we're saying to a lot of our companies and the people we work with is that we think it's going to be tough in 2024 and into 2025.

HCI: It seems like there was a rush to get into the mental health space because there was a huge shortage of behavioral health providers, but are we seeing a retrenchment in that area now too?

Figlioli: I think there are still opportunities that are more detailed, such as in the serious mental illness space, the pediatric mental illness space.For a lot of the generalist mental health companies, yes, there's absolutely a pause. I think there are a lot of these companies in the mental health space that are still way on the outside of the way care gets delivered. If you talk to health systems right now, the single biggest issue they have is how many mental health patients are coming through their EDs and what to do with them. And a lot of it is around serious mental illness. They don't have a bed for that person. They don't have a payment mechanism for that person. Sometimes they don't have a behavioral health step-down clinic that they can go to or partner with. I don’t know how much money has been put into new mental health companies vs. how big the problem still is. I think it will normalize itself and I think a lot of people who don't end up in the key workflow lanes will actually dissipate or merge or go away and then I think a couple of key players will persist.

HCI: You mentioned specialty pharmacy and specific niches in mental health. Are there some other areas that you think are really promising right now for startups?

Figlioli: If you think about what's just happened in primary care — all the money over the last 10 or 15 years that has gone into value-based primary care platforms such as VillageMD, ChenMed, Oak Street, etc., and all the acquisitions. That same thing is starting to happen in specialty flows. So all the different lanes — oncology, neurology, cardiology. We're spending an exorbitant amount of time thinking about how do those platform players exist across specialty service lines.

We are also looking at how AI takes hold in the space and where does it take hold? And I'd say we have three core belief statements there. The first is, most of the early wins are going to come to the incumbent workflow players. That's why you see Epic and Nuance and Microsoft doing a lot. The revenue cycle players that haven't made much noise are going to start talking a lot about this. The second point is that most of the early successes won't happen in healthcare, because of the risk profile. You're going to have a lot of really interesting use cases from outside of healthcare come into healthcare in time. And third, we're talking a lot about responsible AI. A lot of the early stuff that happened with data and privacy with GDPR kind of leaked into the U.S. I think the same thing is going to happen with the EU AI act, if that gets through.

HCI: You mentioned the value-based primary care startups and their acquisitions. There was been reporting the past couple weeks that Walmart's considering buying ChenMed. Does that make sense to you? Is it too early to tell whether these big players will have success buying those companies?

Figlioli: I think what's really fascinating in primary care is how big of a problem it is. If you took a ChenMed footprint or an Oak Street footprint, it's so small. We have some health systems that have bigger networks of primary care than, say, Oak Street. Obviously once it goes into a CVS chassis, it gets a lot bigger, but I think it's still way too early to tell if any of these experiments are going to work out — meaning the ones that got acquired. If you really get under the cover of the primary care models, I'm not so sure how much really changed in the clinical model through all this, and none of them ever really showed profitability. So the question becomes: how does this work over a period of time and is there another wave of innovation that takes place in primary care and another wave of investment that takes place in primary care? I think the most interesting ones are primary care enablers like the Agilons of the world.

HCI: And like Aledade?

Figlioli: Exactly. Like what Farzad [Mostashari] and his team have been doing.

HCI: You recently did a podcast with OhioHealth Chief Strategy and Transformation Officer Michael Krause. He told you that health systems have to become more agile in terms of looking to build success through these partnerships. And he pointed to Ohio Health partnerships with ChenMed, Privia, and a few others. Are you hearing that from other health systems as well or is OhioHealth something of an exception?

Figlioli: If you really simplify the average health system to a set of service lines — who they serve and what they serve, and are they profitable or not — I think everybody is thinking in similar ways to what Michael said in that interview. He's thinking about this idea of portfolio rationalization, which is a really weird topic for a nonprofit health system that is mission-oriented. But in this type of financial climate, you have to think long and hard about where you put capital, and how you support that. Now, it does not mean in a mission-oriented nonprofit-status health system, that you walk away from it. But because of that pressure, you may do something very differently, which might include bringing a partner on to service that particular category. I think that's what we're going to see. I think we're going to see more and more of what Michael is talking about across a lot of the health systems.

HCI: Anything else that surprised or intrigued you in that conversation with OhioHealth’s Michael Krause?

Figlioli: Michael happens to be in a really good market, and there is a “Tale of Two Cities” that's happening in the healthcare system side of the equation — meaning that you have a lot of health systems that are not in good financial places right now, but you have a bunch of others that have recovered. In the new normal, you have some places that have different kinds of geographies at different kinds of mixes, maybe a little bit heavier commercial than governmental, including Columbus [Ohio]. When Michael talks about Columbus being a hotbed for a lot of industries and manufacturing, he's got a huge commercial mix. You know, we have health systems down in the Dallas metroplex and Texas area seeing the same thing. If you look at the population drift that's going on between the coasts and a lot of it going into the Sunbelt, you are going to see a lot stronger financials because of the population movement in all of this, so I think that's what's interesting here and some people are talking about this, but a lot are not.

HCI: A couple of different trends we're seeing are consolidation in the hospital space, so there are fewer health systems, and then it seems that many are switching to Epic away from other EHR platforms. So we've got fewer health systems, and most are on the same EHR platform. I'm wondering if you see that as good or bad for digital health startups trying to engage with them.

Figlioli: I think in the short term, it's no different challenge. I think over the long term, it is actually good. Look at what Epic is doing right now. They're shifting what they're going to do with opening up their APIs and what they're going to do with the Partners and Pals program. That is a major shift for Epic.

For an analogy, look at the travel industry. The core DOS-based system Sabre still exists today at the baseline, at the waterline, but then you had all these internet stacks or best-of-breed plays that basically played off that data. I view Epic as a core transactional system. So I don't think it's as much a threat for these folks, as it is advantageous to get the data liquidity going in a place that it's never been. Now Epic is going to have a dominant position, but if you now put AI on top of all that, and you start thinking of really advanced workflows, they're probably not going to do that. I do think there's ample room to run here. Look, you have Oracle and Workday on the ERP side, now you’ve got Salesforce in certain environments. Those are all just source systems to stack different workflows on top of, and I think we'll get there. We're not there yet, but I think we will get there in time.