With workforce and resource shortages in the US healthcare system, mid-caps have a unique role to play in bridging the gaps.
How much can technology help alleviate the staffing crisis in the US health care system? That’s the question Ensemble Innovation Ventures, the investment arm of dental insurance group Delta Dental, is trying to solve as it invests in startups building software for both the back office and the patient-facing side of medicine.
There aren’t many dental companies with corporate guns, but Delta Dental, whose member companies provide coverage for about 85 million people in the U.S., is on the cutting edge of the healthcare professional shortage.
“This shortage of doctors in the United States is not going anywhere anytime soon. We see a similar shortage in physician assistants and nurse practitioners,” says Brian Armstrong, executive director of Ensemble Innovation Ventures. “What are we going to do about it?”
Several factors contribute to the problem. An aging population is leaving the profession – with the Association of American Medical Colleges estimating about 20% of clinicians are 65 and older – as well as high rates of burnout at every level of the health care system, insufficient residency positions, climbing costs of medical school are just some of the reasons the supply of doctors is being choked.
This matters to health insurers like Delta Dental. Margins in the healthcare market are narrowing year by year as labor and supply costs have risen.
“From a macro-economic perspective, we see smaller margins in health systems. During Covid the margins went up and post Covid the margins have really gone down. There are very few health systems that are immune to this reality,” says Armstrong.
So Ensemble Innovation Ventures is investing in a number of software companies that could help the healthcare sector do more with less.
“We know that health systems will have to provide better care with fewer resource realities in the future,” says Armstrong.
“We need to find solutions that directly address this challenge. As business investors, we are looking at back-office solutions that truly recognize this reality and enable health systems to do more with less.”
Some of the startups the Ensemble team has supported have solutions that make back-office tasks easier. For example, Denver-based Credo, which the group invested in in 2022, simplifies the process of retrieving medical records, while Luminate Health, a San Francisco-based startup, gives patients better access to their lab results. Basil Systems, an investment group formed a few years ago, helps medical companies commercialize technology through advanced data analytics.
At the same time, on the other hand, the investment team is looking for startups with ways to fill gaps in patient care. Videa Health, for example, is a holding company that improves the diagnostic accuracy of X-rays, while Aila Health – part of the unit’s first batch of investments two years ago – uses data analytics to make better health decisions.
Bigger role for smaller funds
Ensemble Innovation Ventures is a relatively small fund. Although its exact size has not been disclosed, it writes checks of about $1 million per investment. In many ways, Armstrong says, small and medium-sized companies are an integral part of the ecosystem. That may not be enough to single-handedly reform the US health care system, but, Armstrong says, small capital can still be an important part of the startup ecosystem.
“I’m so excited to see over the last 15 years – maybe more specifically, the last 10 years – the growth rates of mid-sized corporate venture funds,” he says. In fact, according to GCV’s 2024 Keystone Survey, most CVC funds are small and mid-sized, with less than $100 million in capital.
These smaller investment vehicles can do things that larger funds may struggle to do.
“Our large corporate fund does a couple of things that are unique,” says Armstrong “When we come in as a small or corporate fund, we’re immediately able to disarm both founders and other investors of the misconception that we might only really invest for to acquire”.
While takeovers aren’t necessarily a bad outcome, he explains, high buyout investors make other stakeholders aware of conflicts of interest.
The structure of smaller funds also tends to give them more flexibility to launch earlier than larger ones, bringing corporate support to younger startups that could benefit from added value. Given the challenges facing the healthcare system, he says, it’s critical for innovation to have an ecosystem of smaller funds that are willing and able to take on more commercialization risk.
“By the time an early-stage company has really shown that their solution is commercializable, some of that innovation risk is reduced, and so a lot of larger funds, because of their structure, then come in.”
Also, smaller funds are like smaller companies – they can move faster and easier in their space.
“All else being equal, our teams and processes are probably more streamlined, both on a calendar basis and in terms of the number of interfaces we have to move through to make a decision,” says Armstrong.
“We can be a little faster, a little more agile.”
