As we continue to search for value in the highly volatile market, it's clear that the value will lie in areas that don't have electronic price quotations to be delivered at lightspeed by fingers adept at keystrokes at a terminal. To access tremendous value, investments will have to be made where true value is not so easy to ascertain, so we will have to adapt private equity techniques to find value in fairly illiquid investments. This is one of the reasons-- fees, leverage and carry aside for the moment--that private equity firms have been able to create so much wealth. Having said that, it's clear that valuations outside of the market have declined in line with the general price dislocation. A number of those valuations are far too discounted and savvy investors who dive into them will profit handsomely in the near future. One such area for lucrative investing will be health care technology, the so called healthGrid technologies in particular. namely because these areas require vast amouts of technological expertise that most don't have and because it is initially very fragmented which by definition will create tremendous value for the consolidators--look for the masters in PE to head here with large coffers and exploit that fragmentation of these disintermediated technolgies. Further augmenting the value is that the United States government has sundry and multiple grants to enable this system. The simple translation for that is there will be lots of dollars available: enter the entrepreneurs and investors. The initial problem is that most financiers don't have the expertise to decide which systems will actually work, so they will need the assistance of a physicians with the arable knowledge to implement successful strategies due to the immersion of the healthcare professionals and their in depth knowledge of daily applications
In addition to the first problem is that many physicians and other healthcare professional in the industry continue to do their daily work much as they have for a hundred years, as they say, pushing ox carts around to get things done, the Federal government is making huge commitments to upgrade the nation%u2019s Health Information Technology (Health IT). The current state of health information is one of disconnected silos, commercial products with long update cycles, and extreme risk avoidance in regard to information release. All together these severely impede the flow of data to those who need it to create cures, care for the sick, and manage health systems. Clearly, we need healthcare information technology that is open, works across organizations, and is provably secure. In short, we need a mechanism for Secure Data Liquidity.
At the same time, PE is at a crossroads as credit is tight, and vast amounts ($470B USD) remains un-invested. Although we are seeing acquisitions bolted on, there is a dearth of mega deals. Further, the opportunities in cross-border and emerging markets are overshadowing local investment. If the PE-secondary funds apply their monetary liquidity toward the problem of Secure Data Liquidity, particularly in health care, we could see the impending capital market IPO%u2019s break through.
On that basis I decided to turn to one of the world%u2019s leading academics in scalable information processing and data management in biology and medicine, health grids--Dr. Jonathan C. Silverstein, Associate Director of the University of Chicago%u2019s Computation Institute (http://ci.uchicago.edu) for his perspective %u2013 and for answers. I wanted to speak with Dr. Silverstein because he is a thought leader in health grids. Most people know him as a surgeon, informatics expert, and/or educator at the University of Chicago. He also has, with many collaborators, hosted the first health grid conferences in the United States (in 2006 and 2008) and has been selected by leading national organizations to bring health grid technologies into the discussion of the solution to health care during this special time when $20 Billion in Federal Government subsidies are being made available to incent health information technology deployment and research (HITECH Act 2009).
Silverstein is associate director of the Computation Institute of the University of Chicago and Argonne National Laboratory (http://ci.uchicago.edu), is associate professor of Surgery and Radiology, and is a Fellow of the American College of Surgeons and of the American College of Medical Informatics. He also serves as Scientific Director of the Chicago Biomedical Consortium (http://chicagobiomedicalconsortium.org). He has served on various national advisory panels and currently serves on the Board of Scientific Counselors for the Lister Hill Center of the NIH National Library of Medicine.
Dr. Silverstein is used to thinking of how to solve complex issues and develop practical working solutions having spent more than a decade practicing surgery, simultaneously implementing electronic health records in leading academic medical centers and researching advanced computational technologies. He has written many papers on novel health information technology and its impact on the future.
In terms of knowledge on Healthcare, Computers, processing knowledge, and development of large public/private collaborative initiatives he is probably the most highly qualified academic with the research history and the practical application.
Shawn Baldwin: Can we start with your background through academia to the University of Chicago and your current focus?
Dr. Jonathan C. Silverstein: Well, I was fortunate in that I had the opportunity to program computers in grade school. I liked to solve games with my Apple II computer rather than play them and later to write programs to support my studies. This focus on information and analysis has underpinned my career. I studied microbiology at the University of Illinois Urbana-Champaign, fascinated by how organisms %u201Cworked%u201D. I was in a hurry to get on to medical school and entered Washington University School of Medicine in St. Louis when I was 20 to pursue a career in surgery. Mark Frisse, an academic leader now at Vanderbilt, was a professor there at the time and introduced me to the emerging sub-specialty of Informatics, which brought together my love for both medical and computer sciences into one unified and largely uncharted discipline. I spent a year in the laboratory modeling the autonomic nervous system in order to teach pharmacology and later attended Harvard School of Public Health where I completed a Master%u2019s in Clinical Epidemiology. I believe in being radically interdisciplinary. During my surgical residency, the first half of the 1990s, the Internet %u201Cappeared%u201D and cell phones became ubiquitously adopted, which sparked the modern "information era" and continues to fundamentally alter the fabric of society and the way one human communicates with another. When I completed my residency in 1996 I sought academic positions that would enable me to both practice surgery and pursue informatics research and operations. This led me to the University of Illinois at Chicago and the University of Chicago. At both I have practiced, conducted research, and played key roles the deployment of Electronic Medical Records. Since the mid-1990's nearly every major global industry has adopted cutting-edge, disruptive digital and wireless communications technologies. Nearly every industry that is, except health care, which is ironically the most information intensive of all information-centric businesses.
Shawn Baldwin: How did you become involved in the University of Chicago Computation Institute and at how did you come to be its Associate Director?
JCS: In my practice and research, I have been focused on advanced technologies. From laparoscopic and robotic surgery, to advanced visualization, to advanced applications of high-performance and distributed computing in biology and medicine; I%u2019ve been a bit of a geek among geeks as far as physicians are concerned. Chicago is a very special place in advanced computing, particularly Grid computing and other high performance computing and networking. As a result, extraordinary capabilities have been available for me to leverage in my work. In 2001, I was recruited to the University of Chicago by the Hospitals for my informatics expertise to help create the strategy for our electronic health record systems. That was a special time for the University, when Robert Zimmer, an esteemed applied mathematician and now President of the University, Ian Foster, one of the most revered computer scientists in the world and now Director of the Computation Insitute (CI), Rick Stevens, perhaps the smartest and most creative person I%u2019ve met, the youngest person to ever run a Division at Argonne National Laboratory and now Associate Laboratory Director for Computing, Energy, and Life Sciences, and others, conceived of and birthed an institute to bridge the University and Argonne which would accelerate science by strategically engaging large-scale application of computation, data, and communications across all the sciences at both institutions. I was very fortunate, as the new kid on the block, to be free to engage in the early development of the institute. Often, I would run across campus in my surgical scrubs to make it to the CI to attend fascinating discussions of complex computing concepts that I strained to fully understand. I remained actively engaged, and years later, when a permanent director, Ian Foster, was finally selected to run the institute, I was fortunate to be selected to be his Associate Director. This created the opportunity for us to work closely together and although I had worked with grid technologies for many years, being partnered with one of Grid%u2019s original inventors, I became even more focused on Grid technologies applied to health, health grids. A key aspect of the grid philosophy is that of enabling virtual organizations, multiple entities working together toward a common goal, via loosely connected, open, service-oriented technologies, which is, in my view, a terrific match for what health care needs today. During the same period 2001-2006, again, partly because I was one of the only academic biomedical informaticians in Chicago, I became engaged in creating a very significant virtual organization, the Chicago Biomedical Consortium, a collaboration among the University of Chicago, the University of Illinois at Chicago, and Northwestern University, funded by the Searle Funds at the Chicago Community Trust.
Shawn Baldwin: What are the goals of the Chicago Biomedical Consortium (CBC)?
JCS: The mission of the Chicago Biomedical Consortium is to stimulate collaboration among scientists at Northwestern University, the University of Chicago, and the University of Illinois at Chicago that will transform research at the frontiers of biomedicine. As you can see, we%u2019ve not been shy of extraordinary endeavors. I have served as a Scientific Director of the CBC since its inception five years ago and have worked very closely with its other two Scientific Directors, Rick Morimoto, Northwestern, and Brenda Russell, UIC, as well as the Searles and the Chicago Community Trust, to identify and support biomedical research of the highest order. This, naturally, also leads to identifying technologies with commercial potential. Now, 5 years in to its amazing success at bringing the best scientists together across three institutions, the CBC's latest focus is to establish Chicago as a primary biomedical innovation cluster in the US. We are working toward bringing together unparalleled research capacity, top notch human capital, and access to consistent local sources of private equity and venture capital to support the commercialization of innovations spawned from the biomedical sciences.
Shawn Baldwin: Why did you decide to create the HealthGrid conferences you%u2019ve hosted?
JCS: It became clear by 2004 that the distributed computing technologies were beginning to take hold in many industries but, those of us in health and life sciences could see that special effort would be required to sort out how to apply them our domain. Initially some of us participated in the international meetings developing grid standards but it was a long gap from the clinicians to the computer scientists and there needed to be focus explicitly on health and biomedicine. The Europeans were ahead in this regard creating the HealthGrid Association (http://www.healthgrid.org) and having their first meeting in 2004. By 2005 the Telemedicine and Advanced Technology Research Center (TATRC) of the U.S. Army was interested and Mary Kratz of University of Michicagan and TATRC asked me to engage in organizing the first conference in 2006. By 2007, we were also actively involved in the European meetings and doing workshops and panels at various related U.S. scientific meetings and the HealthGrid Association allowed us to hold its first international meeting outside Europe in Chicago in 2008.
Shawn Baldwin: Who were some of the attendees? How is the enrollment and participation given our existing climate? Why should we be attentively focused on this area now?
JCS: Attendees included leading computer scientists and informaticians and a few interested parties from government and other interests. The National Cancer Institute and the National Center for Research Resources had been working on two major networks, the caBIG and BIRN networks and so the ideas weren%u2019t new at all, but few had done meaningful deployments. This was a forum to %u201Cget real%u201D about what has been done, what could be done, and getting those in the European e-Science community to get to know the American Medical Informatics Association community. There are too few of us all around. Holding another meeting now would likely be much larger and more expansive because those initiatives have subsequently really taken off and the Federal investment and general climate for Health IT has heated up tremendously in the past 12 months.
Shawn Baldwin: What's your involvement in other areas of Healthcare Technology, the government initiatives? What are your objectives?
JCS: I have come to realize that the most crucial or valuable role I can play in the ongoing efforts to digitize health information and deploy electronic health records (EHRs) and medical records (EMRs) is that of interdisciplinary translator. There are is a limited number of ACMI-recognized biomedical informaticians in the world, less than 500 in fact, and a smaller number who possess the advanced skill sets our team can bring to the management of information and technology across numerous inter-related scientific disciplines. It was this unique ability to understand and operate at the highest levels across multiple disciplines which distinguishes the Computation Institute. We%u2019ve written successful proposals to some of the new government initiatives and are spawning new projects based on those. Each focuses on infusing specific biomedical activities with more seamless sharing of data. We also have pending proposals in the HITECH portfolio and are hopeful that those will give us additional opportunities to work toward an open shared network on which many applications can be developed. My own interests are fairly broad as has been my engagement in applying computing technology. Having worked in imaging and visualization for surgery and education I also provide some recommendations to the National Library of Medicine in those areas as a member of its Board of Scientific Counselors.
Shawn Baldwin: Can you talk a little about how the crisis has affected the healthcare industry? What is the state of the Healthcare Industry/ Health data Liquidity? What do you see as the greatest obstacles? Where are we in the cycle?
JCS: Broadly speaking the biomedical industry faces two related but distinct sets of computational challenges. On the one hand, the %u201Cstandard%u201D health IT is based in a complex and aging set of vendor offerings from the pre-Internet world that are expensive and difficult to manage because the workflows and requirements in medicine are constantly changing. CIOs are challenged by selection, procurement, implementation and user support. However, more fundamentally, the great power of the data, information, and knowledge in these workflows is largely untapped. Creating a robust clinical infrastructure that spans institutions and vendor offerings haven%u2019t been seriously tackled yet. This is where the real power is to improve public health, research, and national quality and safety improvement %u2013 Secure Data Liquidity (across organizations). The needed transformation, enabled by sharing data effectively, will take the efforts of IT professionals, informaticians (who focus more on the information itself than the technology), and computer scientists bringing in to the conversation more powerful, but simpler, tools, algorithms and methods from the Internet world. The current Federal investments are promising in this area, in that the needed research and development is beginning to be supported and the needed operations on the ground are also being supported. Thus, there is tremendous pace of acceleration in both areas. If the economy in general also begins to pick up, we%u2019re in for an amazing ride in Health IT the next few years!
Shawn Baldwin: Where do you see valuations and future viable investments for Healthcare Technology? What does your research data say?
JCS: An explosion in technology deployment is coming this year based upon the investments the Federal government is making in Health IT. The explosion of new products will come closely on its heels. This means that while there will be many new successes in this boom, one can also expect a number of failures. Public offerings for Health IT have been few and mostly some years ago. So in one sense, the major players in EHRs are established, but in a very real sense they will be challenged by many small focused vendors on the near horizon. Thus, if one can make a number of small bets, now is the time. My research to date is in the details of the technologies themselves rather than the market per se so I%u2019ll continue to watch for those with breakthrough potential based upon what they bring to the table.
Shawn Baldwin: What are some of the options for PE firms given the current national debate? Would you give us your views on the government%u2019s role?
JCS: I think it is time for PE firms and VCs to get going finding and investing in the companies that suit their needs, if they are careful to keep an eye on the Office of the National Coordinator%u2019s (ONC) Meaningful Use criteria. Basically, the ONC, will be dictating, over time, how physicians will gain reimbursements for their investments in Health IT, via a long spreadsheet of specific functions that EHRs and other technologies will perform. Thus, they will reimburse for successful deployment and demonstrable use, rather than purchase of EHRs. This will have an interesting effect in that Health IT innovators, in addition to showing their direct value, will need to conduct certification tests in coordination with ONC%u2019s criteria to convince buyers that the government%u2019s meaningful use payments will accrue to them. This will spawn a set of tiers of healthcare organizations: those willing to engage in early development and deployment before certification to prove out technology (perhaps they%u2019ll be academic medical centers and may even want equity) and those majority of physician offices and practices who will want %u201Ccertified%u201D technologies deployed with minimal disruption to their care for patients. The consumer side of all of this seems to be the wild wild west despite Google and Microsoft already stepping up to the plate, with what seem today to be nonviable approaches, so that%u2019s anybody%u2019s guess there since the government incentives may not apply, though clearly the government officers state they want to have impact there too. In terms of the separate debate regarding insurance reform, it seems tangential to Health IT, which, in my view, is the real key to health transformation. One underappreciated aspect of this is that its not the EHRs and PHRs themselves that will cause the transformation, those just affect the workflow at the individual practice; Its the networks of secure data flow, enablement of safe data and fluid data for many secondary purposes like public health and other highly distributed and analytic efforts that will improve our ability to understand and make better decisions that will transform healthcare.
Shawn Baldwin: With 470B in uninvested funds and sovereign funds making more investments on their own --do you think that LP participation will dwindle? How will this affect capital raising? How will this affect secondary funds?
JCS: Well, on these topics, I%u2019m not yet knowledgeable enough to say, but it does strike me that there is a huge amount of pent up demand for investment in the market and a huge amount of capital available. If they don%u2019t meet up it will be a shame because clinicians will keep %u201Cpushing ox carts%u201D around without benefiting from the transformational affects of information technology.
Shawn Baldwin: How do you think deals will be affected by the increasing regulatory environment? Value of market?
JCS: This is an important question. A key regulatory effect of the Health Insurance Portability and Accountability Act (HIPAA - now more than 10 years old) has been to drive all health care providers (what the act calls covered entitites) toward risk avoidance in regard to data. Basically they are so afraid of the stiff penalties in this law, in regard to breaches of security causing violation of patient privacy and confidentiality, that they hold very tightly any clinical data they generate. This means there are treasure troves of valuable data out there for all sorts of purposes (public health, new diagnostics, new treatments, research on what is most effective, etc%u2026). What needs to happen, and there are hints that it is, but it is an important risk on any deal, is that the regulatory environment needs to better align the incentives for all these EHR deployments to make their data available for secondary use beyond the primary data collection for the practices. I have focused a great deal on this topic, the security and data management mechanisms that are robust and flexible enough that can allow the industry to move from a risk avoidance approach to a data management approach while actually having even better privacy and confidentiality controls than we have today. The risk avoidance approach, in my view, ironically has increased risk by creating impossible policies that do not get followed resulting in many complex unsustainable work-around practices with many security holes. I think the regulatory environment will actually help a great deal to move in the right direction rather than further impede it as it has done in the past because the government and others are very focused on solving healthcare and this is an absolutely necessary step which is being increasingly recognized, creating Secure Data Liquidity.
Shawn Baldwin: You have talked to me about Secure Data Liquidity. Can you explain this idea?
JCS: Basically, health care data is fundamentally private on the one hand because people have the right to inform only those they wish their health status, but public on the other hand because secondary use of health care data has very direct public health impacts. Such simple things as how many people are coming into emergency rooms with specific conditions (think of H1N1), or how many people on certain medications are experiencing certain side affects (think of Vioxx) have profound public health implications. These are only the beginning and most dramatic impacts the public is focused on so far. The fine details of who, in what zip codes, in what demographics, getting pharmaceuticals from which pharmacy, with what other health conditions, with what other family history, what genomic profile, will not only inform optimal health approaches for the individual, but for communities of like individuals right down to fundamental biology leading to new cures. The stakeholders asking questions dependent upon this data range from patients to providers to researchers to business professionals to government. We need to break through from having the data locked up and unlinked to the data flowing for the many purposes with provable security in regard to who is permitted to and is using which data for what. This is Secure Data Liquidity. Basically, Secure Data Liquidity is a catch phrase for a health care specific technical architecture that enables an explosion of new uses of health care data by making two things possible: provable electronic policy enforcement in regard to who is delivered precisely what data for what purpose (flexible, robust access control, provenance and logging %u2013 or %u201Csafe data%u201D); and scalable data pipelines and transformations that make data unambiguous and computable such that data from multiple sources can be used together in meaningful ways (%u201Cliquid data%u201D). We%u2019re seeking funding toward ramping this up with many partners based in scalable open Internet technologies such as grid and web services, XML, and REST. We believe that this underpinning, yet lightweight, enabling software is necessarily open source, funded by government and philanthropy, and delivered under a free license that promotes rather than impedes commercialization. In this way, Secure Data Liquidity will be un-owned, based in many cooperating entities with no single point of control, like the Internet itself, yet, also like the Internet, be the basis for dramatic productivity gains in the health and life sciences sector.
Shawn Baldwin: You've done some research in technologies for health grids--can you talk about your work and any conclusions you've arrived at?
JCS: We%u2019re in good position to make the statements you%u2019ve been hearing from me. Led, from a core technology perspective, by Grid gurus Ian Foster, Carl Kesselman, and Steve Tuecke, in collaboration with colleagues at University of Chicago, Argonne National Labs, Ohio State University, and University of Southern California, many sites, more than 150 in the U.S., have brought up various bits of grid infrastructure specifically applied to biomedical research among several different networks. I%u2019ve mentioned BIRN and caGrid several times. These are the largest, but the work continues to expand rapidly and additional networks are appearing and beginning to bridge the %u201Ctranslational%u201D gap between clinical care and research. I think the next great opportunity is to begin to co-evolve the clinical networks (such as the National Health Information Network) and the research networks. We%u2019re working on architectural paths that can make that possible.
Shawn Baldwin: Are you involved with any of the Private Equity industry organizations? If so can you talk a little about that?
JCS: To date I%u2019ve been watching carefully and staying both vendor neutral and investment neutral, focusing entirely on the technology developments that are necessary. So I can%u2019t say much today about the ins and outs of the Private Equity industry per se. I%u2019ll leave that to you.
Shawn Baldwin: Do you currently have any private sector work and how does that impact what you currently do?
JCS: At the Computation Institute we%u2019ve maintained unassailable neutrality explicitly because we think it%u2019s important for the underpinning health networks to be entirely open. Focus on what%u2019s necessary for those can be distracted by the private sector. However, on the flip side, private sector investment will be needed to make the technology work, widely deploy it, and to build all the value added services over it. Thus, I%u2019ve concluded its time for me, and those few others deeply knowledgeable in this domain of biomedical informatics, to step up, and deeply engage the private sector to get this work going (we%u2019ve been largely on the sidelines, while other industries have massively increased productivity and value leveraging information technology).
Shawn Baldwin: Are you involved with any additional work at University of Chicago outside of the Computation Institute%u2019s research mission?
JCS: I teach an undergraduate course in the biology curriculum called Immersive Virtual Anatomy. This is great fun in that we go through the entire medical school anatomy text in one quarter using virtual reality systems. In our research with Argonne colleagues we created a cluster-based stereoscopic visualization system for volumetric data like CT scans. Basically we show actual scans captured from live people, larger than life, and much more accurate than cadavers, with our own systems and coloring algorithms and cut through them to learn the anatomy.
Shawn Baldwin: What about your personal interests?
JCS: I am married with three children. My wife Tracey is a nurse working in clinical research and into athletics. Our children are 11, 9, and 7 years old and also athletic and sharp, while the oldest is also an impressive musician. Winter is a special time for us because we maintain a big ice rink in our side yard for skating with many neighbors and friends. Downhill skiing is also favorite activity for me. In the summer, I%u2019d say soccer in the yard and the beautiful parks, the lake and museums Chicago has to offer.
Shawn Baldwin: So what would you recommend to investors and others in finance in regard to healthcare technology interests? Are there viable international applications? What do you see as the value of international opportunity in the future?
Where is the opportunity in Health IT for PE/VC?
JS: The national opportunity for health information technology is fairly extraordinary right now as I%u2019ve said earlier. But meaningful use and system certification is an interesting wild card, depending upon how it plays out may either spawn innovation dramatically or constrain it. Specifically, there is $17B in federal government subsidies available to individual physician practices who purchase and achieve %u201Cmeaningful use%u201D of an electronic health record system. Currently less than a quarter of physician practices and hospitals are estimated to have adopted a qualifying system. This has led GE and IBM to each offer $1B in zero interest credit to private practitioners to purchase an electronic health record system that meets "meaningful use" standards. GE and IBM can do this because there is a very clear incentive program in place (HITECH Act 2009) that will easily allow practices to repay this financing with cash leftover. However, physicians are savvy consumers and will look for those systems that they can use effectively in their practice without too much disruption, a big issue, and recognize that the choice of 1980s-style systems make the choice a long-term one. They will be looking for lighter, newer, solutions without a doubt (if those can rifle through the certification process). This will soon put tremendous pressure on the certification process.
Globally, it will be easier to deploy systems and might be an even larger market in the next while. Companies who bring physicians and patients into the marketplace through digitization of health records might have value. Companies developing useful personal health record applications might have value, but this remains an unknown. Some have asserted that PHRs and companies that develop consumer applications which collect personal health data exist outside of HIPAA regulations. That remains untested and certainly it%u2019s not an issue globally, but at the end of the day, systems that manage data effectively and securely will meet HIPAA regulations because they are fundamentally guidelines about good data management practices, with some complex specifics that must be attended to. In regard to PHRs, this sub-sector may have value to private equity because Microsoft and Google have stepped in to this sector, thus providing clear exit strategies for startups that bring value through the extension of the platforms offered by these two giants.
Recognizing that the major value will come from multiple health and biomedical entities working together, companies that develop virtualization technologies and offer services to support virtual organizations may be have a core value proposition. Thus, cloud and grid oriented companies may have exit strategies among Amazon, Oracle, Cisco, Google, etc.
I%u2019d also say, with a bit of bias, that Private Equity and Venture Capital should also look to investing in the innovation process and bridging the gap between America's greatest minds in research institutions like Argonne.
For more information on Dr. Silverstein please go to the following link: http://home.uchicago.edu/~jcs/
