How Kindred Innovations has found success in an 'atypical' model of looking inward to branch out

Brian Holzer, MD, serves as both president of Louisville, Ky.-based Kindred Healthcare's innovation arm and CEO of Kindred Innovations' first spinout company, Lacuna Health.

Lacuna Health, which offers a suite of solutions to streamline transitions of care and operations within contact centers and physician practices, is an emblematic example of Kindred Innovations' mission: to leverage Kindred Healthcare's vast expertise in care delivery to develop solutions for the larger healthcare ecosystem.

"That's very atypical, and it's one of the reasons why this business model makes sense, where you leverage what you've been doing for yourself and then offer a market-facing solution," Dr. Holzer said. "The market will view you as being more credible, given that you've delivered the solutions for yourself and you have the data to prove it."

Here, Dr. Holzer explains how that "atypical" model has protected Kindred Innovations and Lacuna Health from one of the biggest challenges facing healthcare innovation: the dreaded "chicken or egg" situation in which innovators need data from early adopters to prove the credibility of their offerings, but those potential adopters will not contribute data until the offering is proven credible.

Editor's note: Responses have been lightly edited for length and clarity.

Question: To start, could you talk about the work Kindred Innovations is doing?

Dr. Brian Holzer:
The origin of Kindred Innovations was that Kindred Healthcare, the corporate entity, was looking to diversify beyond not just being a provider of post-acute care operations, but we also wanted to leverage our expertise in delivering post-acute care to produce market-facing solutions that would be effectively offered into the ecosystem of payers, providers and innovators. So we created the division to leverage our own expertise and experience delivering care to create marketplaces and solutions.

Kindred Innovations has become fairly hyperfocused on Lacuna Health, simply because it was the first innovation we did. It's a very all-inclusive operation that I serve now as CEO. What we did was take a legacy call center called the Kindred Contact Center that was delivering virtual, nurse-led care management solutions to Kindred internally, and we spun it out as an arms-length C corporation. We gave it a new name, Lacuna Health, which is Latin for "gaps" or "missing pieces," and we effectively executed the strategy.

We continue to serve Kindred as a customer, but we've leveraged our experience and expertise delivering these services to Kindred to position it as a market-facing solution that we're commercializing. At this point, over the first couple of years of operations, we have more than 10 external customers. We serve a wide variety of customers, from hospital systems to post-acute care providers.

Q: What is the goal of Kindred Innovations?

Similar to this first experience with Lacuna, it's to leverage our own experience delivering post-acute care to provide solutions effectively for ourselves, then point those toward the market. The orientation of the innovation group is to continue to serve Kindred internally, but also to offer the market those same solutions under the Lacuna Health brand.

Q: With that said, how does Lacuna Health fit into Kindred Innovations?

BH: The best way to describe it is looking at it as Kindred's first innovation. We have created a company and spun it out, and are now operating a wholly owned subsidiary that I serve as CEO, but I also have a corporate responsibility as head of Kindred Innovations, where we will continue to look toward ways that we can leverage our own expertise to offer the market various services and solutions.

Lacuna Health still serves Kindred; it also serves a portfolio of other customers. And there are other ways that Kindred Healthcare is innovating: We have a hospital division and a rehab division that are also driving forward-thinking, innovative solutions. Kindred Healthcare is not without other means of innovation, but in terms of a market-facing innovation, we effectively set up Lacuna Health as the first example of offering the market a very specific form of services and solutions.

Q: How do you see Lacuna Health growing or evolving in the future?

BH: Lacuna Health is, akin to its name, closing gaps in the patient and caregiver journey. We're focused on things like transitions of care management, as patients transition from a setting or service on to the home. Lacuna Health is a virtual extension of our clients to help patients and their caregivers recover safely in the home setting. And so we're focused on engaging patients, identifying gaps in care and closing those gaps to allow patients to recover from illness or injury.

Our goal here is to simply expand our solutions across a broader customer base. We think we've got a very important service and solution that's broadly applicable across the ecosystem of healthcare, from insurance providers to health systems to post-acute care providers. The stage we're in now is effectively engaging our existing early-adopter customer base, generating really important data and then publishing that data to demonstrate the effectiveness of the model.

It's really about scale at this point and leveraging our early wins and data generation to drive more growth for the company.

Q: What are some challenges or obstacles that you come up against when innovating in the healthcare space?

BH: For providers in the ecosystem right now, margins are very tight, and it is all about allocating a scarce amount of financial resources to initiatives that drive a return on investment. Often, when you're delivering a solution to a provider, the independent benefit of one solution versus the other is not always clear, and the buying processes and selling cycles in the provider space are very long.

So, typically, those who will benefit most from a solution are at least able to fund it until the data is unequivocal. It becomes an exercise for an early company like ours to generate the necessary data to drive shorter and shorter selling cycles for our provider customers. When you're new, it typically takes a little bit longer to get ramped up and generate the amount of data it will take to drive buying decisions.

The biggest challenge, then, is simply how cash-strapped and how tight the margins are in the provider space. It's a process of getting pilots and early adopters to generate the data necessary to ultimately scale. It's sort of chicken or egg: You need the data to scale, but you need early adopters to generate the data. That's one of the challenges that a lot of startup companies face.

Q: How do you get past that? Do you just have to keep pushing through?

I think that's honestly a good way of putting it. A lot of it is just the credibility of the sale: being able to communicate your value proposition and, ultimately, structure it in a manner, mostly through pilots, where you have the opportunity to demonstrate value, maybe before the data is fully matured.

But in our case, what differentiates us from other startups, and one of the reasons why we started this company this way through Kindred, is we were already delivering these solutions and services to Kindred prior to the formation of Lacuna. We had enough data from our own experience using the service and solutions from the Kindred Contact Center that became Lacuna Health. That has allowed us to branch off and sign as many contracts as we have, which is atypical for startups this early in their life cycle — we are two years in or so and already are serving 50 physicians, at least a dozen or so external customers.

That's very atypical, and it's one of the reasons why this business model makes sense, where you leverage what you've been doing for yourself and then offer a market-facing solution, because the market will view you as being more credible, given that you've delivered the solutions for yourself and you have the data to prove it. That's what differentiates Lacuna from all the other startups.

Q: If you were to give some advice to other innovators in the healthcare space, would you say, then, that it makes the most sense to start within an existing healthcare organization and spin out from there? Are those the startups that are going to be most successful?

BH: Not necessarily; it is a very challenging ecosystem. For us, again, one of the reasons why the strategy makes sense is we were able to take an existing capability that we were already doing for ourselves and leverage that to sell it into the marketplace. That accelerates the process of getting other customers willing to buy in, and so on and so forth.

But in terms of general advice to innovators, it's more complex. Ultimately, what I see with innovators is they fall in love with the product, but they don't necessarily fully understand who the customer versus the end user is going to be — and often, in healthcare, they're different. You may be selling to a hospital with stakeholders who are going to make the purchasing decision, but the end user is the patient, with the caregiver as the enabler.

You have to be very, very structured in terms of what your business model is intended to do for the user. That may be very different from how you're selling it to the customer who's making the purchase decision. The hospital is going to purchase a digital health solution one way or another because it's good for their patients and it drives brand value and some sort of financial return. That may be a totally different calculus than what the end benefits will be to a customer.

So my advice to innovators would be to really understand at a granular level what the value proposition is to the end user. It may be very different from the customer, the person who's making the purchasing decision.

Q: Is there an area in healthcare that you believe still has a lot of room for innovation? Anywhere in the industry that's lacking?

I don't think there's anywhere where we're doing so well that there's no more room for innovation, but one of the greatest areas for advancement is at the level of the caregiver. I think you're going to see, even more than you see already today, innovators focusing entire business models and company value propositions directly on the caregiver. It's happening now, but it's starting to expand, because the caregiver is being increasingly and appropriately recognized as a major influencer — not just in purchasing decisions, but also in the use of technology and the enablement of other users, typically patients and their family members.

More articles on innovation:
Highmark Health innovation platform testing virtual cardiac rehab solution
Internal and external investments are equally crucial for an innovation ecosystem
New healthcare-focused blockchain company seeks to merge innovation, AI

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