How Dr. Stephen Klasko had a '197-year-old academic medical center thinking like a startup'

For former hospital chief Stephen Klasko, MD, working in the venture capital world has been a humbling experience.

"When you're the CEO of a health system, you have lots of people not only working for you but doing everything for you and, frankly, kissing your ring," he told Becker's. "When you're doing what I'm doing now, it's you.

"And I have to recognize what I know and what I don't know. Because everybody here is smarter than me when it comes to evaluating companies."

But at 69, as the resident "grandpa" at venture capital firm General Catalyst, he's been able to impart knowledge from more than two decades running health systems and medical schools. Dr. Klasko was president and CEO of Philadelphia-based Jefferson Health from 2013 to 2021 and CEO of Tampa, Fla.-based USF Health from 2004 to 2013. He joined General Catalyst as an executive-in-residence in February.

Since he came aboard, the firm has partnered with more than a dozen hospitals and health systems on digital transformation. Jefferson Health was one of the first to do so, in October 2021.

The health systems get access to the brainpower of General Catalyst's team — which includes other former hospital CEOs — and its digital-health portfolio companies, which in turn soak up the institutional knowledge of the health system leaders (not to mention get potential clients for their startup solutions).

Dr. Klasko expected the VC world to be the "Wild West." It's way more organized than that, he said, while still infused with creativity. "What I've been really pleasantly surprised about is that the founders are every bit as mission-driven as, frankly, my folks were at Jefferson," he said.

He met Hemant Taneja, General Catalyst's CEO and managing director, a few years ago at an innovation conference. They spoke over a cup of coffee, and Dr. Klasko remembers Mr. Taneja telling him: "It hit me that you were the only person that didn't talk about what your health system is doing. You talked about the 97 percent of people in Philadelphia that don't view themselves as patients."

Dr. Klasko saw an opportunity.

"I am a hospital CEO — now an 18-hospital CEO — when hospitals are going to be dead men walking," he recalled. "I was trying to look at: What's my Apple moment? How can I actually be a strategic partner with the VCs and private equity?

"So, it was almost a moment where [Mr. Taneja] was looking for health systems that thought the way he was thinking when he was an early investor in Airbnb, Warby Parker and Stripe. And I was looking for somebody that not only thought that way but was willing to partner.

"I wanted to be a 197-year-old academic medical center thinking like a startup. But I couldn't do that on my own."

The two ended up writing a book together in 2020, "UnHealthcare: A Manifesto for Health Assurance."

"It wasn't an anti-health-insurance thing," Dr. Klasko said. "But so much of the system is dominated by insurers or payers that what we really wanted to do is assure health for people, what I called at Jefferson: 'Healthcare at any address.'"

Other hospital execs join VC world

Dr. Klasko is also glad to have paved the way for other health system CEOs looking for a "third phase" in their career (though he noted that Ronald Paulus, MD — the former president and CEO of Asheville, N.C.-based Mission Health — joined General Catalyst in 2019). Dr. Klasko said about 20 have reached out to him asking how he did it.

In 2022, General Catalyst also hired Daryl Tol, a former regional CEO for Altamonte Springs, Fla.-based AdventHealth, and Marc Harrison, MD, the former president and CEO of Salt Lake City-based Intermountain Healthcare.

Mr. Tol leads the firm's "health assurance" partnerships with health systems, which now number 15 and span a wide range of types and sizes.

"I mean, there's not much that connects HCA, Intermountain, WellSpan and Jefferson," Dr. Klasko said. "What Hemant is creating and what Daryl is shepherding is this amazing opportunity for us to understand what these 30-year-old founders are thinking about transforming healthcare, and for them to have inside knowledge of what we need before they start selling it.

"It's also an opportunity for the traditional healthcare system to diversify their portfolio at a time when inpatient revenue and outpatient revenue are a challenge. We've created, for lack of a better word, a cool club. Health systems that really don't have a lot to be happy about want to join that cool club. And what they're getting out of that is this amazing creativity and knowledge of what's happening."

Digital not a 'luxury' anymore

Dr. Klasko said digital health and virtual care aren't a "luxury" for health systems anymore. They're required.

"A lot of these places can't hire 50 people [for digital] like an Ascension or a Providence," he said. "So a lot of these places [that partner with General Catalyst] are like, 'Wow, this is great. I have an outside-inside group helping me with this whole digital health strategy. I don't have to hire a chief digital officer and 20 other people.'"

So far, the collaborations have worked well for both sides, growing startups and bringing that needed digital muscle to health systems amid a tight economy. The initial partnership between Jefferson and General Catalyst helped spawn care connection platform Tendo and health software company Commure.

"What's really played well into the strategy is that both sectors' traditional situation is in trouble," Dr. Klasko said. "The fact that hospitals, their own math is becoming commoditized and they're dead if they don't think differently. And on the other side, until very recently it was: 'We have AI in our title, so we're worth $2 billion.' That's changed."

"When I first got to G.C., I was like 30 years older than anybody. When valuations were what they were, it was like 'Why do we need grandpa?' But now the whole thing is: Are you scalable? Are you sustainable? Sometimes with some of the founders, I feel like Mr. Miyagi in 'Karate Kid': Could you tell me what you really need?"

Dr. Klasko is also a global innovation chief for Israel's Sheba Medical Center, helping startups there understand what U.S. hospitals need. Aidoc, which has raised hundreds of millions of dollars in recent years and partnered with health systems, came out of Sheba.

"I feel like those first scouts that went to the Dominican Republic to look at baseball players," he said. "There are 17-year-old pitchers pitching 97 miles an hour, and some of them will make it to the Yankees."

How to not get 'fleeced'

Dr. Klasko said his philosophy was shaped by early experiences with tech startups. He said he once told himself he would never again get "fleeced."

"Back in 2009, I had helped a telehealth company," he recalled. "I got a call from the CEO, who said, 'Hey, I want to take you out to dinner. Because we couldn't have done this without you. You were there from the very beginning advising us. You were the first foundational customer. We just got valued at a billion and a half dollars.'

"I said, 'Well, that better be a hell of a dinner.' He said, 'No, I'm also gonna send you four fleeces.'"

"So the concept of never getting fleeced again was, I don't want to go to HIMSS and have 820 28-year-olds tell me, 'Buy my app that will transform healthcare.' The model that we've created is more of a codevelopment one: If I believe in it strongly enough, and I'm going to help create a $2 billion company on behalf of my organization, I want the ability to invest in it at an early stage. And I'd like to earn some codevelopment equity — I don't like the word sweat equity — if you're going to be using my docs."

Health systems 'come out of the entrepreneurial closet'

While Dr. Klasko said "health systems being VCs makes no sense" — "as one of my board members said, 'I'll tell you what: I won't deliver babies, you don't do what I do'" — he does believe they need to be more entrepreneurial, thus the partnership approach with General Catalyst. He was asked why they don't seem to tout these types of ventures more.

"It's like everything in healthcare and nonprofit healthcare: 'We're not supposed to do that stuff,'" he said. "It's a bit of a farce. We have orthopedic surgeons building their own joint centers and working with private equity.

"The health systems, we're just supposed to be hospitals that take care of sick people. What people are realizing is that's going to make us Sears in 10 [years]. Meanwhile, the One Medicals, the Chen Meds, the Oak Street Healths are gonna say, 'Yes, Steve, you keep doing that. And your competitor is Penn. Just let us at One Medical take the paying patients. Don't do anything entrepreneurial. You just keep taking care of the Medicaid patients.' And again, it would be great if we had a system where that worked, but that doesn't work.

"At Jefferson, we weren't a VC, but we were working with folks who we believed in a lot of the things we were doing around population health and social determinants."

Dr. Klasko said it was a "godsend" that Jefferson Health had its JeffConnect program, a telehealth platform formed with virtual care company Teladoc Health, in place before COVID-19 hit. The initiative helped get about 50 percent of its unscheduled patients out of the emergency room. JeffConnect's staffers called themselves the Nights' Watch from HBO's "Game of Thrones," Dr. Klasko said.

"We were able to start to look at that whole 'healthcare at any address' and say, 'Yeah, that's what we should be doing. We shouldn't be ashamed of that. We can't just be a hospital anymore,'" he said.

"And by the way, I think everybody is recognizing that, right? Optum went from being the tail that wags [UnitedHealthcare]'s dog to being the tail that ate the dog, in some respects, bigger than United. We're all recognizing that our brand can't just be where the sick patients go.

"What's beautiful about the G.C. partnerships is it's a really great, ethical and legal way that folks can get out of their shell and say, 'It's OK for me to be entrepreneurial, because I'm working with this venture capital firm that's focused on responsible innovation and population health. So it's a way to come out of the entrepreneurial closet, if you will."

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