Medical Examiner

Dr. Venture Capital

Insurance companies are supposed to cover high-quality care for patients. What happens when they dabble in investing?

A first aid kit on which the cross is formed by intersecting dollar bills
Illustration by Natalie Matthews-Ramo

This fall, Headspace—the trendy mediation app—joined with Ginger in one of the first megamergers in the digital health space. For Ginger, the merger was a long time coming. Over the course of a decade, it went from an MIT Media Lab mobile app designed to track user behaviors to a sleek virtual platform for mental health care with unicorn status (a valuation of over $1 billion). Under their new corporate banner, Headspace Health, the combined value of both companies rose to more than $3 billion.

Advertisement

Like many unicorn startups, Ginger’s road to success was paved with investments from traditional venture capital icons on Silicon Valley’s vaunted Sand Hill Road. Its Series B funding, for example, included Khosla Ventures, which has previously backed companies like DoorDash and Impossible Foods (most famous for the Impossible Burger).

Advertisement
Advertisement
Advertisement

Ginger also earned investments from Cigna Ventures and Kaiser Permanente Ventures, the namesake venture capital arms of two health insurance giants. In venture capital, investors are expected to bring more than money to the table. Cigna and Kaiser Permanente undoubtedly brought industry expertise and a Rolodex that likely helped Ginger market itself to large employers as a corporate benefit to their employees.

But Cigna in particular brought something else. Something that made us, a pair of physicians, question the financial relationships at play here: The insurance companies provided Ginger with access to millions of potential users. After its financial investments in Ginger, Cigna began offering no-cost access to Ginger’s behavioral health services alongside its other mental health offerings in order to improve customers’ overall health and well-being, according to leadership. Yes, it is possible that those customers will benefit from the platform. But given that Ginger’s valuation grew in multiples around the same time—at least in part because of the massive influx of customers from Cigna—it’s reasonable to suggest that the insurance company was double dipping. By sending its customers to Ginger, Cigna was also boosting the platform’s user numbers and maximizing its return on investment. It certainly bears the appearance of a conflict of interest, with the potential to influence the quality of care for patients. Seeing this play out, we began to ask ourselves: Is it ethical for health insurance companies to be investing in health care startups—and if it’s going to keep happening, what guardrails should be put in place?

Advertisement
Advertisement
Advertisement

These conflicts of interest are worth thinking about, as venture is no longer solely the domain of entrepreneurs and futurists in Silicon Valley. Instead, much of the growth in venture funding—reaching $621 billion in 2021—has been fueled by nontraditional actors, like universities diversifying their endowment portfolios. (Full disclosure: One of us, Vishal Khetpal, advises as a venture scout for a firm called Necessary Ventures.) In health care, these nontraditional actors have included health insurance companies like Cigna and large hospital systems like the Mayo Clinic. Many of these funds were created in the early 2000s as parts of strategic initiatives to develop or acquire breakthrough technologies. In recent years, however, these funds have grown both in size and scope. In one analysis, researchers found that hospital-affiliated venture capital firms invested $2.1 billion in 105 companies over the past decade. No formal study of the venture arms of health insurance companies has been published, but using data from PitchBook (a private market database) we found that six of the largest health insurers with venture arms (Kaiser Permanente, Cigna, HCSC, UnitedHealth, Blue Cross Blue Shield, and CVS/Aetna) have invested in at least 201 companies to date. Together, their portfolios include startup patient payment platforms, specialized heart imaging software, and plant-based nutritional shakes. These investments have accelerated innovation in an industry ripe for change. But this particular collision of health services and products and profit can quickly become sticky.

Advertisement
Advertisement
Advertisement
Advertisement

To illustrate this, here’s a hypothetical scenario. Let’s suppose you’re a patient and your doctor recognizes an abnormal rhythm when listening to your heart. You both discuss exploring this issue further with heart monitoring. Your insurance company, however, only covers one type of heart monitor, and it happens to be made by a company that the insurance company’s venture arm has invested a lot of money in. Maybe it’s not the best heart monitor for you—and, too bad, it’s your only option. But even if the heart monitor works perfectly fine, this setup creates the perception of self-enrichment on the part of the insurance company. This is a practice that has been considered unethical, and even illegal, in medicine. Physicians, for example, are heavily regulated in their financial interests by Stark Law, two pieces of legislation passed in the early 1990s. Stark Law effectively bans doctors from referring Medicaid and Medicare patients to services in which they have a financial conflict of interest. For example, an orthopedic surgeon can’t refer a Medicare patient they just performed an operation on to a physical therapy company that she herself owns. The Stark Law has exceptions—it is perfectly legitimate, for example, for a doctor to own public stocks in a drug company that makes medications they prescribe to patients—but by and large, the law is designed to stamp out kickbacks. Hospitals, though not their venture capital funds necessarily, are similarly covered through the anti-kickback statute. No similar laws or regulations, however, currently exist for health insurance companies.

Advertisement
Advertisement
Advertisement

This open legal terrain has already led to ethical issues. In 2019, an investigation published on Healthcare Dive by reporter Andrew Dunn described the case of Gauss Surgical. The California-based startup had designed a new software platform to visually estimate blood loss in surgical procedures. It was financially backed by Providence St. Joseph Health, along with 10 other hospital systems. When one of the health system’s hospitals mandated the use of the software in their operating rooms, physicians questioned the product’s utility and how much it would actually help patients. “We suspect that use has been mandated by the health system due to investments made by the Providence Venture Capital Fund,” 10 physicians wrote in a letter to the hospital’s chief medical officer, “and the insistence that they be used has more to do with ensuring a return on investments than with improving patient care.”

Advertisement
Advertisement
Advertisement

In the cases of both Ginger and Gauss Surgical, it’s difficult to tell as outsiders how venture investments are influencing their clinical use among patients. It’s possible in any given instance that an insurance company could be offering a truly useful tool to their customers that it just so happens to have a financial stake in. But as these kinds of investments continue to grow in number and size, their potential to adversely affect patients looms large. For example, what if a venture-backed product was harmful or did not meet the standard of care? What if insurance companies, say, required their members to use an A.I.-powered symptom checker they’ve invested in as a screening tool before going to an emergency department? American health care is already afflicted by a power imbalance that favors health insurance companies and health systems over patients. Most patients have very limited options for buying affordable health insurance or are assigned plans by their employer, while most plans control care and costs through levers like tiered drug formularies and prior authorizations. Large hospital systems, meanwhile, increasingly exist as local monopolies. Venture investments may further exacerbate that imbalance, and patients have few means to advocate for themselves in these situations. Hospitals could compel physicians and patients to use vendors where they themselves have a financial conflict of interest, while health insurance companies could use venture-backed products to gatekeep care. When insurers and health systems corporations like Cigna and Providence St. Joseph Health choose to wear multiple hats—operating as payers, providers, and now investors—their motivations become murky.

Advertisement
Advertisement
Advertisement

We don’t think that health insurance companies and hospitals should be excluded from venture investing. To startups, both offer resources that often can’t be matched by traditional venture capital firms, which lack real-world experience in delivering health services. Hospitals and health insurance companies, with their expertise, can help startups like Ginger focus their service lines toward core patient needs, anticipate industry trends, and realize their potential. But unlike traditional firms, which operate solely in their own financial interests, these entities also have responsibilities to their patients.

Advertisement

Legislators can look to how conflicts of interests are handled for physicians, who treat patients but may have other income streams as well. The Sunshine Act mandates that data from drug and medical device makers track all compensation over $10 that it offers to physicians, which is then published in a public database by the federal government. Legislation like the Stark Law and the anti-kickback statute should be applied to health insurance companies, while more specific regulations around corporate venture investing, enforced by organizations like the Federal Trade Commission, are needed for both health systems and health insurers. Similar to what is mandated by the Sunshine Act for doctors, a central database, searchable by the public,  that details their investment activity should be created. And finally, patients should be made aware of the potential conflicts of interest lurking behind products offered to them or applied to their care in the exam room. When offered a service venture-backed by a hospital or a health insurance company they’re using, patients should also be offered a competitive alternative without a financial conflict of interest.

As health care innovation continues to rapidly evolve, health insurers and health systems are poised to help companies like Ginger reach their potential through venture investing. However, guardrails and transparency laws are urgently needed to ensure that patients receive high-quality care, not high-profit care.

Update, March 3rd 2022: This piece has been updated to make clear that Cigna offers access to other mental health services, alongside Ginger.

Advertisement