Cleveland Clinic Innovations has reached a deal to help a Maryland health system develop and commercialize medical inventions by the health system’s clinicians.
Officials told the Washington Post that the Clinic’s deal with Columbia, Maryland-based MedStar Health is the first of its kind between two major U.S. health systems. MedStar, which operates Washington Hospital Center and Georgetown University Hospital in Washington, D.C., has nine hospitals and 27,000 employees. It’s the largest health system in the Maryland-Washington, D.C., area.
The agreement calls for the Clinic’s Innovations group to do for MedStar what it already does in Cleveland — help doctors turn ideas for medical advancements, typically medical devices, into products that bring money back to the hospital.The Clinic plans to hire two or three staffers in the Maryland area to work with the MedStar staff.
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Finding new ways of generating revenues is becoming increasingly important to hospitals, which have been hit with higher levels of uncompensated care and fewer elective procedures during the economic downturn of the last few years. It’s particularly important for the Clinic because the health system generates about 93 percent of its revenues in the state of Ohio, which has been losing population and struggling to create jobs in recent years. As a consequence, the Clinic has been aggressively pursuing cash-generating opportunities that aren’t connected to filling hospital beds in Ohio.
Spinoff companies can be lucrative to hospitals in the form of technology licensing royalties to established companies and the sale of shares in the spinoffs. Chris Coburn, director of the Innovations group, said that licensing fees generate about $10 million per year for the Clinic — a pittance compared to the hospital’s roughly $5 billion in annual revenues — but that licensing fee revenues are rising rapidly, the Post reported.
In the MedStar deal, the Clinic will receive an undisclosed “service fee” from the Maryland health system, the Plain Dealer reported. The Clinic is also likely to receive a cut of any licensing revenues created by MedStar spinoffs, as well as shares in those companies.
It’s virtually certain that the Clinic will look to the MedStar deal as a model and seek out similar arrangements with other health systems. Coburn was circumspect when asked about the possibility by the Plain Dealer: “I can’t answer that question,” he said. “Stay tuned.”
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From MedStar’s perspective, it was cheaper and more efficient to buy the Clinic’s expertise in commercializing medical technologies than build its own “Innovations” group. Coburn and crew no doubt hope plenty of other health systems across the country reach that same conclusion.
In addition to the possibility that the MedStar deal could lead to similar arrangements, the deal gives the Clinic a foothold in the backyard of one of its major competitors — Johns Hopkins Medicine. For the last 20 years, Hopkins has topped the much-cited rankings of America’s best hospitals by U.S. News and World Report. The Clinic was ranked No. 4 last year.
The Innovations group, which started in 2000, recently scored its biggest win with the $78 million sale of spinoff neuromodulation company Intelect Medical to Boston Scientific. It was the third exit for a Cleveland Clinic Innovations company. The group has licensed more than 250 technologies and started 35 new companies to market products.
