Q&A: Ellen Herlacher on LRVHealth’s Approach to Strategic Investing
Boston-based LRVHealth is a venture capital firm that includes health systems and health plans as investment partners. For instance, the $200 million fund it announced in 2023 involves 30 health system and payer partners. Ellen Herlacher, who co-leads the firm’s research and investments in new care delivery, behavioral health, workforce transformation, and government-sponsored payers, recently spoke with Healthcare Innovation about the firm’s approach to those topics.
Before joining LRVHealth as principal in 2020, Herlacher was director of Tufts Health Ventures, the corporate development and corporate investment arm of Tufts Health Plan (now Point32 Health). Before joining Tufts, she held management roles at athenahealth and investment and consulting roles at Goldman Sachs and Bain & Co.
Herlacher led LRVHealth’s investments in Diana Health, a reimagined maternity care company, and Cortica, a physician-led, whole-child, value-based autism services company. She also supports the firm’s investments in Reimagine Care, DotCom Therapy, Greater Good Health, and Season.
HCI: We've seen a lot of startups in the mental health space over the last couple of years. When you look for companies in behavioral health, are there certain examples of successful approaches vs. ineffective ones?
Herlacher: I think that we have learned a lot. There is definitely an argument to be made that behavioral health has been overcapitalized. There is also an argument to be made that we're not really getting healthier. The problems that the capital was intended to address are still very persistent, so there's still a lot of work to be done. If I had to characterize the first chapter of behavioral health investment, it was really around thinking about how you can use digital health to expand access. There was a real problem with supply and demand, and behavioral health is one of the best use cases for telehealth.
There's a lot of good that came out of that first chapter. I think the first thing is the elevation of behavioral health to something that is top of mind for investors and innovators and maybe wicking away at the stigma of behavioral health and mental health.
I think where things maybe went off the tracks was that a lot of these companies were focused not necessarily on addressing access by introducing new supply, but really around platforming supply that already existed and then selling that to payers. It ended up being a little bit like an Uber/Lyft economy, where you'd have a therapist who is working for one label and then another label, but at an aggregate level, there's no new supply. And by the way, who knows if those folks are even any good.
So it was looking at supply without much thought to whether or not this is high-quality therapy or if it's just volume. I think winners have emerged. Folks have consolidated. I think that folks who couldn't figure it out have started to wind down. We've made a couple of investments in the space already. We are narrowing our focus to a couple areas. The first is specialty pockets of behavioral health that didn't get addressed in that first generic wave — serious mental illness, schizophrenia, bipolar. We're also seeing some really successful startups developing businesses around clinical models that are designed to address very specific conditions that are hard to address and also very costly — things like eating disorders and the trauma and PTSD space. The last thing I’ll mention is companies that are doing a good job of bridging the divide between behavioral and medical. We already made an investment in that space last year with a company called Cortica that is essentially like a single shingle for children with autism, and they combine both the behavioral and medical services that children with autism typically need.
HCI: With the government-sponsored payers, are you looking at digital health companies that are able to form meaningful partnerships with Medicaid managed care organizations (MCOs) around whole-person care or does it involve something else?
Herlacher: When it comes to Medicaid MCOs, we think something like a whole-person care approach could actually hit both the MLR [medical loss ratio] and the quality side of the house. On the MLR side, it looks different than Medicare Advantage. With Medicare Advantage, you're talking about having MLR impact because you're focused on an older, more frail population, and if you can better manage chronic conditions, you can lower medical cost. I think when you're talking about a Medicaid book of business, the plurality is women and children, so you’re talking about supporting better utilization patterns — lowering ED usage, engaging more in primary and preventative care. There are real quality components to that too, because, these Medicaid MCOs live and die by their quality scores. They have this whole population of people that have no engagement with primary care. It is about increasing annual wellness uptake, increasing immunization rates, hitting certain metrics around six-week follow-up appointments postpartum, things like that.
HCI: LRVHealth invested in a company called Diana Health that is described as reimagining maternity care. So is that introducing new processes to change how care is delivered in that space?
Herlacher: I think it's a great example of whole-person care. If you had to point to the innovation with Diana, it's around elevating the midwife. A midwife is a third of the cost of an OB, so to the extent that you can get a midwife really practicing at the top of her license, a lot of the services that are offered in a more traditional OB/GYN setting can be fulfilled by a midwife. So part of it is a labor optimization play, but beyond that, there's a depth of evidence that shows that a midwife is actually a superior clinical partner for the maternity episode. We can point to evidence that Diana lowers C-section rates, lowers episiotomy rates, raises breastfeeding rates.
There is a clinical argument to be made for elevating the midwife, but we are also starting to think about to what extent can you continue to drive efficiencies and access to this model through the thoughtful utilization of remote patient monitoring and telemedicine. Diana got its start in Tennessee, where there's a real problem with access. There are hospitals that are closing down. A good amount of the population lives in rural environments. So to what extent can you open up access to the Diana model for folks who might live an hour away from the closest clinic by doing nine out of the 13 appointments over telemedicine?
HCI: Are there some challenges for new companies trying to focus on partnering with provider organizations on value-based care models?
Herlacher: Is your question about partnering with incumbent providers or is it more of a question about the challenges of innovating with an eye toward value-based care?
HCI: I think it’s the latter. It doesn't have to be about partnering with the incumbents.
Herlacher: First, think about what has already taken place in value-based care. The advanced primary care models like Oak Street or ChenMed are essentially in a global capitation reimbursement construct already. So if you think that primary care is still going to own the premium dollar in the long run, then how do you think about some of these other models that are either trying to manage an episode on the basis of value or specialty- specific? How do you think about slicing and dicing that premium dollar? How do you think about stratifying the population?
We've looked at a lot of companies that are trying to contract with payers on the basis of case rate contracts or PMPM contracts, which makes a lot of sense for the right conditions or episodes. Now the challenge that we're seeing is there's a good amount of contracting fatigue at payers. I'm looking at a company right now that has an incredibly elegant clinical model and has a hard ROI around that clinical model. But the folks working in contracting are like, “get in line.” The other challenge I see is around the administrative burden associated with negotiating and administering these value-based care contracts.
HCI: I get at least 50 press releases a day from companies touting the use of AI to transform something. How do you and how do the health system and payer execs you work with separate out what might really be a significant innovation from just hype and marketing, where people feel compelled to add an AI label to whatever it is that they're doing?
Herlacher: That’s a really good question. We have a whole team, led by Keith [Keith Figlioli, LRVHealth’s managing partner] that is devoted to developing and maturing our perspective on AI and AI applications and use cases for healthcare. The good thing is that we have a fairly aligned perspective with our investors and with healthcare buyers, which is that it's always going to start with a use case. We probably have a pretty allergic reaction to the notion of solutions looking for problems. We think about the biggest problems that we are motivated to solve in healthcare, and what could AI do to help solve that. Having said that, we have a near to medium and a longer term view of where we think some of the most exciting use cases are. Today, I think some of the things that we're looking at are things that look like administrative or back office type of support roles. So we are looking at call center support, prior auth, things like that. Over time, where we would love to leapfrog our peers is around clinical decision support — to what extent could you actually combine AI and clinical expertise to drive more efficient and precise clinical decisions at the point of care.
HCI: Does having so many large health systems and health plans as partners provide good feedback to help guide your decision-making?
Herlacher: One of the things that's been really important to both me and to the firm is the continued attachment to both the care delivery and care administration ecosystem. When you're in a venture capital seat, there is a temptation to run so hard at things like AI, run so hard at things that look innovative, that you forget that you're really supporting folks who are still doing the hard work of healthcare administration. It is exciting to think about disruptive technologies, but it's been very important to us to stay grounded and work closely on a daily basis with the folks who are physicians, who are clinical leads or who are leading health plans.
