In this interview we continue our talk with Henrik Matthies, Managing Director of Health Innovation Hub (HIH), about the digitalization of the Germany’s healthcare system. hih is a Federal Government agency designed to support the digital transformation of the German healthcare system.
In the first part of the talk we discussed the Digital Health Act and the ‘Fast Track’ application procedure for the digital health startups. In this article, Henrik unveils the big shift in venture investment possibilities for German public health insurances that was not widely discussed before in media.
– Henrik, I would like to ask you to explain the part of the Digital Health Act that refers to the new possibilities for VC investments in healthcare.
For the first time ever, parts of the social security system of Germany can invest some of their reserves into venture capital. Until now, no public pension fund, no public insurance or unemployment fund in Germany was ever allowed to invest their reserves in anything else but government bonds.
From now on, up to 2 percent of the financial reserve of a statutory health insurance fund can be invested via venture capital funds under some specific requirements into digital health solutions. Look at it from the health insurances’ perspective: they used to be managing reimbursements but now they are becoming an active player in shaping how the healthcare system of our future should look like because they can specifically invest into the solutions the German healthcare system is missing today.
– This is really big!
Yes! Investments are limited to 2 percent of the funds reserves and they cannot invest the money directly into startups, only via VCs –due to the fact that health insurance funds have so far no experience of and insights about venture capital markets. But thanks to the DVG, they may mandate now someone to invest the money on their behalf who is dealing with venture investments professionally.
Luckily, we found out that EIT, European Institute of Technology, together with the European Investment Fund (EIF), have set up the so-called Venture Center of Excellence (VCoE). VCoE works as a structured, EU-wide ecosystem builder allowing any institution in Europe from the healthcare sector to invest into startups. And VCoE tackles a lot of the challenges statutory health insurance funds would face otherwise while complying to the DVG requirements.
How does VCoE work? Organizations such as health insurance funds invest an entry ticket of 5 million euros. Up to 30 companies or institutions can become member of VCoE – in total, there will be up to 150 million euros distributed over 10 to 15 venture capital funds preselected by the EIF. The preselected VCs have to comply with all the criteria that the EIF has in place. The selected VCs receive the entry ticket money, 150 million euros, matched by the European Commission – so a total of maximum 300 million euros distributed over those 10 to 15 VCs.
On top of that, each of the VCoE members will be defining their investment strategy. As soon as a VC has scouted and found a startup that would fit one of the investment strategies, he returns e.g. to the health insurance, saying: “You wanted to invest into AI for cancer research? We have just found a startup that fits perfectly in your investment strategy. Do you want to co-invest with us?”
Thus, the professional VC is leading the investment, they know how to build companies, and they are co-investing with the player who possesses a special knowledge, like health insurances who have the best knowledge of market access in the German healthcare system.
– Are only German startups eligible for this investment?
No. Statutory health insurance funds may choose the best solution within companies from the European union.
– When do you expect this to actually happen?
The VCoE is being launched on October 5th 2020. Of course, the health insurance funds need some time to set up their systems and sort out the regulatory stuff. But I expect that in early 2021 we will see the first health insurance funds joining VCoE and probably also the first co-investments from German health insurance funds into European digital health startups.
– Germany has been perceived as an outdated country in terms of digital component in healthcare. How come it is now leading the digital transformation in Europe?
Well, we are not leading it yet, especially in such areas like electronic health record, for example, that countries like Finland or Estonia have implemented 5 to 10 years ago. Germany will not be able to catch up so quickly. But what is happening in Germany is a combination of factors, mainly driven by the current Minister of Health, Jens Spahn, who is absolutely convinced that if we don’t take action now, we will lose autonomy over our healthcare system including access and use of our own health data to big tech players and corporations.
Jens Spahn is a strong leader and decision maker going into a lot of conflicts to fight for the digitisation of the entire system. Because of his drive, a lot of decision makers from the various healthcare stakeholder groups are finally realizing they have to think themselves about the healthcare system we want to live in in 5-10 years. Before Jens Spahn was in charge, they were merely discussing ‘if’ we should have digisation or not. Now this discussion completely turned towards ‘how‘ digitsation should be performed.
Of course, we have some stakeholder groups who try to keep the status quo. But there are more and more stakeholders who fully understand that we cannot continue to work in the same way forever because results are simply not good. I mean, we have tens of thousands of people dying every year because of wrong medication, wrong diagnosis or therapy because health data couldn’t be found in the right place at the right time.
Hence, we need to to adapt and as hih we are there to to support, to be a neutral sparring partner, not only for the Ministry of Health, but for any national stakeholder. Since we are neutral, we are not hunting for consulting fees or lobbying pharma interest. At hih we are able to support all the stakeholders by helping and empowering them to become an active part of shaping this new healthcare system.