The Innovation Institute, a for-profit company owned by six not-for-profit health systems, has entered into a co-development agreement with robotic process automation company Olive.

The partnership, announced Tuesday, is run through the Innovation Institute's healthcare incubator subsidiary, called the Innovation Lab.

The Innovation Lab will work with Olive to co-develop and commercialize new products using Olive's existing automation toolset, drawing on problems identified by clinicians, back-office staff and other employees who work at the health systems in the Innovation Institute's network. The Innovation Lab will also support pilots of the new products at the health systems.

The Innovation Institute, launched in 2013, counts six not-for-profit health systems as equity investors: Bon Secours Mercy Health in Cincinnati; Children's Health Orange (Calif.) County; Franciscan Missionaries of Our Lady Health System in Baton Rouge, La.; Avera Health in Sioux Falls, S.D.; Valley Children's Healthcare in Madera, Calif.; and MultiCare in Tacoma, Wash.

It also has one affiliate health system, Renton, Wash.-based Providence, that pays an annual subscription fee to be part of the Innovation Lab.

The Innovation Lab's partnership with Olive grew out of conversations with healthcare workers who shared ideas that would need automation and artificial intelligence technology to develop, according to Ryan Kelly, general manager at the Innovation Lab.

"We were sourcing a lot of areas and opportunities that would really benefit from an AI platform," Kelly said. "As opposed to us building our own we started looking for a partner."

The partner they chose, Olive, develops tools that automate or support various payer and provider workflows, such checking claims status and streamlining prior authorization. The Innovation Institute started investing in Olive a few years ago through the company's healthcare fund, a venture fund that invests in early growth-stage startups through venture-capital firm LRVHealth.

The Innovation Lab will bring its "clinical and operational know-how" to the co-development process, while Olive will bring the "muscle" to build the technology, Kelly said.

A co-development partnership "certainly saves hospitals from having to build their own automation capabilities," said Mark Snyder, director of people and productivity at consulting firm West Monroe. But "automation tools are very much tied to a hospital's unique processes," so often require some customization.

Automation encompasses a range of capabilities, from technologies that handle specific tasks to full-blown AI that crunches data to help make decisions.

A common type of automation technology used in healthcare is robotic process automation, which typically involves using bots to plug data from one system into another without human intervention.

Such bots take on the "rote, repeatable" transactions that "don't require critical thinking," Snyder said, and are often used for tasks like claims management.

AI takes on more complex tasks, since the technology is able to work with unstructured data and draw out insights from patterns.

Unlike RPA, which tends to center on back-office functions, AI use cases "typically can go further and deeper into the front-end interaction with the member or the patient," said Dion Sheidy, a healthcare advisory leader at consulting firm KPMG, such as through informing care delivery and improving patient experience.

Healthcare AI companies raised a record $2.5 billion in funding in 2021's first quarter, according to data compiled by CB Insights, with startups that tackle back-office automation attracting major investments. Infinitus Systems, a company that uses AI to automate phone calls for clinicians, raised $21.4 million in the quarter; revenue-cycle management startup Akasa raised $60 million.

Olive, which was founded in 2012, last week announced it had reached a $4 billion valuation after raising $400 million in its latest funding round.

The Innovation Lab and Olive likely will share ownership of the products they develop, although ownership may vary depending on the product and how much development is needed.

The companies will sell co-developed tools to Olive's customer base and promote the tools to the Innovation Lab's members. The Innovation Lab and Olive will share revenue from co-developed tools that are brought to market; the Innovation Lab will also share a portion of its commercialization revenue with the health system that surfaced the idea.

The Innovation Lab's model typically involves sharing 40% of commercialization revenue with the person who created the initial idea and 20% with that innovator's health system.

The Innovation Institute's equity investorsthe six health systemsalso receive a share of the company's profitswhich include revenue from the Innovation Lab, the company's venture fund and its portfolio companiesbased on their level of investment.

The minimum investment required to be member owner of the Innovation Institute is $10 million, according to the company's website.

The Innovation Lab and Olive so far are evaluating a half dozen ideas for possible co-developed products. One of the first projects they're considering is whether Olive can help to scale and add automation to a platform for case managers already launched through the Innovation Lab, called Koazie.

"That's one of the things that we're evaluating," Kelly said. "With any partnership like this, we're really striving for that first 'win' that we can build from and use as a cornerstone for the partnership."

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Innovation Institute incubator to co-develop automation tools with Olive - Modern Healthcare