The Big Unlock podcast- episode 17

Episode #17: With Mike McSherry, Chief Executive Officer, Xealth
“Digital health solutions should be ‘doctor prescribed’”


In this episode, Mike McSherry discusses how Xealth is helping hospital systems deploy digital health solutions at scale and making the solutions easily consumable for patients and caregivers.

Clinicians need a “digital formulary” that they can easily prescribe to patients. However, there are significant challenges in onboarding, integrating, and implementing digital health solutions at scale. Xealth attempts to address these challenges through a cloud-based “plug-in” that operates within EHR systems. Xealth, which was incubated within Providence St. Joseph and spun out recently, just completed a $14 million funding round with strategic investors such as Cleveland Clinic to help develop the platform and drive growth.

Digital health startups often struggle to gain traction, partly due to the lack of a reimbursement model. Mike, a successful serial entrepreneur, advises digital health startup founders to pay attention to who is paying for the solutions and work closely with providers to help build scalable solutions of the future.

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Welcome to the big unlock where we discuss data analytics and emerging technologies in healthcare. Here are some of the most innovative thinkers in healthcare information technology talk about the digital transformation of healthcare and how they are driving change in their organizations. 

Paddy: Hello again everyone and welcome back to my podcast. This is Paddy and it is my great privilege and honor to have as my special guest today, Mike McSherry CEO of Xealth. Mike welcome to the show. 

Mike:Thank you Paddy. Thanks for having me. 

Paddy: You’re most welcome. So, Mike tell us a little bit about Xealth and the Xealth platform and what needed addresses in the marketplace. 

Mike:Sure. So,Xealth allows clinicians to easily prescribe digital health to patients, then for patients to consume, engage with the program or service or device that has been recommended to them and then bring the patient’s utilization compliance with that program or service back into the clinical workflow for the physician to monitor the patient’s engagement with that solution for improvement in care. And to date what we’ve seen in the market is clinicians typically have three options for a patient, take this med, go do labs and imaging or go see a specialist. And we believe there is a fourth category of the range of digitally facilitated services that span from transportation, to devices, to educational prep and recovery, to apps and programs managing a chronic care disease state. And we aggregate and easily allow clinicians to use this as care treatment offerings for their patients. 

Paddy: That’s great. Thank you for the background. So, Xealth came out of Providence St. Joseph and your initial investor was also Providence Ventures right. And,first of all I must congratulate you on your recent round of funding and we’ll talk about that in a minute. It seems to me that you have chosen not to raise money from your typical Silicon Valley VC but you’ve stayed with strategic investors who are also in many cases your customers such as Froedtert Health and the Cleveland Clinic. I’m sure that many brand name VCs would love to invest in your company, but can you talk why you chose to go the route of strategic investors and not your VC community. 

Mike: Ya sure. So, we were incubated inside of Providence. Providence out here in Seattle hired me and there were four of us as entrepreneur in residence. So, you can almost think of that as, we come up with an idea and spin it out and there would be investors if it were a clever enough idea, validated and be deployed and utilized within Providence system. So Xealth is actually my sixth startup I’ve co-founded over last 20 years and every single one of them has been a joint venture or the first money that’s been strategic. So, I have a propensity for working with strategic investors as they help with customer validation and reference ability. And along with their cash also comes the credibility that they bestow. We’re thrilled to have Providence St. Joseph participate in our funding. We were actually incubated inside of Providence going about back about three years ago. They invited myself and three of my coworkers in as entrepreneur in residencies. We’ve done a number of large tech startups and Providence thought that bringing some new energy and creativity in healthcare could potentially be valuable. So Xealth is actually my sixth startup that I’ve co-founded. And every single one of them has involved strategic investors as either JV partners from day one or the first investors into the companies I created. So, I’ve got a propensity for working with strategic investors. And you can see it come along to see what innovations Providence was working on. We had incubated this Xealth idea and launched a prototype inside Providence. So, when UPMC saw what we were doing, they said boy if you can show that working in our Epic environment, this is exactly the type of company we’d want to invest in and utilize. So, we proved to them how scalable Xealth’s deployment could be within their Epic environment. And that led to us spinning Xealth out of Providence and we did get a Silicon Valley VC, DFJ to lead the round. But then also I got my first four Epic customers to also invest in Xealth. And that’s Providence, UPMC, Freodtert and Hennepin. And then more recently we closed an additional round of funding with a number of key strategic partners, McKesson, Novartis, Philips, and Resmed investing. And they represent different channel opportunities and business partnerships for things that Xealth can prescribe. And we also brought in several new provider investors. That being Cleveland Clinic, Atrium and Memorial care. So, we think that helps to validate what we’re doing as a platform level opportunity within healthcare and bringing all these large, highly credible industry players in as reference customers and channel partners solidifies that opportunity for us. 

Paddy: Right. And briefly what is the recent round that you closed? Can you tell us what the numbers were?

Mike: Yeah sure its 14 million dollars. And so, we’re thrilled with that to give us the next runway for growing Xealth deeper into other provider systems and bridging into more different digital pathways and therapeutics and devices that we prescribe and monitor for our providers. 

Paddy: OK.So, Mike let’s talk a little bit about how the platform actually works because that’s I think of great interest. You have an interesting new model. So, let me start with this. How do you actually recruit digital health startups for your platform? Do you curate them on behalf of your customers, or do you just sign up anyone who meets a certain minimum qualification? What kind of assurances do you actually provide to your clients like all the health systems about the startups that are actually on your platform?

Mike: Yeah. Great question. So, we often say that we’re managing the digital health formulary for the hospital system. So, we don’t choose the vendors, the hospital system does. And the hospital system as BAAs with these downstream vendors, their governance, their use of PHI information. We only integrate vendors that provider customers deem relevant for their patient care. And we easily embed them into the prescribing workflow and through to the patient portal engagement and then round tripping to the compliance and utilization and dashboard view of that engagement with that downstream vendor. So, we’ve launched over 30 different vendors with our provider customers. And again, these are only supporting what clinicians believe are relevant for their patient care. Now we are capturing a lot of aggregate data on engagement, measurement, ultimately outcome level effects of these digital solutions against patient compliance and disease management. And we do believe that we’re going to have a pretty powerful benchmark of what digital therapeutics work best against what patient populations and segmentation. And it’s hard to imagine that in digital therapeutics there’s going to be a onesizefitsall. You’re going to find age, gender, ethnicity, language preference, all playing a role as to what program or service represents the best patient care in chronic care management. 

Paddy: Right.So, Mike you mentioned digital health formulary and we’ve seen a couple of other companies getting into that game. More specifically Express Scripts that also launched a digital formulary which is targeted at health plans and they’re also curating the digital health startups and they’re making recommendations about the startups. Now, all digital health startups have a fundamental challenge with the payment model. Because unless, we are in a predominantly fee-for-service environment and getting reimbursed for a digital health solution is a challenge. When I look at a platform like Xealth or any other platform. It potentially increases the costs for a health system that is contracting with a digital health company. And how do you make the business case for a platform like this. 

Mike: Sure. So, our customers are the hospital systems. And again, we only integrate the vendors that they deem relevant for their patient care. And that sometimes managing disease state. Sometimes its goals are to build brand awareness, loyalty, patient education. You know think against maternity care information, highly engaged patient population and sometimes it’s to reduce the metrics that are relevant for a hospital system. So, we’re doing a lot of surgical pathways and a lot of that is to prevent re-admits in patient’s satisfaction against high volume ortho procedures or again to reduce the readmit penalties. And we’re doing Lyft rides against Medicaid surgery patients because it’s cheaper to pay a $20 Lyft ride than risk losing a ten thousand dollar booking slot. So, the range of different digital solutions we can incorporate span the different business model needs of a provider system. But we’re a cloud plugin to their EHR. And then you reference Express Scripts. So, think of us as a Surescripts for digital health. And it’s not always necessary for us to know that the hospital system is paying for the solutions. As a cloud plugin we can also marry up to prior off digital health. So yeah regarding the digital health formulary we saw that news too about Express Scripts and CVS Caremark also announced a comparable level of functionality, but our customers are the providers and we incorporated the digital solutions they deem relevant for their patient care. And that spans a pretty broad range against their needs. In maternity care it’s often for lifetime value for an expectant mother and in converting the family into that provider system. Sometimes it is to prevent readmits and the penalties that can get imposed against surgical operations. We’re doing Lyft rides for Medicaid patients. It’s cheaper to pay a $20 Lyft ride than risk losing a ten thousand dollar OR booking slot because of a no show on a potential surgical operation. So, the range of things that we can embed span the needs of a provider system and what they’re trying to do with their patient base and patient goals and satisfaction. But we’re also a cloud plugin to the EMR. So, think of us as Surescripts for a digital health, managing the formulary for a hospital system. We are also prescribing weight watchers in Omada and where we sit at a clinical decision support is against an elevated BMI and the patient’s not pregnant, anorexic, and bulimic. You would never prescribe one of those solutions if those conditions were also present. But we’re also marrying it up to the payer eligibility and looking at, is there a payer coverage for this asset therefore it’s a recommended solution for the patient in front of that clinician. So, I think that will increasingly do more and more prior off on digital health solutions. And we have a couple of provider deployments where they’ve got ACOs and joint venture with payers that are paying for the Xealth deployment to increasingly put their solutions in the clinical workflow to be prescribed out to their member base. We’re also prescribing Amazon products and soon you’ll see a stair stepping into McKesson who is invested in us, whereby its OTC consumer paid. So, it’s just easing the clinical efficiency of what they recommend to patients, it is easing the patient adherence and receipt of those products. So, what we prescribe to patient’sVRsolution spans from provider paid to payer paid to consumer paid. And it just depends on the use case and what that provider organization is trying to do with their patients for easing and aiding their care delivery. 

Paddy:And so,the business case for licensing your platform for the provider is that they get improved efficiency and some economies of scale. And that is the payback for the investment that they’re making on the platform. Is that how you position it?

Mike: Yeah exactly. Once you plug this health infrastructure to provider ecosystem think of us as a power strip and all digital vendors get plugged on top of us downstream from that. So, we are typically integrating vendors in 1 to 10 percent the level of effort at what was traditionally required to hardcore these vendors into Epic and Cerner workflows at a core EMR level. We’re doing all of that in a modern API based in a cloud infrastructure. And so, ease of technical deployment I.S. integration, ease of clinical workflow and efficiency in giving more toolbox offerings to clinicians to get the patients to do the aid and disease management, care recovery tools that are beneficial in-patient care. We increase patient engagement and provide aggregate analytics of that utilization of these services and we also would do remote patient monitoring and compliance against these. So, we’re monitoring Phillips and Resmed CPAP devices. We’re doing Glucometers, we are soon stair stepping into EKG monitoring. So, the more that you can remotely monitor a patient’s engagement against a where they are at week twelve of the weight loss program. How are they doing with their glucometer readings, are they utilizing their CPAP in an effective and frequent enough manner that’s beneficial for patient care. So, with that remote monitoring and increased patient engagement, it also allows the providers to stair step into a deeper risk arrangement whereby they now have more engagement and risk management of patient populations that they did not have previously. 

Paddy: So that’s good. So, there’s a population health management aspect to it as well. Because you’ve got all the data on the usage of the platform, utilization levels, engagement levels and so you can identify care gaps and intervene appropriately and so on. So that’s an interesting aspect. So, let me switch to a different question here. There is a lot of digital health platforms out there and there’s billions and billions being invested and at the same time the success rates have been relatively low and a lot of digital health companies more recently they are just publicly going out of business. Some of them are going out of business not so publicly but you know there is a challenge. A lot of these companies don’t seem to be reaching critical mass in some way. So how do you keep score in terms of where Xealth is and what are the metrics that tell you whether your sustainability as a business is going in the right direction. How do you really track that?

Mike: Yes. So, we believe that we facilitate the increased adoption of digital health and provider care. So, because of that complexity of integration to EMR workflows, a lot of hospital systems just never adopted digital health or digital care solutions. So, we increased the utilization and engagement numbers of these solutions for providers. Where our metrics are obviously deal cycles. How many large provider systems have signed up with Xealth. And we’re either live or in contract negotiations with seven of the top ten ITians in the country. So that’s one metric that they’re engaging towards our success. But we also importantly track the number of prescribed or monitor activities that provider system is doing for their patient population. Is it growing, is it providing increasing value, are we showing demonstrable engagement and ultimately outcome metrics of what digital therapeutic or digital pathway solutions and what problems they’re meant to resolve? And so, when I go back to our strategic investors, they’re also investing in the point solutions. And we’ve kind of come up with some phrase that’s stronger together because there are several point solutions that we’ve integrated to Xealth that are being launched at multiple providers systems. So, we vastly facilitate the deployment and utilization of all these digital therapeutics into the clinical workflows. So, as you referenced a lot of these companies are not quite showing sustained usage, sustained metrics in numbers. Most digital health solutions today have sold to the payers and employers, the capitated party, the one that truly carries the risk of that patient compliance and engagement. But I think they all like to be doctor recommended that’s the sweet spot of adoption and utilization and engagement numbers. And that’s what we helped to facilitate and I think that the engagement numbers that we’re showing, the vast uptick in utilization of being doctor prescribed or doctor recommended versus member marketed or employer engagement is vastly superior and that’s where you’re seeing the traction of the investment base against McKesson and Philips and Resmed and Novartis on what we’re doing. 

Paddy: Right. I think the doctor prescribed thing is so important. If we go back a few years, a lot of digital health companies thought that they couldn’t go directly to consumers. And started with B2C models and realized quickly that consumers do not trust applications that do not have a clinician’s approval. And so, they have all pivoted. And they have all gone to B2B going because they know that there’s no way to bypass the doctor and gain trust with the consumers. So, I think that is a really very important point. Which brings me to the question of the providers themselves. So, in our work and we do a lot of business transformation advisory work with health systems, develop digital strategies, and digital roadmaps. What we find is that a lot of health systems are signing up digital health solutions but there’s no sort of an enterprise wide strategy as such. And each solution is evaluated on its merit and maybe it’s a departmental initiative, maybe it is a functional initiative. Whatever the case may be, it’s a loosely aggregated set of digital health solutions that addresses a specific point solution. But there is no enterprise wide strategy necessarily at a platform level or even at the roadmap level. So, in that context that’s neither a cost effective nor scalable. In that context what does it take for the whole digital health ecosystem to realize critical mass. And what role do you see Xealth playing in that? Firstly, do you even agree with that assessment?

Mike: No. You know one of the challenges to digital health. A, even in the name of a digital health. I mean do you think in banking do they talk online banking strategy anymore. No, I think it’s just their strategy. And does Xealth talk about their e-commerce strategy. I think it’s just called their retailing strategy. So, the fact that we’re even calling it digital health shows how far behind we are. It should just be the provider systems strategy on patient care and engagement outcomes. And we have to get into conversations around what their digital transformation is and increasingly provider systems have hired Chief Digital Officers and Patient Experience Executives. And with that kind of understanding that there’s a problem there, Xealth fulfills a needed capability. Because if all you think is one vendor is going to solve a solution in my ophthalmology department and that’s the only sort of digital tool in my toolbox that I’m going to offer for the next year. You don’t need a platform play like Xealth that aggregates a range of different digital options into one clinical interface. If you have a strategy that shows that digital is a part of us engagement strategy against patient populations and there’s a whole toolbox of solutions that provide better patient care. Then a platform play like Xealth helps to aggregate and fulfill and execute that strategy for provider system. And again, as I just refer, we’re working with most the top ITians in the country now. They’re all showing that a platform level strategy of offering more convenient options for patients, more virtual options for patients, and meeting patients on the flexible type infrastructure that they live their consumer life in and bring some of that to a patient life is necessary to remain competitive. You have the threat of new entrants. You know what Amazon might do, Google might do, point solutions building infrastructure from the ground up. And with that threat and the need and observation that if they’re not morphing into more digitally driven engagement strategies, they’re going to become roadkill on the way that the market is moving around them. And so Xealth helps them execute and fulfill on a more platform level aggregation strategy of digital tools benefiting patient care. 

Paddy: Right. So, that’s actually a great segway to a question I was going to ask you about the big tech firms. And we know that all of the big tech firms Microsoft, Google, Amazon, Salesforce, Apple, everybody has a stated strategic interest in the digital transformation of healthcare and they’re all approaching it from their own points of view. Now one of the big challenges for most of these firms is that they have these big platforms and they don’t necessarily have the last mile solution, the point solutions which you’re aggregating under your platform, right under Xealth. So, in a sense they’re approaching the market as a cloud-based platform or whatever platform it is. And they really want to become kind of the de facto digital experience platform for the health systems that they work with. And the expectation is that all of the point solutions will sit on top of their platform, health clouds or whatever it is that they want to call. But your model on the other hand is the exact opposite. You start with the point solutions that health systems have already invested in and then aggregate them under your platform. There’s a fundamental difference in the approach to the market. So, I guess my question is what you see as the first of all the competitive threat you feel, if there is one, you feel with the big tech firms? And what do you think that’s going to look like if one of these big technology firms were to prevail and what would that mean for Xealth?

Mike:So, that’s actually the world that I come from as background. I used to work at Microsoft. I’ve co-founded several large tech and mobile companies, Boost Mobile, which is now Sprint nationwide prepaid service. I co-founded a company Swype which is a touchscreen keyboard that’s been put on almost two billion Android phones. So, I was very deep in the “big tech” world and then I jumped into healthcare, incubating Xealth within Providence. So, we are innovating from the inside out here on the observation that without integrating to clinical workflows you get nowhere. And we just described that you want to be doctor prescribed that’s the ultimate goal of all these digital therapeutics. And that’s what we’re facilitating. So, we deeply integrate to clinical workflow. We work with clinical governance at provider systems as to what they’re trying to do beneficially for patient care. And that level of a deep understanding of the Epic and Cerner environments and clinical workflows and the triggers for relevant patient activity against clinical diagnostics is things that we’ve become an expert in. And that is going to be a needed skill set that any of those big tech firms would need if they truly want to scale a platform level solution into healthcare. We have built our solution on top of AWS. Now most large providers even still are on prem EMR hosted solutions. And we’re the very first reason that several large systems did their very first idea of theU.S. integration. So, we’re strategic to AWS at penetrating provider systems. We’re prescribing Amazon e-commerce products and that’s facilitating clinical efficiency and patient experience. But that poses a threat to the industry incumbents, saying hey, wait why are you prescribing Amazon products. What about myretail catalog? I’ve been in health care medical supplies for decades. And so, you go back to the patient experience and how to improve that. And I think between what Apple is doing with the watch I expect Amazon to get into more and more wearables. Google has wearable offerings and to the extent that they hit a clinical relevance whereby they’re judged on their clinical markers the same as CPAP devices or Glucometers or EKG are. They’re going to need something like us to bring it back to in the clinical workflow to make those remote patient monitoring highlights and thresholds that pose risk interventions clinically actionable. Again, that drives back into Xealth. So I see us as the touchpoint back to the doctors and clinical workflows that a number of both incumbent industry players as well as these big tech players will find highly valuable at scaling their cloud and platform and larger scale solution offerings into healthcare writlarge. 

Paddy: Right. And I think if I read between the lines that you might have just described your exit strategy but you don’t have to answer that question. 

Mike: I think again I have 10 industry incumbents invested in Xealth. Between the providers and the McKesson, Novartis, Philips, and Resmed. I am fulfilling a here and now need against the largely feeforservice world. But as a cloud plugin to the EMR that exposes the clinical workflow to payers, to ecommerce players, to pharma is extremely valuable to new players, new business models trying to also play a role in healthcare and facilitating patient care. McKesson and Novartis both play hugely strategic roles in pharma and they both invested in Xealth on how we can move to new digital supply chain capabilities. Increasingly you’re seeing FDA approved digital apps replacing meds. And how did those apps get in patient hands except for a solution like Xealth. So, we see ourselves being relevant to a number of players that are trying to advance healthcare. 

Paddy:Awesome. So, we’re coming up to the end of our time. I just have a couple of real quick questions. You came from outside the industry Mike. How does it feel to be in healthcare? What are your big one or two takeaways?

Mike: Well I have had some success in other industries, so I wanted to try to take my skills and my team skills. We’ve brought twelve people over from Swype, my last company, into Xealth. So, we wanted to try to tackle a bigger more meaningful problem and healthcare is still living in a lot of antiquated systems and needs to be modernized. So, we are passionate about trying to build new experiences and new technologies and reduce the cost of care delivery in the U.S. I would like to see faster decision making exist in the industry and more risk tolerance to try new things and I think you’re actually seeing that with the fear of new entrants disrupting the status quo of healthcare and that’s a good thing because it helps incumbents move even faster. And so, I’d like to see increased acceleration of experimentation with digital technologies. So that’s something that we’re finding valuable and sort of a tailwind. And we’re also hoping to build kind of an aggregation strategy of large strategic saying we are the de facto platform and we want to be the digital health marketplace for providers on what’s relevant and what’s beneficial and in-patient care. And that’s going to be hugely valuable in facilitating a digital transformation in healthcare delivery. 

Paddy: That’s awesome. So, my final question for you today Mike is you’ve been a successful entrepreneur many times over. What advice do you have for digital startup founders?

Mike: Know who’s paying for your solution. So, follow the money and I think that’s an often-repeated thread and jumping into healthcare. Be humble and listen to your audiences. And because we work so close with providers and new to healthcare, they’re the ones that increasingly say, you know what I have a problem with doing X and so we can find those solutions and build those into our scalable platform. So, there are incredibly intelligent people in healthcare. Listen to them and try to help aid in their care delivery protocols that they’re used to but work within that environment to advance them into new skills and technology and capability. But I have found strategic investors to be incredibly helpful at how we’re migrating our business model. Customer reference and validation and in advancing new business opportunities. So be humble, work with the constituent group paying for your service provision in the vertical segment that you’ve chosen to pursue in healthcare. And I find the investors that exist in that ecosystem to be hugely beneficial versus some straight up financial dollars seeking a pop. 

Paddy:Right. Mike it’s been such a pleasure speaking with you. Thank you again for coming on our show. And look forward to staying in touch and following on the success for Xealth.

Mike: No. Thank you. And books such as yours – The Big Unlock – is helping me as a guidebook for other ideas and things to be aware of as we continue down this path. 

Paddy: I greatly appreciate that. That’s so kind of you. Thank you again. 

We hope you enjoyed this podcast subscribe to our podcast series at www.thebigunlock.com and write to us at info@thebigunlock.com

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About our guest

Mike-McSherry

Mike McSherry is the CEO of Xealth, a platform for digital health that enables health systems to easily organize, integrate, deploy, and activate digital health tools for measurable results. Through the secure Xealth platform, clinicians can find and order the right digital tools and programs for patients direct from the EHR workflow, send these digital health orders to the patient’s smartphone or desktop, and then monitor patient engagement and analyze the effects of more engaged patients. These can include patient education, online third-party apps and programs, device monitoring, and non-clinical services such as ride shares, food delivery and e-commerce product recommendations.

Xealth spun out of Providence St. Joseph Health (PSJH) in 2017, under the leadership of McSherry, raising $9 million from a variety of investors including PSJH and other health systems such as UPMC and Froedtert. Prior to Xealth, McSherry was CEO of Swype, an innovative touchscreen keyboard which made communication easier, faster and more inclusive. Swype was installed on over one billion smartphones and tablets, and the company was sold to Nuance for over $100 million in 2011. At Nuance, McSherry led the team that managed Apple’s Siri, Amazon’s Alexa, and other early mobile voice recognition platforms using the company’s Dragon technology.

McSherry brings with him more than 20 years of experience in the technology industry, co-founding several other consumer electronics businesses including Boost Mobile, which is now Sprint’s pre-paid service, and Zivo, which was the largest web development company in Australia and New Zealand. McSherry began his career at Microsoft, where he ran the MSN portal and e-commerce activities in Australia following time spent in the US in product roles.

Drawing from his background in consumer engagement with electronic devices, McSherry has made it his mission to make digital health tools an integrated part of health care delivery.

McSherry graduated from William & Mary. Based in Seattle, McSherry is married, with two boys and a dog, and when he isn’t busy enabling digital health at scale, he lives the busy life of juggling sports, travel, and parenting.

About the host

Paddy Padmanabhan is a widely published and quoted thought leader on digital transformation in healthcare. He is the author of  The Big Unlock: Harnessing Data and Growing Digital Health Businesses in a Value-Based Care Era, and the CEO of Damo Consulting Inc, a digital transformation and growth advisory firm based in Chicago.

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