Xealth Raises $8.5M to Help Doctors Prescribe Digital Health Apps

Xconomy Seattle — 

With more digital health apps and devices popping up each week, the debate continues about their effectiveness at improving health. But there’s another big problem for doctors and hospitals that want their patients to use the apps that do work: prescribing them.

Xealth, a cloud-based software startup, aims to make prescribing a diabetes management app as easy for doctors as prescribing insulin. It has raised an $8.5 million funding round led by venture firm Draper Fisher Jurvetson, with participation from hospital systems already using the software including Pittsburgh-based UPMC, Hennepin, Froedtert, and Renton, WA-based Providence Health & Services, which incubated the company within its Digital Innovation Group.

Xealth integrates with the electronic medical records (EMR) software that doctors already use, beginning with Epic Systems, a Verona, WI-based company that is one of the industry’s heavyweights. It allows doctors to prescribe healthcare apps, content, and digital medical devices that have been approved by their hospital systems directly from within the EMR software.

Today, doctors might tell patients to go search for an app they want them to use in an app store, or hand out physical brochures for devices, says Xealth co-founder and CEO Mike McSherry, a Seattle serial entrepreneur. It’s a clunky process at best. There’s no easy way to monitor usage or remind a patient who is not adhering to a prescribed digital health service across different apps from a central location. Typically, the doctor would have to log into a separate site for each service, interrupting her workflow in the EMR.

“We’ve basically enabled a single sign-on of all these different digital services, and their dashboards, into Epic, on behalf of our customers,” McSherry says. Patients are presented with the services in a consumer-friendly interface, depicted above.

Epic Systems, too, is trying to ease the process of digital innovation on top of its EMR software. Earlier this year, it began a program called App Orchard, a set of application programming interfaces, documentation, test code, technical support, and software developer support. Other EMR competitors, such as Athenahealth, have been building out their own app stores for years.

“We think App Orchard is going to be beneficial to us as we scale,” McSherry says. He adds that Providence—a nonprofit Catholic health system, which has some 3.3 million patients in Alaska, California, Montana, Oregon, and Washington—is Epic’s second-largest customer.

McSherry.

Xealth is not positioning itself as an arbiter of the digital health products and services to be prescribed over its platform. That’s up to the medical experts and hospital administrators, McSherry says. However, the company does plan to help its customers evaluate those services through ongoing measurement of their effectiveness and patient health outcomes.

Likewise, Xealth doesn’t get involved with the billing for these services. It makes money by charging customers to license and use the software. But it can alert doctors when a patient’s insurance covers the cost of an app they might consider prescribing. A doctor encouraging a patient to reduce his blood pressure might prescribe a weight-loss app covered by his insurance, for example.

By enabling doctors to easily prescribe digital health services and remind their patients to use them, Xealth could help boost usage of the services, McSherry says.

“If a doctor tells you to do something, the patient has an incredibly higher compliance rate versus your insurance company suggesting you do something, much less your employer trying to tell you to do behavioral change,” he says.

That kind of behavioral change is important to hospitals and health systems that are taking on more insurance responsibility for patients with the shift to accountable care organization (ACO) models. An ACO is paid by a large employer based in part on the overall health and satisfaction of the employee population, rather than for each office visit or knee surgery.

“If all you do is see a patient once a year, and you really have no idea what they’re engaged with—what they’re doing outside of that one episode—it’s hard for you to assume the liability of the insurance risk for that patient,” McSherry says.

To increase the number of interactions with patients, hospital systems are adopting digital health services that help manage chronic conditions, engage with patients virtually, or provide post-surgical follow-ups, McSherry says.

Xealth is designed to incorporate the prescription and monitoring of those services more closely into the existing medical workflows of doctors and other care providers. “I think we’re bringing a far more flexible platform to physicians to enable digital care to proliferate in a way that has not been achieved thus far,” he says.

McSherry’s prior startups have been focused on mobile technologies. He was CEO of Swype, a predictive touch keyboard startup sold in 2011 to Nuance Communications, where he worked on technologies such as conversational advertising. Contemplating his next move, he asked himself, “Do I really want to be optimizing advertising five, 10 years from now?”

He was on the board of directors of Seattle-based Pacific Medical Centers, which Providence acquired in what was termed a “secular affiliation” in 2014, around the time McSherry was leaving Nuance. Providence had also just hired a new head of strategy and innovation, Aaron Martin, a former Amazon executive who worked on the company’s self-publishing and e-books businesses, and given him $150 million to invest in innovation through a venture fund.

Martin recruited McSherry and three other people from the Swype management team as entrepreneurs in residence and “basically gave us a blank slate to try to reinvent some problem in healthcare,” McSherry says.

They spent six months “throwing spaghetti at the wall,” talking to doctors, hospital executives, patients, and whittling scores of ideas down to about a dozen prototypes or business plans. Everyone has a personal anecdote about how broken the U.S. healthcare system is, McSherry says. “We figured there’d be a lot of low-hanging fruit. That was our naïve take.

“As you start peeling back those problems, you see that it’s not scalable, it’s challenging, there’s legal or financial or reimbursement or governmental reasons why it might be done one way,” he says. “You start to realize how difficult the problem is.”

With billions of dollars invested in digital health products and services over the last decade, Xealth emerged as the most promising near-term business opportunity, and McSherry and team developed it within Providence for 18 months.

Xealth spun out as a separate company at the beginning of this year and has been used in more than 10,000 engagements with patients. It now has 12 employees and funding to hire many more as it develops versions of its platform for other EMRs and sells to more hospital systems, McSherry says.

Seattle-based DFJ partner Bill Bryant is joining Xealth’s board of directors. (Bryant is also an Xconomist.)

McSherry acknowledges that the chaos in the health insurance marketplace as a result of Congressional Republicans’ ongoing, secretive efforts surrounding the Affordable Care Act has complicated things for healthcare innovators.

“At a board-room level, amongst providers and insurers, obviously they’re highly concerned about what it means for payment, revenue, future cycles—and that leads to uncertainty,” he says.

That extended to the fundraising environment for healthcare technology startups over the last six months, he added. But the company still managed to land a healthy initial venture funding round.