Sean Cheng, Ascension Ventures - AMOI Studio Interview | LSI USA ‘23

Ascension Ventures is a strategic healthcare venture fund and innovation catalyst with more than $1 billion in capital under management.
Sean Cheng
Sean Cheng
Managing Director, Ascension Ventures



Ben Glenn  0:10  

Say hello to my guest, Sean Chang at LSI 2023. Sean, thanks for coming by the studio.


Sean Cheng  0:17  

So glad to be here under a different banner Ben.


Ben Glenn  0:20  

I know different banner, it's been nine months. So your birth in this Ascension health baby now, you've been there now it's been nine months, you've had your period of maturation. So tell me more about this change?


Sean Cheng  0:33  

Yeah, I'm really excited to have this new chapter in my career. I've joined Ascension Ventures, we are a multi Health System fund, we represent Ascension Health, as you mentioned, that's about 150 acute care facilities across the US, but also 12 other health systems together, we invest on behalf of 460, you know, hospital facilities across the country. So that's a meaningful size of the US care population, if you think about it, and making investments, you know, on behalf of them is I think both purposeful, as well as meaningful in terms of, you know, the capital that's being deployed. You know, it kind of comes back in two ways, right? One is the returns go and fund directly the clinicians, the nurses, the hospital administration, to you know, these nonprofits, and that then trickle down to the patients. The other is, we have a shot at moving the needle in innovation and in specific area that we pick, both just being as customers, but also funders of them. And so I wake up every day and being super excited about, you know, driving the med tech side of things, at least in this area.


Ben Glenn  1:51  

Let's unpack this that took 13. That it's not 13 hospitals, it's 13 hospital systems. So what's the geography look like? How much of the US do you cover?


Sean Cheng  2:03  

Don't put me in a spot on percentage, but it's a meaningful amount. So we represent Ascension Health, which is our largest LP, but also Intermountain, OSF, OhioHealth, Advent, just to name a few, the larger ones, and the care population is in the millions. And, you know, I think it's 460 and growing a number of facilities, because there's constant hospital combination, or health system combinations, forming just to you know, save costs, and then you realize more synergies. And so we Ascension itself is this, you know, second largest in the US after KPMG, in terms of size, with 21-22 billion, you know, annual revolving budget. And so the coverage is, you know, across the US, but a lot of it is concentrated in the mid west, and then, you know, in the south as well. And these populations, I think you're gonna have specific needs and profiles, that we can match to our investment strategies moving forwards as well. And that's very exciting.


Ben Glenn  3:11  

It is, I think one of the things that, you know, when we were talking before, Alan Russell and Allegheny, whenever they combined, I had a Saturday afternoon, whenever I looked at, you know, cost data that rolls up from CMS, and those come up into, you know, the US is divided into, you know, don't put me on the spot 10 or 12 regions. Yeah. And now you can, you can actually look at look, there's a comorbidity, like what does Seattle have in common with Miami? And all of a sudden, so I'm wondering, do you now with that kind of a spread, it seems like you're probably able to identify things that maybe the entrepreneur that's looking at a region doesn't necessarily see the synergies have you? Have you found anything like that?


Sean Cheng  3:51  

Yeah. So, you know, Ascensions, you know, mission is to care for the sick and poor, and to promote community for the care of the sick and poor. And this has been a, you know, a mission for hundreds of years. And if you count in certain ways, you know, it's been 400 years, apparently, since ascensions, existed in different forms. And that's still, you know, plays out in rings true today. I think in terms of, you know, specifics around disease areas. You know, diabetes has been, you know, on the up and due to the lifestyle and just general you know, public health, peripheral artery disease as a driver. Smoking actually is kind of going down where it's, which is a good news, but a number of these comorbidities are driving our focus and care population. So where we're really interested in in as heart failure as a main main area, peripheral artery disease as another one. We see this as large exposures and over index within our care populations within Ascension, but also the 12 other health systems as well. And so we'd want to fund innovation in these areas to really move the needle more to the left, I'd like to say the care continuum, so more towards earlier care, even preventative care. But it's a you know, it's a hard battle. Right. And you know, and you know, and it's waged against living habits, as well as for profit companies driving certain sort of dietary, you know, preferences. But, you know, I'm very optimistic and really excited about new driving that type of innovation.


Ben Glenn  5:37  

Sean, ascension has 13 hospital systems, it seems like that probably covers the majority the United States, how does that? How does that break out?


Sean Cheng  5:47  

Yeah, it's it's really meaningful, if you think about it. Ascension covers a number of the Midwest states in the South as well, namely, Tennessee, Indiana, Wisconsin, a number of others, but the other 12 his health systems include the Intermountain, OSF, Advent, you know, they cover different areas. So we have also have Texas Health Resources, you know, down in Texas, Intermountain, obviously, Utah, you know, Wyoming Colorado coverage area, OSF, you know, around Illinois, you know, Chicago area. So I would say, you know, we probably covered 25 to 35 states, you know, across the union here. And the care populations within the states, you know, all have different profiles, but we do see some trends emerging. You know, one of them is, you know, heart disease, you know, driven by diabetes, which is, you know, a, you know, worsening epidemic, and, you know, smoking has actually gotten better, which is a good thing. There's also obesity. I think I saw statistic today that by some year in the near future, you know, 50% of America will be obese. Hopefully, you and I will avoid that number. But let's see. So heart failure is really interesting for us. And we want to be able to invest in innovation that moves it to the left of the continuum of care, right. You know, earlier stage heart failure, or cardiovascular disease, even preventative would be really interesting meaning for us, within the context of health system costs. peripheral artery disease is also a really big one. And so we're looking at that area as well driven by a similar comorbidities and other areas, I think around just making our clinicians lives easier, and practices easier using new tools, you know, how does software as a medical device factor into this thing, where it's safe, and, you know, has, you know, superiority in sort of effectiveness, and replaces something more invasive, right, that's really interesting for us, and it can access in reimbursements. And then other areas, like oncology is really interesting for us as well. But, you know, our investments, you know, which currently there's 28 active and 84 tolon, lifetime, over the last 20 years, have focused on various areas, that's a, you know, match of the care population needs, with more opportunistic returns that we see in venture. So, you know, long story short, really exciting. And, you know, in thinking about the care populations and the meaning of


Ben Glenn  8:41  

that, if you had to point out maybe the one or two big shifts, you went from being an investor for a large strategic, and the focus that a strategic would have to now really looking at, you're caring for the millions of lives under care. Yeah. And so what was that? What's that shift? What's your shift? You know, you've shift focus now, for something different, what jumps out as being the big, the biggest differences between investing for strategic investing for a provider network? I,


Sean Cheng  9:12  

I really enjoyed my role at Philips, Philips ventures as a partner investing out in North America, you know, that lens was how do we bring technology? And, you know, how do we bring, you know, business to match up with, you know, certain focus areas of care that's needed and effect, you know, 3 billion lives per year by think 2030 was the original motto. When I was there, though, it was inherently removed from the clinicians. And you know, it's one layer than additionally from the patients as well, right? Even though I think Philips did have a, you know, consumer angle that can directly reach the patient's patient consumer which was really exciting in this new role, you know, I think I find more purpose. Ascension and by association Ascension Ventures is a Catholic value, organization. And so there is a focus on community and care for the sick and poor. And a lot of the values even though not religious anymore derives from that, right. And so there's a sense of a calling to serve here. And what I mean by that is, you know, the capital that, you know, we are managing and allocating goes towards meaningful innovation, that innovation affects care in a positive way, it creates better outcomes, you know, drives down costs, probably, and that's great, you know, five to 10 years down the road. In the shorter term, you know, this is, you know, our fun five, with the snow 13th great LPs, we've been doing this for 20 years, and we've seen many cycles, where we're getting checks back from the companies that are exiting, and those 10s of millions, and at times, hundreds of millions of dollars goes to backfill for the deficits in the operating health systems. And so they go pay for the clinicians, they pay for the doctors, nurses, administrative staff, and that's, you know, meaningful, and that's what gets me out of bed every day. To me, it's, it's amazing, I can't think of a better you know, vehicle or purpose that I, you know, my skill set experience can can go towards, so really enjoyed Phillips, but this one is for real, and for keeps


Ben Glenn  11:40  

And love the idea of, you know, you think about entrepreneurs that, you know, I never like to count anybody else's money. We're not a socialist country. But there was always that hope somebody hits it really big, they've made this they've made the stupid money, right, they will not have to work again. And your hope is, they're gonna back in Institute, they're gonna build a hospital, but there's nothing that says like, yeah, and I don't feel like it. I love the way that it's like baked into the pie, this money comes in, it goes right back, because probably guessing that the poor and underserved, they're not able to pay for the services that they receive. So something's got to make up that deficit. That's a beautiful way that that that investment, it goes right back in, and it's going right back to the your bottom line, which is the poor and unserved that are in so many communities that your health systems reach.


Sean Cheng  12:30  

Yeah, that's correct. And, you know, just to elaborate on that, you know, we think about the patient population, as well as our care providers, as two main areas for you know, that part of that Quadruple Aim that we talked about, you know, when I was a Philips as well. Now, the, the patients and the clinicians, we have much more access to now, you know, where where I said, as part of essential ventures. And so when we're one across a company, within a couple of calls, I can reach out to our current cardiology service line leader, for example, Dr. Ed Frey. He's also the president of the American College of Cardiology, you know, as another hats, and so be able to access and get feedback around how we're strategically thinking about, let's say, cardiology, in the next five to 10 years is really meaningful for us to back the right, founding teams and, and the right, you know, entrepreneurs. And so you get sort of that type of I'll call agency to make the decisions, and then obviously, co invest with, you know, the, you know, great relationships we have with other financial funds, as well as you know, Medtech strategics, and others, but also have a voice in meaningfully, you know, steering care for the next five to 10 years in any specific area, you know, with the clinicians voices and with a patient's voices in mind. So, it is a process that we've, I think, perfected over the last 20 years, being the original health system, strategic investor. And we're evolving to perfect that model. Under this new context of cost cutting, where 70% of us you know, health systems are running in the red right now.


Ben Glenn  14:29  

So it when I think about how we go from ideas to scale or bench to bedside, that translation to commercialization, it's, it's got to have approval. So there's data you need to get through FDA, maybe even a state agency, there's different kinds of people have the yes, then there's How's reimbursement work, you know, self pay, or you get something from CMS, there's a whole reimbursement dataset, but now you're at the delivery you're like tip of the spear. So delivery what what we're here at LSI entrepreneurs are hearing about what's going to happen at FDA. They're thinking about clinical pathway. They're thinking about reimbursement pathway, but how do they get the door open to Ascension? What? What kind of, you know, what is it is the language of value? What is the language that Ascension looks at? To understand, like, we want these kinds of entrepreneurs? How do they what's the language that ascension wants to hear? for innovation?


Sean Cheng  15:24  

Yeah, it's a great question. We work closely with the resource group, which is Ascension's procurement arm. And they've gotten so good at what they do that other health systems or assigning them on as clients. And then they go in and negotiate on behalf of some of these other health systems to it's almost like the Ascension Ventures version of procurement on their side. And the thinking there is understandably now shifting more towards cost conscious care. I think in the past, you know, you reach the clinicians and the KOL's is in a specific carrier area would pound the table, and then we'll get the latest greatest therapies, not necessarily considering the cost side of things, as much as somehow that kind of rolled up and worked as an operating system with sometimes a loss, sometimes a profit. Now, I think there's a lot more focus on cost as a priority. I don't think it's a health service faults. And I think that's a common misconception in the market is, you know, these health systems are greedy, and they're, you know, soaking up the profits. And that's why they're running at a loss. But it's really the supply chain, the cost there, it's really the labor costs rising, to be able to buy food that's driven by inflation, and a lot of macroeconomic factors. And so how that rolls up is, decisions are made now with a lot more cost unit costs in mind. And so where that then translates to in practice is, when we're negotiating contracts, when we're thinking about pricing, we're really thinking about in a holistic sense, much more than before, we're not talking about value based care, per se, although that's where we were headed. As much as within a care setting, let's, you know, for example, cardiogenic shock, are the DRGs able to cover the devices that we want to buy, you know, the clinicians that are part of this, to get reimbursed and to get paid, and then the operating cost side of things like the OR, if that doesn't roll up, then we're gonna look for a cost, you know, cost cutting, right. And so that's probably where the devices are, if we can sacrifice maybe the Ferrari latest and greatest for a Honda Civic Type of, you know, model that's, you know, 1/10 of cost, and does the job 90% as good as the the gold standard, we're probably going to go towards the second one as a decision maker. And so I think that affects our strategy as well, on the investment side, you know, we're we're looking at things two to seven years down the road. And were, you know, fast followers to these, you know, premium, you know, single player monopoly markets is interesting for us, because we know where the trend is going. We know what the willingness to pay is in the pricing consciousness of health systems now. And we want to fund innovation and competition to go in a free market economic way to drive the prices down to and that'll benefit both health systems to continue to operate, but also the patients because they didn't, you know, you could probably get much more volume out of it as well.


Ben Glenn  18:43  

So do you think that, you know, in your role at Philips, and just, you know, being a guy being a healthcare innovation guy, do you? Did you have the sort of perspective about how health systems, this entire economic story you just laid out? Did you? Did you have much an appreciation of that?


Sean Cheng  19:00  

Oh, absolutely not. It's the last nine months has been a learning process. And the number of chess games being played at different levels, and really helped me understand US' health care a lot better. And with that knowledge, I'm really excited to go and make investments in the right direction that I truly believe in the next five to 10 years will, you know, improve, care and improve the clinician experience and areas that I touted with a Quadruple Aim before but much more informed now?


Ben Glenn  19:35  

So what what's the advice you would give in this new role? So now, what's your what's your big three that you would tell lots of entrepreneurs here? Probably a lot of people that want to talk to you at LSI? What's your advice to them now with through this lens, your nine months at Ascension? What's your advice to them now?


Sean Cheng  19:52  

I would say you know, continue to do what you're doing and the, the eventual equalizer is a free market, right? And so I think the the focus on patient populations and real total addressable markets is key here. We can create a number of tabs and total addressable markets as we want. And I'm sure any widget service or software can create a large hand, but we really have to do the homework around, you know, is this really going to affect the health economics of health systems. And I would also maybe even add 1B, which is the economics here are no longer shifting towards relying on health systems to pay for things, right, we're, you know, as Ascension, and it's 21-22 billion new annual budget, a lot of that goes supply services, you know, that's continue to be the case, but innovative business models that shift the, you know, financial burden towards payers, towards pharma, towards medtechs, where we're sharing the costs is probably going to have a better chance of surviving, you know, the venture cycles in the next few years than a one where the assumption is the health system will pay for it. So I think that's probably two. Maybe a third would be, you know, being able to engage with folks like us and the health system side. And conversations is a really easy way to access clinicians. You know, to my earlier point, we can make a couple of calls and get relatively good feedback. In my case, you know, Ascension Ventures we could get 13 different perspectives come in. And, you know, clinicians are opinionated and sometimes, you know, they have differences in opinion. But if we have a majority of 13 Health Systems saying one thing, they're probably right on that. So, I think that's an advantage that we have, you know, as a health system, venture capitalist, in helping clarify what it's usually probably a very noisy and many voices, you know, you know, industry that we haven't medtech and life sciences,


Ben Glenn  22:32  

Shawn Chang, Ascension Ventures, The adventure continues. Thank you for coming by.


Sean Cheng  22:37  

Thanks very much, man. Appreciate it. It's always a good time. 


Production crew  22:41  

Sean Cheng, take one marker


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