Dr. Anne-Maree Cantwell, Empactful Capital, on Investing in the Future of Digital Health Innovation

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Dr. Anne-Maree Cantwell, Partner at Empactful Capital

In this episode, I sat down with Anne-Maree Cantwell, Venture Partner at Empactful Capital. Founded in 2016 by veteran healthcare operators and investors, Empactful Capital is an early-stage venture capital firm that deploys targeted funds to invest in digital health companies that operate in the value-based care and behavioral-mental health verticals. Empactful brings its healthcare industry operating expertise and relationship leverage to help its portfolio companies scale.

In this episode, Anne-Maree and I discussed:

• Her background in medicine, and how that helped her both scale telehealth at Kaiser Permanente and become a Venture Capital investor
• Experiences scaling telehealth before the pandemic telemedicine boom, and what constitutes a successful telemedicine program, including the future of virtual care
• Empacful Capital’s approach to investing in leading digital health companies that are tech-enabled, including a recent investment example, Care Continuity
• Perspectives on key digital healthcare trends in 2023, including the online treatment of higher acuity mental health disorders, AI applications on patients and providers, and use of consumer devices to detect medical conditions

Beginning — 05:42: Anne-Maree’s interdisciplinary background

• Early inspiration: Growing up, Anne-Maree always dreamed of improving people’s lives through better health care, inspired by her father’s role as a pediatrician, and her mother’s role as a nurse running an ICU for many years.
• International Studies & Finance: Anne-Maree attended the Lauder Institute, Wharton’s International Studies program, as she was interested in international management at the time. After finishing school, Anne-Maree worked in investment and corporate banking overseas, in both London and Sao Paulo, and then in New York and Los Angeles. She held some health care accounts, and learned what was going on in the industry from a financial standpoint.
• Physician Training: It was not until Anne-Maree conducted volunteer work at an emergency department in Los Angeles that she realized her true calling was to be a physician. She transitioned to medical school at Loma Linda University.
• Kaiser Permanente: After medical school, Anne-Maree spent her entire career as an internist at Kaiser Permanente in Marin County, just north of San Francisco. She appreciated that Kaiser was an integrated health care system, where doctors, the hospital, and the health plan all sat under one roof, as well as the emphasis on preventive care. At Kaiser, she served as a hospitalist for 7 years, and then made a transition to the outpatient world, working as a primary care physician. Notably, during that time, she helped launch the telemedicine program at her medical center and three satellite facilities. This was a huge leap for both Kaiser and the industry at the time, because virtual medicine had not yet been incorporated into daily practice. Anne-Maree remained at Kaiser for over 20 years.
• Transition to Venture: When she left Kaiser and 2021, Anne-Maree was very passionate about digital health based on her work scaling telemedicine, and wanted to continue in the field. Through networking, she met Sal DeTrane, Managing Director at Empactful Capital, and really liked both his investment philosophy and the group of partners and advisors that Sal had put together who possessed deep industry and subject matter expertise. She decided to join the group, and has never looked back.

Being a physician has helped Anne-Maree succeed as a Venture Capital investor in two key ways:

1. Knowledge of the problems that need solving in healthcare, as well as some of the solutions that digital healthcare companies are offering
2. Deep understanding of what works with respect to provider and patient adoption:

“If you don’t understand how healthcare is delivered, and what happens on a day-to-day basis in the clinic, it’s difficult to understand how some of the workflows that are offered in digital healthcare will actually add value.”

05:43–13:28: Scaling telemedicine at Kaiser Permanente

Anne-Maree spent a few minutes sharing her experiences scaling telemedicine at Kaiser Permanente, far before the pandemic.

• Uniquely, at Kaiser, reimbursement issues were not a major driver of how healthcare was delivered. Prior to 2016, when Anne-Maree had the initial idea to launch the video visit practice, her medical center had already been doing phone visits for at least 15 years when most of the fee for service world had not yet adopted phone visits. Kaiser didn’t look for external reimbursement, but rather focused on efficient and effective patient care.
• In 2014, Anne-Maree saw that video technology had been built into Kaiser’s Epic EHR, which was a huge step — Kaiser was way ahead of its time, although the doctors and patients weren’t yet using it much in practice. In 2016, she observed that, with the growth of broadband internet, 5G networks, smartphones, tablets, and other technologies, video visits were going to become a key method of health care delivery. However, Kaiser’s clinics, doctors and patients had not yet transitioned.
• Anne-Maree approached senior management and convinced them to let her lead the effort to launch the video visit practice, educate Kaiser’s doctors and patients on uses for a video visit, and how they could leverage the technology when diagnosing and treating different health conditions.
• In 2016, less than 1% of all the patient encounters conducted were by video, but by 2021, this rose to over 30%. Anne-Maree gives a lot of credit to her team — she led a team of technology and education specialists that came together to work with physicians and providers, helping them become comfortable and overcome technology issues and concerns.

Key factors Anne-Maree believes are required for a telemedicine program to be successful include:

• Reimbursement: Currently, health care providers are getting reimbursed for telehealth and that ideally must continue.
• EHR Integration: Telemedicine technology should be built into the EHR such that doctors don’t have to log in on a separate site.
• Technological Simplicity: Ease of technological adoption is critical for physicians and patients to come on board. Few to no technological glitches must be present when conducting the exam (e.g., difficulty seeing or hearing).
• Mobile Device Integration: Patients must be able to access their appointments and portals from their mobile devices, not just their computers, to meet patients where they are.
• Condition-specificity: Telemedicine visits continue to be most successful for conditions or indications that require little to no physical exam (e.g., not suitable for diagnosis of chest pain or abdominal pain compared to behavioral conditions or simple primary care issues). As a result, Anne-Maree believes that virtual care will never fully replace the in-person visits that one might have with one’s provider, but rather will continue to be a supplemental tool that provides convenience. She notes that behavioral health specifically lends itself well towards virtual visits.

When successfully adopted, telemedicine can help achieve:

• Cost of Care Reduction: Using virtual technology over time, we can really reduce the cost of care. Moreover, medical facilities 10 to 20 years from now will be much smaller in size, as less real estate will be required to care for patients.
• Convenience for Patients: Many patients have shifted towards preferring video visits, whether because it saves time commuting in traffic or because they can squeeze in appointments throughout their busy lives.
• Increased Access: Patients who live in rural areas and who may previously have had to drive over an hour to reach a clinic or medical center can now easily access care. Additionally, those with limited to no health insurance can access more affordable options for care of low-acuity conditions. However, it is important to note that some degree of digital literacy and access to high-speed internet is required for telemedicine, which may pose issues for individuals in underserved communities or elderly individuals.

Anne-Maree also shared some of her musings on the most exciting technological advances powering the future of virtual care:

• As technology advances, 3D video will most likely be used during physical exams, in addition to next-gen at home devices that can communicate with physicians in real-time.
• A company called Remmie is leading in this area, with a smart autoscope that images the ears and transmits pictures of the eardrum virtually back to ap physician who can review them in real-time during a patient’s video visit.
• Another company uses a smart stethoscope which can record an audio file of heart and lung sounds, which can be transmitted back to the physician in a similar manner.
• Additionally, we will see an increase in asynchronous care, in which patients with a particular health problem will be sent a smart questionnaire online with specific questions, which will auto-populate depending on the patient’s answer to the previous question. At the end of the questionnaire, patients will be triaged to the next-best step in their care (e.g., emergency department, video visit, in-person appointment with physician) and the technology will help schedule the visit automatically.

13:29–22:10: Empactful Capital Overview and Investments

Anne-Maree highlighted three areas that set Empactful Capital apart from other Venture Capital firms:

1. Entrepreneur Friendly: Empactful lends its operational expertise to the startups it invests in, forming partnerships with entrepreneurs and investing in company growth through operations. The team has deep empathy for the entrepreneurial journey and understands how hard it is to build a company based on prior operating experience, with over 40 Partners and Advisors, each of whom has collected experience in some of the nation’s largest healthcare systems and health plans, as well as other startups.
2. Favorable Term Sheets: Most of the investments Empactful Capital makes are structured as simple preferred stock, which functions economically like common stock. However, Empactful’s team does take on board seats to assist with corporate governance and maintain oversight into company operations.
3. Partner and Advisor Investment: Empactful’s Partners and Advisors have all invested in the fund, and collectively account for about 20% of the total size of the fund. As a result, the firm would not ask a Limited Partner (LP) to invest in a company that they themselves are not willing to invest in.

Additionally, she elaborate on the specifics of Fund I vs. Fund II:

• Fund I started in 2017, and the investment process continued until 2021, with a group of 8 investments. So far, the fund has had three full or partial successful exits.
• Fund II was launched earlier this year with the first close of $50 million, and the team is in the process of raising the rest of the fund in early 2023.

Empactful plans to invest in approximately 10–14 new companies, with a milestone-based follow-on portfolio investment approach.

• 2/3 of the fund will be allocated towards Series A companies
• 1/3 of the fund will be allocated towards Series B companies

The investment thesis of both funds centers around investing in Behavioral Health and Value Based Care, both of which lend themselves to technology enablement.

• The Total Addressable Market (TAM) of these two areas combined is roughly $100 billion.

Empactful’s LP Co-Investment Program allows an LP who likes a particular investment being made to participate in co-investment alongside the team, so that they can invest more in a particular company.

When evaluating investments, the fund looks primarily at:

• Founding Team: Evaluating the founding team is often about 70% of the investment decision, as early stage companies usually don’t have much in terms of established financial data. Empactful Capital looks for founders that possess deep entrepreneurial experience, ideally with previous successful exits. Additionally, the ideal founder possesses operating experience and deep knowledge of the healthcare industry.
• Validated Product-Market Fit: The team seeks companies with a proven approach that solves a dedicated, unmet patient need.
• Margins: Given that Empactful Capital invests at the intersection of technology and health care, it prefers its companies to show a path towards a 60–80% margin, which is often attainable with technology at the product core.
• Breakeven on Revenues: Ideally somewhere between $8–12 million.
• Customer Contribution Towards Revenue: Ideally, the fund would like to see 10–20 enterprise-level customers averaging about $100k in contract value, which leads to a total revenue of $1–5 million in annual recurring revenue. Regarding sales and channel partnerships, one client or partner is ideally not responsible for too much of the revenue, as this poses added risk.
• Sustainable Business Model: A company should not burn through its cash and marketing budget quickly, and have a long-term plan for use of its working capital. This includes awareness of the sales cycle and proper budget planning.

I was interested to learn more about a recent example of an investment Empactful has made, a company called Care Continuity.

• Care Continuity is a tech-enabled, white glove, concierge solution for navigating patient care, with the ultimate goal of reducing hospital readmissions.
• When a patient gets discharged from the hospital or emergency department, he or she is often confused about when to schedule the next follow up visit, what the next step is in the care journey, what medications to take, and more.
• To address these gaps, Care Continuity provides highly trained Patient Concierges who help patients complete their follow up appointments, coordinate with home health and nursing homes regarding follow up appointments, and arrange transportation to and from follow-up visits.
• If the hospital team prefers to use its own staff, Care Continuity can provide the technology enablement part of the solution alone, which includes text reminders to patients nudging them to take their medications and schedule follow up appointments as well as a provider dashboard built into the EHR to monitor patient progression through the system.
• The system is very easy for patients to use, and does not require an app download or website login.
• Dashboards integrated with electronic medical records show where patients are in the navigation process, and help prioritize which complex patients should be navigated more closely.
• The results have been nothing short of remarkable. On hospital system reported the following results: 1) Reduction of inpatient readmissions by 49%, 2) 88% of patients were followed up by an in network physician, thereby reducing out of network costs.

22:11–31:40: Looking Forward: 2023 Digital Health Trends

Next, we discussed some of Anne-Maree’s key insights with respect to the biggest trends in digital and behavioral health looking ahead in 2023.

1.Federal Oversight: Last year, we became aware of companies like Cerebral and Truepill overprescribing ADHD medications, which jeopardized the vast majority of psychiatrists who continue to prescribe controlled substances appropriately. As a result of this, we will see more federal oversight take shape. Currently, regulations waive the need to have a face-to-face visit with a provider prior to a controlled substance being prescribed, and this will continue through 2023. However, should this waiver be removed, thousands of children and adults may face significant challenges securing their ADHD medications.

2. Online Treatment of High-Acuity Mental Health Disorders: During the pandemic, billions of dollars poured into behavioral health startups, mostly focused on mild-to-moderate mental health conditions. Now, we are observing more serious health conditions being addressed in a virtual setting. One company, Quartet Health, is doing an excellent job in this area. In 2021, Quartet Health acquired innovaTel, an online mental health provider that was one of Empactful Capital’s Fund I companies. In 2022, Quartet launched a new virtual clinic focused uniquely on treating patients with serious mental illnesses, like schizophrenia and bipolar disorder. Former CEO of innovaTel, Jon Evans, played a key role in launching a high-touch, high-tech system such that patients could engage with their care between visits, enabling patients to feed back current daily symptoms to their providers and remain engaged in their care. Quartet is also focused on transitioning to a measurement based care approach, focusing on whole person health outcomes rather than just mental health in isolation.

3. AI Applications in Digital Healthcare: According to Anne-Maree, “If there’s just one word to remember about digital healthcare in 2023, it’s AI!” Of course, we’ve all heard about ChatGPT in recent weeks, and the possibilities this can have across industries. In the future, patients and providers might be able to query a chat in a similar tool like “healthcare GPT” and receive highly accurate, up-to-date, evidence-based diagnosis and treatment plans. While Anne-Maree believes this will not take the place of providers, it will enhance what providers do, providing more accurate treatment and diagnosis. A few current examples:

• AI and data are being used to diagnose conditions, such as breast cancer through mammography.
• In 2018, Google showed that by using AI and CT scans, they could diagnose lung cancer more efficiently than a group of radiologists could, which was groundbreaking.
• John’s Hopkins researchers recently showed in 2022 that by using AI and patient data in conjunction with cardiac MRIs, they were able to accurately predict who could die of a sudden cardiac arrest in the next 10 years. This can help streamline treatment plans for those most at risk.
• AI has huge implications for streamlining care plans to specific patients to prevent and diagnose disease.

4. Consumer Devices as Medical Devices: We will see continued use of consumer devices to function like medical devices, leading to massive breakthroughs in diagnosis and treatment of disease. For example:

• In 2018, the Apple Watch was approved by the FDA to actually diagnose atrial fibrillation.
• Google launched an app last year where patients could use a smartphone to take an image of a skin lesion, nail or hair concern, and using self-reported answers and AI, the app could accurately provide consumers a list of possible conditions.
• In 2022, the Mayo Clinic used Apple watches and a single-lead ECG reading to help predict who would be at risk for, or those who might currently have, heart failure. Traditionally, to diagnose heart failure requires an echocardiogram, CT scan or cardiac MRI which are all very expensive tests, so replacement with diagnosis by Apple Watch could be hugely advantageous for early diagnosis and treatment prior to exacerbation or hospitalization.
• Google is currently researching how to leverage its smartphone and AI to help with diagnosis of diabetic retinopathy, a concern in which patients with diabetes lose some of not all of their eyesight if not reliably detected and treated. Prior to now, diagnosis required visit to an ophthalmologist with a dilated eye exam.

31:41 — End: Closing Advice

Anne-Maree shared that one of her additional career aspirations is board service, which expands from the broad and diverse experiences she’s had in telemedicine, finance, venture capital, and medicine, all of which give her a skill set to provide oversight and governance for a growing digital healthcare company. This is part of her career that she’s looking to develop over the next 5–10 years.

• She is particularly interested in private health care boards that seek the perspective and experience of a physician leader, but someone who also has finance and business knowledge.
• Moreover, she is a huge proponent of diversity in the boardroom, as she has witnessed firsthand that companies with more diverse boards have been shown to perform better financially and with respect to ESG impact.

In closing, Anne-Maree shared some valuable advice with listeners who may be looking to break into the digital health space, either as a venture capitalist or more broadly:

• Get to know the industry really well. The best way to do this is to get an operating role at a digital healthcare company. It doesn’t necessarily have to be a startup, but somewhere where you can take on a lot of different operational roles, and get a feel for what it takes to grow a company.
• Understand industry regulation. Healthcare is a highly regulated industry, and you really need to be in it to appreciate how the regulation affects your business. Operating experience will later give you the skill set to then branch out to become an investor or a venture capitalist or even a board member.
• Grow your network! Venture capitalists require a broad network of people who are entrepreneurs, operators, fellow VC investors, and also downstream investors (e.g., private equity) who will help with successful exits. “Devote a couple of hours a month just to networking, and then when you’re done networking, network some more!”

We are so appreciative to Anne-Maree for joining us on this episode of The Pulse Podcast! Subscribe for our new releases on Twitter, Spotify or Apple podcasts.