Xconomy, March 30, 2010, by Denise Gellene

Insurers spend $30 billion annually on workers compensation claims; lost productivity saps another $60 billion from the economy. San Diego-based NextImage Medical is focused on changing this picture by taking aim at a key bottleneck that adds to costs: delays associated with radiology exams.

CEO Liz Griggs says injured workers face waits of two to six weeks to get an appointment for an X-ray, MRI or CT scan, and to obtain the results—delaying diagnosis and the start of treatment. Time is money to insurers, because sidelined workers receive indemnity payments while they wait.

NextImage has developed a Web-based system for scheduling and managing diagnostic imaging services, and also has assembled a network of centers committed to reducing the delay to 24 hours. Quick turnarounds mean workers can get diagnosed and treated faster, so they can get back to their jobs more quickly. Indemnity payments are reduced.

Radiologists like the arrangement because it provides them with a steady flow of patients, Griggs says. “This is a win-win,” she says. “Radiologists like to get the business and insurers like to reduce their costs and time.”

The company, founded in 2008, has 50 employees and has received $7 million in venture funding. Koleman Karleski of Chrysalis Ventures, a key investor, said NextImage addresses a critical pressure point in the delivery of workers compensation benefits.

“Over 90 percent of claims filed result in some type of image being ordered. Almost everybody is going to get an MRI or CT, some type of image taken,” he says. “What that means is that Liz’s company is essentially the gateway for whatever type of downstream therapeutic action is going to be taken after the image.”

He adds, “It is a very relevant market within the workers compensation industry.”

It is a market Griggs knows well. Her previous company, One Call Medical, founded in 1993, also worked to streamline radiology services for workers compensation claims. It had revenue of $140 million when she sold it several years ago for $115 million.

Griggs says she got to work on NextImage as soon as her five-year non-compete clause expired. About $1.2 billion is spent on workers comp-related radiological services annually, so there is plenty of room for NextImage to stake a claim. “The industry needs another player,” she says.

NextImage’s customers are workers compensation insurance carriers, such as Travelers Insurance or AIG; self-insured employers; and third-party administrators. They refer injured workers in need of radiological exams to a website operated by NextImage where they can make appointments at a radiology clinics or medical imaging and diagnostic centers that participate in the NextImage program.

The images are typically read at the centers where they are taken. When a second opinion is needed or a center is too busy, scans are read remotely by a back up radiologist. All images are stored electronically, which speeds their delivery to the treating physician.

To date, NextImage has recruited 2,000 imaging centers into its network, many of which are concentrated in California, where NextImage is focusing its initial efforts. Other key markets are Florida, New York, New Jersey, Texas, Pennsylvania and Illinois, all states with high volumes of workers comp claims.

NextImage has had little difficulty recruiting radiology centers. The imaging industry is overbuilt, and many centers operate at less than 50 percent of capacity, Griggs says. ”Sometimes we are half of their business,” she says.

By negotiating volume discounts with imaging centers, NextImage can reduce medical costs related to radiology by half to two-thirds, Karleski says. By eliminating delays, NextImage also can reduce the time an injured employee is off the job by two to three weeks, saving several thousand of dollars in indemnity payments per case.

“When you add that up over the number of cases these insurers handle every year,” says Karleski, a member of NextImage’s board, ”that’s a lot of money.”

Denise Gellene is a former Los Angeles Times science writer and regular contributor to Xconomy. You can reach her at dgellene@xconomy.com

PEWeek, March 29, 2010, by Constance Loizos

Among the issues of concern is an excise tax at the point of sale for
every medical device company

The health care bill that President Barack Obama signed last week
looks like a boon for a lot of health care startups, and potentially
ruinous for others, according to VCs who’ve been following the debate.
David Jones, founder and managing partner of Chrysalis Ventures in
Louisville, Ky., says that some of the bill’s biggest beneficiaries
will be “young startup health care companies that make information
more cost-effective and accessible.”

Jones adds that Chrysalis made six new health care-related investments
just last year, including Cleveland-based CerviLenz. The company
produces an FDA-approved disposable device that is used to predict the
risk of preterm birth in pregnant women. If diagnosed early, doctors
can use progesterone suppositories to prevent some of those early
births, and save billions of dollars in health care expenses, Jones
points out.

CerviLenz has raised $2.1 million in venture funding from Chrysalis,
Arboretum Ventures and Jumpstart Inc.

“I can’t say [the health care bill] is an unmitigated great thing, but
money will begin flooding in, and in the context where everyone knows
that costs are running out of control, we expect a lot more demand for
the productivity enhancing products and services that are our bread
and butter,” Jones says.

Other health care startups, including those with long FDA approval
processes, may not be so lucky, suggests Alan Frazier, founder of
Seattle-based Frazier Healthcare Ventures.

“One can make the argument that we on the VC side should be thinking
of low-cost type products that provide better diagnostics or cheaper
therapeutics, but the FDA isn’t going to give us much of a break,” he
says. “They want us to do trials that show cost-effectiveness, but
it’s hard to come up with cheap products that do great work and that
will still fit in this [new] system.”

Medical device companies, in particular, may be hardest hit by health
care reform, says Lisa Suennen, the Corte Madera, Calif.-based
co-founder of the health care-focused venture firm Psilos Group. The
problem, she says, is the Medical Device Company Excise Tax, a
provision in the new health care bill that, beginning Jan. 1, 2013,
will impose a 2.9% excise tax at the point of sale for every medical
device company, big or small.

“For medical device companies that are truly better from a clinical
outcome standpoint and can reduce the cost to the health care system
or reduce costs per procedures,” the new bill is largely a positive,
Suennen says.

On the other hand, she adds, “they’re also taking it hardest from a
tax standpoint. A nearly 3% tax on revenue—not on profit—is going to
be fairly onerous for small companies, which will one of two choices:
raise more capital to operate their business or raise their prices.”
Suennen says she doesn’t “think that’s what was intended,” calling the
health care bill “pretty flawed.”Designed to revamp the $2.5 trillion
U.S. health care industry, which accounts for one-sixth of the
country’s economy, the health care law will extend health insurance to
32 million Americans who lack it. It will bar practices like insurers’
refusing coverage to people with pre-existing medical conditions,
expand the Medicaid government health insurance program for the poor
and impose new taxes on the wealthy.

Obama acknowledged the bill was “not perfect,” but listed what he saw
as numerous benefits, such as tax breaks to help Americans buy
coverage.

In the wake of the newly signed health care law, investors interviewed
by PE Week do not plan to heighten their commitments to finding health
care opportunities.

John Steuart, managing director Claremont Creek Ventures in Oakland,
Calf., says that the firm is “staying the course.

“I wouldn’t say the bill is going to encourage us to put more dollars
to work in [health care], but it won’t discourage us,” he says When
Claremont goes shopping next, he adds, it will look not just at
startups providing better care, but “better value care.”

Steuart says that one Claremont portfolio company that could
potentially draft off the new health care legislation is Mountain
View, Calif.-based Tibion. The company accelerates recovery time
cheaply, through a robotic device that promotes rehabilitation,
including helping knee-surgery patients. Steuart points out that
Tibion’s products are designed to replace occupational therapists. The
eight-year-old company has raised $6.64 million in VC funding from
Claremont and Saratoga Ventures.

Meanwhile, Jones of Chrysalis—which divides its portfolio evenly
between IT and health care companies—says that he and his firm have
actively sought deals, even as many health care investors were waiting
out the reform debate.

“We made six new health care investments last year that center on
productivity and efficiency,” he says. “Our view was that anything
being talked about in Washington, D.C., would make these issues more
important and that even if the overhaul didn’t happen, the cost
problem was still going to be out of control.”

To prosper, the nation needs educated, healthy workers

By David Jones • Special to The Courier-Journal • March 21, 2010

As the economy starts to rebound, Washington has turned its attention to job creation. This theme dominated President Barack Obama’s State of the Union address, with calls for Congress to take various actions including, I was pleased to note, supporting entrepreneurs by eliminating capital gains tax on small-business investment.

The president’s focus on job creation began in December when the White House called more than 100 business and labor leaders to a “jobs summit” meant to elicit new ideas on getting Americans back to work. I was honored to represent the venture capital industry at the summit and share with the administration how venture capital contributes to our nation’s economic growth and innovation.

My job as a venture capitalist is to support and guide innovative young companies as they focus on rapid, profitable growth — growth that creates jobs. According to the National Venture Capital Association, venture-backed companies today account for 12 million U.S. jobs and 21 percent of U.S. GDP. Chrysalis’ experience is similar; to focus on only the local component of our work, more than 3,200 Louisvillians work today for companies that received Chrysalis investment dollars in their youth.

For the American innovation economy to prosper, however, we need more than capital. We need educated, creative workers — and America’s schools are falling short today. At the summit I praised the administration’s education reform initiatives and urged tenacity in the face of short-term pressures and incumbent opposition. To maintain America’s innovation economy, we must revive our schools so that Americans have a shot at becoming the world’s best and brightest students — and the work force best prepared for the future. It is encouraging to know that the administration is both honest about our educational challenges and ambitious in its plans to address them, even in this tough economy.

We also need a healthy population, fit enough to thrive in global competition. At the summit I also urged focus on public health issues — specifically the obesity epidemic — by calling for a “lean tech” and “lean energy” revolution to accompany the “clean tech” and “clean energy” goals of the administration. Our first lady’s decision to make childhood obesity her signature issue is perhaps the best news to come out of Washington this year — she will be brilliant at raising national consciousness and creating a sense of urgency around this national crisis.

We should not think of our education and health woes only as costly problems. They are also great opportunities for innovative new businesses that create good jobs and new national wealth. For example: Just as companies that make us aware of and help us curb fossil fuel use have created thousands of “clean tech” jobs, companies that make us aware of and help us change our diets and sedentary lifestyles will employ many people in jobs only now being invented. With some 70 percent of health care costs driven by diseases rooted in smoking and obesity, there is ample market incentive to address these costs in innovative and profitable ways. Many companies, including both established leaders like Humana and younger entrants like Chrysalis partners HealthTeacher and HealthMedia, are investing heavily and creatively in consumer empowerment, education and coaching strategies. Chrysalis reviews new proposals almost daily in the “lean tech” space. Clearly this crisis presents both risk and opportunity.

Similar stories of innovation and rebirth can play out in other sectors. In education, entrepreneurs are seizing on the potential of new technologies and business models to deliver personalized education at far lower cost, often with far better outcomes, than today’s average school — and they’re only getting started.

I believe strongly that we will succeed as a nation if we attack our problems with the innovation and zeal that built not only Google, but in earlier generations the world’s mightiest railroads and leading auto industry, the first and most reliable phone system, and so much more. The fall of these former giants shows that we have taken some wrong turns. Our problems are genuine. But I am sustained by Americans’ great history of devising breakthroughs that overcome the failings of the status quo. It is this history that drives the entrepreneur to build, and venture investor to support, the unproven, promising enterprises that will provide the great jobs of tomorrow.

David Jones is chairman and managing director of Chrysalis Ventures, a leading source of equity capital for young, growing companies in Mid-America. He is chairman of the board of Louisville-based Humana Inc.