HLTH23: VC firm General Catalyst launches new company, plans to buy a health system

LAS VEGAS—Venture capital firm General Catalyst unveiled a new company Sunday designed to provide advisory services to health systems while also eyeing a big acquisition by next year.

Hemant Taneja, General Catalyst CEO, told the HLTH 2023 audience that Dr. Mark Harrison, former CEO of Intermountain Healthcare, would lead the new company, which will be focused on health system transformation.

The new company, called Health Assurance Transformation Corporation (HATCo), also aims to buy a health system within its first year of operation. HATCo will focus on helping health systems shift to value-based care, adopt digital health technologies, improve financial sustainability and align stakeholders, including payers, investors and government, Taneja and Harrison said in a blog post.

"We have been of the strong belief that in order to really achieve that vision have to be in radical collaboration with the ecosystem, the healthcare institutions themselves," Taneja said Sunday. 

General Catalyst, which has backed companies like Livongo and Commure along with companies outside of healthcare like Stripe and Warby Parker, focuses on driving affordable, proactive and accessible care, Taneja noted.

"We have been of the strong belief that in order to really achieve that vision we have to be in radical collaboration with the ecosystem, the healthcare institutions themselves. We also believe that in order to accomplish this, we have to help our health systems become more profitable. These are mission-driven organizations and if we can give them more profit, they will lean into their purpose," he said. "We also believe that there is no 'Amazon of healthcare,' what I mean by that there’s no one single healthcare company that can transform this industry like Amazon did with retail. The trillion-dollar Amazon effort in healthcare really has to be an ecosystem of companies."

In August 2022, Harrison stepped away from Intermountain for a new role at General Catalyst. At the time, the venture capital firm said he would be taking “a leadership position to run a healthcare platform business” for the investment firm.

"As I had the opportunity to lead through the pandemic, it became incredibly clear how fragile, how brittle U.S. healthcare is. And when we began to talk about the fact that we can make health systems more resilient, reverse some of the commoditization that we saw and turn the world into a 'clicks and mortar' place, I was hooked," Harrison said Sunday during a fireside chat with Taneja on stage at the conference.

"I also felt like the two of us had an opportunity to really move the needle in terms of how our health system functions," he added.

HATCo will tap into General Catalyst's more than 20 health system partners—representing about 15% of U.S. healthcare revenue—as part of its "health assurance network" to share best practices and a "transformation playbook," the executives said.

The Cambridge, Massachusetts-based investment firm has been racking up a cadre of provider partners since an August 2021 deal with hospital chain HCA Healthcare.

"These folks serve as our thought partners; a place where we can confirm our hypotheses around what healthcare transformation should look like. We've got huge scale to work with in terms of sandboxes to begin to try some of our health solutions," Harrison said at HLTH.

The company also will work with digital health and health tech companies that are part of General Catalyst's portfolio as well as other startups.

"We believe that in order to help health systems transform, we need to be able to provide unique advisory services that are affordable, that can really drive the work that can happen in each and every community across the United States," Harrison said.

The company also plans to acquire and operate a health system "for the long term where we can demonstrate the blueprint of this transformation for the rest of the industry," Taneja and Harrison said in the blog post.

"We are very thoughtful about the sort of health system we want to work with. Let's just say that we believe that we need a proof of concept of this wild radical transformation of what healthcare should look like in the United States and beyond. And the only way we can do it is to have our own system," Harrison said.

Taneja noted that it's an "unusual move" for a venture capital firm. "We think it's necessary. It's actually forcing us to think about transcending our own business. If we have a health system that we're supporting, we have to think for the very long term; that's the community we're going to be serving on the ground," he said.

With the new company, General Catalyst also aims to establish a new standard of healthcare investing and set expectations for investors to think longer term, the executives said.

"We have to be thinking about a long horizon that generally isn't in the context of venture capital firms; we generally invest out of 10-year funds. We're trying to decouple how we generate returns for our investors from how do we really have a permanent capital vehicle that can actually drive this transformation for a long time for decades to come," Taneja said.

The new company also will focus on driving more technology adoption and innovation in health systems. HATCo will look to foster the creation of scaled platforms, rather than fragmented point solutions, the executives said.

Harrison is credited with scaling value-based care models while leading Intermountain.

"The board and leadership team of HATCo bring the kind of experience and expertise we believe is required for driving value at scale, digital transformation, and healthcare financing," the executives said in the blog post.

HATCo will be run as a for-profit organization, Harrison said.

"There are not-for-profits, and there are not-for-profits. There are some that really walk the walk and serve the communities in very sincere ways and there are some that are actually as cold and heartless as any for-profit could possibly possibly be," he said during HLTH. "I believe that it's very important that this entity is in a for-profit model because we are unaware of an industry that has been able to completely transform without the impetus of capitalism behind it."

HATCo will deploy value-based care at scale, he added.

"We believe that we need to go from healthcare to health. The best way to deliver health is to have all the incentives aligned between the payer and the provider, most importantly, between the clinicians and the patient. The way to do that is to, in the purest form, have a fully capitated model, which allows people like Hemant and I to demonstrate maximal creativity and application of resources to keep people out of those emergency departments and out of those ICUs," he said.