Q&A With Tom Vanderheyden Of Stella /BCBSMN On Investing In HealthTech Startups




Tom Vanderheyden, President of Diversified Business, Stella/Blue Cross and Blue Shield of Minnesota (BCBSMN)

Tom Vanderheyden oversees all strategies for expanding diversified businesses investments, bringing new health care products and solutions to market, and commercializing existing products and services. The organizations has previously backed SelectAccount (now known as Further), RetraceHealth, Livio Health Group, and Learn To Live. We connected with him to learn more…

What is the name Stella in relation to Blue Cross Blue Shield of Minnesota?

It is the new brand name and parent company of Blue Cross and Blue Shield of Minnesota (BCBSMN) – the largest healthcare service provider in the state of Minnesota. The motivation to change our name from Aware Integrated, Inc. to Stella in 2016 reflects a modern desire to build upon the mission of our organization and serve even more people. Both are nonprofit entities and we have approximately 25 other legal entities in the mix all of which report up to Stella — from the 100% owned subsidiary BCBSMN to our minority interests in Prime Therapeutics or Learn to Live.

Do you consider yourself an employee of Stella and Blue Cross Blue Shield of Minnesota or both?

I am certainly an employee of Stella. We have 4,000 employees, all of whom are under the Stella parent company umbrella as we become a national service organization. I have responsibility for enterprise strategy, the foundation, and a host of other duties that are on the Stella level.

When and why did you join Stella?

I joined in January of 2017 and the sole reason that I came was for the mission of the organization. I am now in my 35th year of working and I resolved a few years back of where I wanted to invest the balance of my career and it was entirely on impacting the way people are cared for in the way that Stella is aligned. My background is a mix of entrepreneurial and intrapreneurial experiences aligned with the board and leadership team at Stella.

And what were you doing prior to Stella?

Immediately before I was CEO of Harken Health, a join healthcare and insurance company that I cofounded. We were based in Minneapolis and build clinics in Chicago + Atlanta, while launching insurance in the individual market. It was funded by United, where I was for 13 years including three with Harken.

How is Stella evolving in the context of healthcare and technology?

Within the diversified portfolio, so peers to BCBSMN, one of our companies for examples is SelectAccount (now known as Further). It’s an HSA-based business that serves the high deductible population. We’ve grown that business phenomenally while shifting from more of a financial services industry into a mission-based approach to help people in the moment they need it most. 

For example, we launched in the fall a new app for this business that made us first in industry with a UPC reader inside the app so you could walk into any store anywhere, scan it, and learn if it is an HSA supported product. So we’re using technology there to help them understand how to most effectively use the money that they have. So that’s where we’re using technology to ease the point of abrasion.

As the President of Diversified Business at Stella, what are you primarily responsible for?

Diversified Business is a catch-all title that covers our strategic investments, partnerships and new business ventures. We also have a permanently located 10 person innovation lab that is colocated at TreeHouse. There are some Phds, human centered designers, and some that I refer to as street fighters.

I look at all that we do under diversified business on a continuum…on one end of the spectrum is the innovation lab and team there at Treehouse. Most recently, they created the Aging Challenge, for example, which helps is identify under-served populations that are mission aligned and find early stage companies already operating in that segment of clinical category.

On the other end of that spectrum would be a company like Select Account with $50m+ rev on a great growth trajectory.

And Learn to Live would fall on that spectrum?

Learn to Live is a great example where we have partnered with them, invested in them, taken equity, and launched to our entire insured population.

I think what’s really interesting about that case in particular is that it’s a case of what makes us different as a mission oriented business. When we partnered with them in 2016, we believed that their model would be efficacious, but it wasn’t yet proven, and we took a risk. Subsequently, a few months later, it became proven to be true.

If you’re in a for-profit business, which I have been, they won’t take that same risk, they want to be a fast follower once clinical efficacy has been proven. Dale’s service and their product is a great example of serving the 75% of population with behavioral health conditions in a way that meshes well with our mission and purpose.

We’ve watched Learn to Live go from tens of thousands of lives covered and are now approaching a million.

Do you think that you have a competitive advantage in the market when it comes to making investments?

I think our unique structure allows us to take risks that they can’t take…their for profit status doesn’t allow them to step out to take this kind of risk. They will perceive that to make them less competitive if their competitors aren’t also taking that risk.

Let’s talk about Retrace Health, another company you took a risk on…what can you say about that?

I think it’s another interesting example of what’s possible. Serving people where they are is an important innovative aspect around the future of care. Candidly, we put investments into both Livio Health and Retrace Health in parallel because they were serving two different populations but in a similar method. It turns out that one of those models has had early success and one had less. Livio is absolutely out there still operating.

What have you learned about your investment thesis from the RetraceHealth investment in retrospect?

Retrace offered several lessons to us around about those models and our approach to being operationally involved. We can have passive investment and you can have engaged investments, they vary based on the circumstances and the team. I have nothing bad to say about our experience with Retrace Health. Some bets don’t pay off…as I tell my team almost daily, we have to skin our knees sometimes. We will stand up again, regroup, and keep going forward.

So Retrace, Livio, and Learn to Live are the three technology companies you have invested to date?

Yes, I addition to Prime Therapeutics, which we invested in some 20 years ago.

Is there a range or a sweet spot in terms of dollars that you prefer?

I think that we will do some angel type, a handful of sub 300k investments per year. And we’ll also look at the A’s and B rounds in the millions comfortably.

What do you see as your value add beyond capital?

We bring a very comprehensive understanding of this industry…the one thing that startups least understand yet is most important is how to get paid. Especially in healthcare, who pays who is not always clear, or how that payments happens. We can bring expertise on the mechanics and the inner workings of this industry, the actual needs of the population. That marriage of mission understanding and how money moves are really important.

The second thing is distribution, as we serve almost 3 million people across the Blue Cross network. For example, we have a board seat at Learn to Live and our head of distribution is on the board there.

Could you elaborate on the scope of the reach for BCBS in Minnesota?

2 million insured individuals – everything from commercial business to the individual markets, Medicaid, Medicare…we serve every population. Some commercial clients also have employees elsewhere that we cover, which is another million.

What other markets/regions is BCBSMN found in?

BCBSMN can only do business in the state of Minnesota as a licensee of the association based in Chicago. Overall, there are 36 different BC plans that cover the 50 states and provide healthcare services just over 100 million individuals.

Does each independent BCBS group then also have their own investment initiatives?

I would say there are three or four others who are similarly aligned. Ours here in Minnesota is the original plan in the country, established in 1934. I bring that up because even amongst all of the blues, this plan has a unique status and is perceived as a leader and innovator.

What early stage opportunities are you trying to create companies and partnerships around?

Healthcare entrepreneurs need to know that we’re going to to prioritize our areas of interest. This aging population is certainly a focus of ours today, hence the Aging Population Challenge that we recently hosted.

How do you interface with the healthtech entrepreneurs in Minnesota?

We are out in the community…both at our Treehouse Office, around downtown, and I am also a judge in the Minnesota Cup. The very first question we ask and seek to answer is mission alignment. I’ve participated with the venture and private equity communities for some time in this space. When we are assessing entrepreneurs, we have a very powerful lens around what is motivating that entrepreneur. And if that answer is strictly economic, we probably won’t have alignment. Only then can we discuss the business model and how to make that sustainable over time.

Is Stella an LP in the Treehouse Healthcare Fund?


Do you anticipate doing another challenge next year, either in the same theme or another?

We had a handful of applicants from the state of Minnesota, and dozens from around the country, even outside the US. It was a great success for everyone involved, I couldn’t have been happier with it all around. We haven’t answered that question yet though…I can imagine us doing something like that again.

How do you think being a nonprofit in the world of ever-changing healthcare helps or hurts you?

I think it can only help us. This space requires risk and investment…it also requires long term perspective. And if you look at how this organization has performed over the past 80 plus years, it’s had ups and downs, financially. And that’s been OK for BCBSMN, but the for profits cannot play the game that way, instead they change based on economics in much shorter term windows. We will stay true to the people we have the honor of serving over a very long horizon. I think that is differentiating and positions us very well for what may come tomorrow.