Q&A: Ellen Herlacher on LRVHealth’s Approach to Strategic Investments

Boston-based LRVHealth is a venture capital firm that includes health systems and health plans as investment partners. For example, the $200 million fund it announced in 2023 includes 30 health system and payer partners. Ellen Herlacher, who co-leads the firm’s research and investments in new care delivery, behavioral health, workforce transformation and government-sponsored payers, recently spoke with Innovation in healthcare about the company’s approach to these topics.

Before joining LRVHealth as a principal in 2020, Herlacher was a principal at Tufts Health Ventures, the corporate development and investment arm of Tufts Health Plan (now Point32 Health). Prior to joining Tufts, she held executive leadership positions at athenahealth and investment and consulting positions at Goldman Sachs and Bain & Co.

Herlacher led LRVHealth’s investments in Diana Health, a reimagined perinatal care company, and Cortica, a physician-led, holistic, values-based autism services company, and supported the company’s investments in Reimagine Care, DotCom Therapy, Greater Good Health, and Season.

HCI: We’ve seen a lot of startups in the mental health space over the last few years. When you’re looking for companies in the behavioral health space, are there any examples of successful approaches versus unsuccessful ones?

Herlacher: I think we’ve learned a lot. There’s definitely an argument to be made that behavioral health has been overcapitalized. There’s also an argument to be made that we’re not really getting healthier. The problems that the capital was supposed to solve are still very persistent, so there’s still a lot of work to be done. If I were to characterize the first chapter of investing in behavioral health, it was basically thinking about how you can use digital health to expand access. There was a real supply and demand problem, and behavioral health is one of the best use cases for telehealth.

A lot of good things have come out of this first chapter. I think the first thing is to elevate behavioral health as a priority for investors and innovators, and maybe even de-stigmatize behavioral health and mental health.

I think where things may have gone wrong is that a lot of these companies were focused not necessarily on access by introducing new supply, but really on platforming supply that already existed and then selling it to payers. It ended up being a bit like the Uber/Lyft economy, where you have a therapist who works for one company and then another company, but on an aggregate level, there’s no new supply. And by the way, who knows if these people are any good.

So we were looking at supply without really thinking about whether it was high-quality therapy or just quantity. I think the winners have emerged. People have consolidated. I think people who couldn’t figure it out have started to pull out. We’ve invested in that space already. We’re focused on a couple of areas. The first one is specialty areas of behavioral health that weren’t included in the first general wave—serious mental illness, schizophrenia, bipolar disorder. We’re also seeing some really successful startups building businesses around clinical models that are designed to address very specific conditions that are hard to address and also very expensive—eating disorders, trauma, PTSD. The last thing I’ll mention is companies that are doing a good job of bridging the behavioral-medical divide. We had already invested in this space last year by starting a company called Cortica, which is essentially a single shingle for kids with autism and combines both the behavioral and medical services that kids with autism typically need.

HCI: In the context of government-sponsored payers, are you considering digital health companies that are able to form meaningful partnerships with Medicaid managed care organizations (MCOs) for whole-person care, or does it involve something else?

Herlacher: In terms of Medicaid MCOs, we think that a whole-person approach could actually hit both the MLR (medical loss rate) and the quality of the home. On the MLR side, it’s different than Medicare Advantage. In Medicare Advantage, we’re talking about the MLR impact because we’re targeting an older, frail population, and if we can better manage chronic conditions, we can lower medical costs. I think when we talk about the Medicaid book of business, the majority of it is women and children, so we’re talking about supporting better utilization patterns — reducing ED use, engaging more in primary care and preventive care. There’s a real quality component to that as well, because these Medicaid MCOs live and die by their quality scores. They have this whole population of people who have no engagement in primary care. It’s about increasing annual screenings, increasing immunization rates, achieving certain metrics around six-week postpartum checkups, things like that.

HCI: LRVHealth has invested in a company called Diana Health that is described as reimagining maternity care. Is it introducing new processes to change the way care is delivered in this space?

Herlacher: I think it’s a great example of whole person care. If you were to point to an innovation in the Diana case, it’s about raising the profile of the midwife. A midwife costs one-third of the cost of an obstetrician, so to the extent that you can get a midwife to really perform at the highest level of their license, a lot of the services that are offered in a more traditional OB/GYN setting can be delivered by a midwife. So some of that is optimizing labor, but beyond that, there’s a lot of evidence that shows that the midwife is actually a better clinical partner in the obstetric episode. We can point to evidence that Diana lowers cesarean rates, lowers episiotomy rates, increases breastfeeding rates.

There’s a clinical case to be made for elevating the midwife, but we’re also starting to think about how much more efficiency and access to that model can be made through thoughtful use of remote patient monitoring and telemedicine. Diana started in Tennessee, where there’s a real access problem. There are hospitals that are closing. A significant portion of the population lives in rural areas. So how much can you open up access to the Diana model to people who might live an hour away from the nearest clinic, scheduling nine of their 13 appointments via telemedicine?

HCI: Are there any challenges for new companies looking to focus on working with organizations that provide value-based care models?

Herlacher: Is your question about collaboration with existing providers or about the challenges of innovation to deliver value-based care?

HCI: I think it’s the latter. It doesn’t have to be about partnership with the incumbents.

Herlacher: First, think about what’s already been done in value-based care. Advanced primary care models like Oak Street and ChenMed are already in a global capitation-return framework. So if you think primary care is going to continue to have a premium dollar in the long run, how do you think about some of these other models that are trying to manage the episode based on value or specialty? How do you think about slicing and dicing that premium dollar? How do you think about population stratification?

We’ve looked at a lot of companies that are trying to contract with payers on a case-rate basis or PMPM contracts, which makes sense for the right conditions or episodes. The challenge that we’re seeing now is that payers are having a lot of contract fatigue. I’m looking at a company right now that has an incredibly elegant clinical model and has a hard ROI on that clinical model. But the people who are working in contracting are saying, “Get in line.” Another challenge that I’m seeing is the administrative burden of negotiating and administering these value-based care contracts.

HCI: I get at least 50 press releases a day from companies that are touting the use of AI to transform something. How do you and the healthcare system and payer executives you work with separate what could be truly significant innovation from just hype and marketing where people feel compelled to slap an AI label on what they’re doing?

Herlacher: That’s a really good question. We have a whole team, led by Keith (Keith Figlioli, LRVHealth Managing Partner), that is dedicated to developing and maturing our perspective on AI and AI applications and use cases in healthcare. The good thing is that we have a pretty aligned perspective with our healthcare investors and buyers, which means it always starts with a use case. We probably have a pretty allergic reaction to the idea of ​​solutions looking for problems. We think about the biggest problems that we’re motivated to solve in healthcare and what AI could do to help solve them. Having said that, we have a short-term, medium-term, and long-term vision of where we think some of the most exciting use cases are. I think today some of the things that we’re looking at are things that look like administrative or back-office support roles. So we’re looking at call center support, early authentication, things like that. Over time, we would like to surpass our competitors in clinical decision support—the extent to which AI and clinical insights can be combined to make more effective and accurate clinical decisions at the point of care.

HCI: Does working with so many large health systems and health plans allow you to get feedback that helps with decision-making?

Herlacher: One of the things that was really important to me and to the company was to continue to be committed to the care delivery ecosystem and care administration. When you’re in a venture capital position, there’s a temptation to work so hard on things like AI, to work so hard on things that look innovative, that you forget that you’re actually supporting people who are still doing the hard work of healthcare administration. It’s exciting to think about disruptive technologies, but it was really important for us to stay grounded and work closely on a day-to-day basis with people who are physicians, clinical leaders, or who are running health plans.