Inside a $5B Health System’s ‘AlphaLab’: Structure, Priorities, Metrics and More

By Scott Cohen |  June 25, 2024

Dr. Jeffrey Cohen is Chief Physician Executive for Community Health and Innovation at Pittsburgh-based Allegheny Health Network, a $5 billion medical system that operates 14 hospitals and more than 200 primary- and specialty-care practices.

A serial entrepreneur and venture capitalist, Dr. Cohen is also one of the driving forces behind the launch of AlphaLab Health, an accelerator that provides funding, mentoring, and lab space to support healthcare and biotech startups — and is located in the former intensive care ward of an unused hospital.

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Give us the 30-second overview of Allegheny Health Network.

Dr. Jeffrey Cohen, Chief Physician Executive for Community Health and Innovation, Allegheny Health Network

Allegheny Health Network is a $5 billion healthcare provider based in Western Pennsylvania. We are affiliated with Highmark Health and its Blue Cross Blue Shield insurance division, making us one of the nation’s largest integrated insurer-provider systems. AHN is an academic medical center. We do a lot of research, and we train hundreds of residents and fellows every year. AHN’s flagship, Allegheny General Hospital in Pittsburgh, has historically been a seat of innovation and research.

And you’ve got an interesting title, as head of “Innovation and Community Health.” What does that mean, and what’s your mandate?

For us, innovation is about change and disruption. The vision for my position is exploring, implementing, and measuring novel methods of change in the healthcare space – and figuring out how those innovations can improve the health of our communities.

The vision for my position is exploring, implementing, and measuring novel methods of change in the healthcare space.

The basis of this project recognizes the impact that social determinants have on healthcare outcomes and costs. Presently, those covered by Medicaid have worse outcomes and higher costs – and providers receive lower reimbursement for their care. Why does this occur, and how do we change the paradigm?

We started this project by creating AlphaLab Health, which focuses on retaining and/or recruiting entrepreneurs to solve problems experienced every day in healthcare. The construct is similar to the preexisting AlphaLab, which is a Pittsburgh-based software accelerator, and we applied it to solving health problems presented by social determinants.

Over the last decade, we’ve found that companies structure innovation very differently, even within the same industry like healthcare. Where do you sit in the organization?

I sit in a privileged and unique position. I was given the opportunity to reconstruct a former hospital which was all but closed. Suburban General Hospital opened its doors in 1904 and had ceased operations as a hospital by 2010. Services dwindled after that, and there was very minimal activity left. I wanted to repurpose a legacy facility and raise the necessary capital from sources other than the parent organizations, Highmark Health and Allegheny Health Network. Highmark and AHN continue to pay our salaries, but capital would come from government or philanthropy. If our thesis was correct, we should be able to initiate and sustain programs using external capital sources. This would necessitate creativity and sensitivity to the cost of projects and the use of funds.

Seems like a novel approach.

Indeed, this is a very atypical approach to innovation. The operational and investment funding for AlphaLab Health came from philanthropy, with capital development funds provided by an R-CAP (Redevelopment Assistance Capital Program) grant from the Pennsylvania Department of Community and Economic Development.

We repurposed the former intensive care unit into what is now the home of AlphaLab Health. This 10,000-square-foot location houses wet and dry labs, office space for six companies, and meeting space. Our build-out costs were modest, as we utilized internal staff to do some of the fit and finish work. We had limited funds and had to match what was possible with what was affordable – similar to what we ask of our entrepreneurs.

How big is your team? Are you a solo practitioner within the enterprise, or do you have a team or “network of champions” across your hospital systems and clinics?

There are two AHN staff members at AHN Suburban focused on AlphaLab Health and the repurposing of the old hospital. AlphaLab also has two full-time and several part-time Innovation Works employees dedicated to the accelerator. We have many collaborators within and outside AHN, IW and the Pittsburgh community.

Innovation Works is a Pittsburgh-region seed investor focused on the tech, hardware, software, and life sciences spaces.

Can you talk about how AlphaLab is actually structured and how it works?

Functionally, AlphaLab Health is a joint venture between Allegheny Health Network and Innovation Works. IW manages the operation, and they operate AlphaLab Health’s two sister accelerators (AlphaLab, focused on software, and AlphaLab Gear, focused on hardware). ALH is focused on healthcare – the companies we accept go through a vetting process. Once accepted, we supply $100,000 for two percent of the equity, provide a 5-month didactic course, and free rent for 12 months. Our fifth cohort will be selected this fall, with the solicitation being issued in mid-July.

A key element of the program is pairing the entrepreneur with the staff members within Allegheny Health Network and Highmark Health, who experience the problem to be solved.

Tell us about the intersection with the entrepreneurial community.

We solicit entrepreneurs from outside healthcare, or people within the AHN system who want to solve healthcare problems. They can be from outside of Western Pennsylvania, so long as they maintain a presence in the area for five subsequent years.

The stipend we provide is fixed to a small amount of equity. This allows the entrepreneurs to retain majority ownership of the company, which incentivizes them to stay in the region as they mature their concept.

A key element of the program is pairing the entrepreneur with the staff members within AHN and Highmark Health, who experience the problem to be solved. This allows the startup to create a minimally-viable product more quickly, while being more focused on the actual problem. We collaborate widely, including with other healthcare systems and most regional universities. Incorporating the AHN staff within the process introduces them to change and how it might occur. Some may even decide to start their own companies.

Tell us about some of the specific problems you’re trying to solve. What are your key priorities, and how are they set?

The multitude of problems is as broad as healthcare. We have lots of them. Our selection process allows for flexibility, which solicits the best entrepreneurs and matches them with clinicians, nurses, or technicians who assist in developing products that solve the problems they experience. We have supported companies focused on drug development, device creation, process improvement, and AI algorithms. The problems can be problems [with a large “total addressable market”] such as drug or device development, or small TAM problems affecting populations of people suffering from diseases or limitations inflicted by congenital problems, such as cerebral palsy or spina bifida. The flexibility of the process allows us to focus on problem solution, and not just ROI.

One of our more recent companies has created a 3-D printed seat for children with spinal defects (Testa-Seat). The seats are custom-fitted and printed at a price point 90 percent less than mass-produced devices. The founder came from Israel, established Testa-Seat as a US company, and moved to Pittsburgh for the opportunity provided by AlphaLab Health.

Generative AI is already having an impact across our membership, and the healthcare industry has long been an early adopter of AI and machine learning. Is Allegheny Health already experimenting with GenAI?

Our system and enterprise are exploring the use of AI. Where an application solves a problem, we will dig in and see where it fits. For AlphaLab Health, we have brought in several AI companies, which are mostly focused on the administrative problems.

How do you think about measuring the impact of your innovation efforts? Are there KPIs or metrics you’ve set, or are considering?

We look for granular measurement metrics. Follow-on funding for our companies is one of the metrics we follow, and so far we’ve done quite well. In the first three cohorts comprising 18 companies, our entrepreneurs have raised over $30 million. Second, we measure job creation, and to date we have produced over 50 positions out of the first three cohorts.

Two other measurements are median income for the 15202 ZIP code, and third-grade reading levels for the local school district. The indirect effect of innovation as measured by the community should impact social determinants and downstream healthcare costs.

Those who embrace innovation require personality ‘defects’ to do so – confidence, curiosity, integrity, and purpose.

I’m sitting in Boston, which has a very robust innovation ecosystem, driven by a large network of hospitals, universities, research labs, venture capital firms, biotechs, and, of course, startups. What’s the startup ecosystem like in Pittsburgh, and does AHN have a playbook for working with startups?

The Boston startup market is more mature, with well-known linkages between universities, hospital systems, government and funding sources. Pittsburgh has the same core elements, with well-recognized institutions, but we are not yet as mature in our connections. As a consequence, we historically lose locally developed entrepreneurs to mature markets such as Boston. AlphaLab Health focuses on retaining them by providing access to those linkages, and our efforts appear to be very successful so far.

Any lessons or words of wisdom you could impart to other innovation executives trying to do new things inside large, slow-moving enterprises?

Innovation is disruptive and threatening to bureaucracies, as it is about change. Those who embrace innovation require personality “defects” to do so – confidence, curiosity, integrity, and purpose. Follow the path less chosen while helping others understand your purpose. Otherwise stated, never ask for permission – just forgiveness.