Aug 30

Health Startup Location Attractiveness Study: Institutions

This is the 4th in a series of posts comparing Seattle with other health innovation clusters. We are comparing several cities on a set of criteria of interest to healthcare startups. Katie Smolnycki is a life sciences market consultant who relocated to Seattle in early 2015 and has been a member of the Health Innovator research team. Her post below examines the institutions that can contribute to a vibrant ecosystem for health innovation companies.

Scholarship Weekend February 22, 2014 Artisan Works Photographer: Annette Dragon

By Katie Smolnycki

Continuing on our journey of exploring healthcare innovation hubs, we will examine the various healthcare institutions in  Boston, Chicago, New York City, San Francisco, and Seattle. The comparison criteria in this series include the following:

  • Cost of doing business – Seattle ranks in the middle.
  • Financial capital – Seattle is lowest of the comparison cities in the amount invested in healthcare; 30% of angels are specifically associated with healthcare.
  • Human capital –Highest ranked city in our study with the largest share of college grads[i]; hub for technology and sciences.
  • Health Institutions- this post.
  • Regional culture – to be posted in September.

To explore the institutions in each of these centers of interest, we decided to focus on hospitals, payers, NIH funding, and research institutions.


A competitive healthcare delivery market is favorable for innovators because these systems need to find ways to gain market share. How competitive is Seattle’s healthcare delivery market?  To explore this we looked at the American Hospital Directory, which provides statistics for non-federal, short-term, and acute care hospitals in each state with data collected from each hospital’s most recent Medicare cost report[ii]. Compared with the other health innovation hubs, Seattle has the fewest hospitals and the lowest ratio of staffed beds. San Francisco and Boston have approximately the same number of hospitals and the most staffed beds per their population, with around 300 people per one staffed bed.


Numhospitalsand pop

This suggests that the competitive pressures on Seattle’s hospital systems may be less intense than those cities with higher per capita beds. Concentration of ownership using the Herfindahl-Hirschman Index (HHI) is another method of assessing market competitiveness. The analysis below by David Cutler and Fiona Morton published in the Journal of the American Medical Association in 2013 compares the HHI across the US for hospital referral regions.

Screen Shot 2015-08-28 at 2.19.38 PM

Seattle’s hospital referral region is moderately concentrated. This is similar to the markets in Boston, San Francisco, Chicago, and New York City. This suggests that the healthcare delivery market in Seattle is no more competitive, and is perhaps less competitive than the other hubs in our comparison set.

Payer Organizations

According to a study published by National Association of Insurance Commissioners (NAIC), the top large group insurance companies by market share (ranked largest to smallest) are: United Health Group, Wellpoint Inc. Group, Kaiser Foundation Group, Humana Group, Aetna Group, HCSC Group, Cigna Health Group, Highmark Group, Coventry Corp. Group, and HIP Insurance Group. At least one of top three large group insurers of NY, CA and IL all are represented in the NAIC Top Health Insurance Company report; whereas a main insurer for MA (BCBS of Mass) comes in at 23 and Cambia Health Solutions (the holding company for Regence BlueShield in WA, OR, UT, ID), comes in at 25. Seattle is not the headquarters of a single large national health insurance carrier. Our two Blue carriers, Premera, and Cambia Health Solutions, serve several western states but are not national entities. Group Health Cooperative is Washington-only.

Health Insurers

Of the top 10 health insurance companies  in the US, one is is headquartered in Chicago, two are in the Bay Area, and three are within commuting distance of the New York Metro area. This suggests that Seattle’s payer community may not have had the resources to provide a launchpad for startups, at least until recently.

Cambia Health Solutions is becoming an important player in the health innovation community in Seattle. Cambia Grove opened in the spring of 2015 providing a community space to bring innovators and entrepreneurs together with stakeholders to find innovative solutions from challenges in health care. They offer a variety of programming geared to helping entrepreneurs connect with the other players in the industry. One program hosted by Cambia Grove in July was a Reverse Pitch event which Evergreen Hospital pitched their problems to innovators in the digital health community.[iii].

NIH Research Funding

Funding of research grants by the NIH is an important part to furthering research in higher education centers, hospitals, and non-profits and for-profits research institutions. In FY2015, the NIH invested nearly $30.3 billion in medical research which allows investigators to come up with new ideas that can help change the world. This was $211 million above FY2014 budget, a 0.7% increase in funding, while FY2016 funding is expected to be $31.3 billion. The NIH main themes for driving discovery and innovation in FY 2015 funding were: today’s basic science for tomorrow’s breakthroughs, precision medicine, big opportunities in big data, and nurturing talent and innovation.


Boston received the most NIH research funding in both FY 2014 and 2015. Boston hospitals receive the most funding from the NIH for hospital research having five out of the top six top NIH funded hospitals[iv]. Hospital funding in Boston makes up almost 50% of the NIH funding received in the area. In the other regions, hospital based NIH funding makes up to 5% of the region’s NIH funds. For medical school NIH funding, NYC area schools (12 schools) receive $1.1 billion in research with Boston and Chicago medical schools (5 and 6 schools respectively) receiving over $400 million of medical school funding. Seattle only has one medical school but receives over $300 million in funding putting the University of Washington in the top five for funding in both FY 2014 and FY 2015.

Of the NIH funding that came to Washington in 2014, the University of Washington received $437 million, followed by Fred Hutch at $222 million, representing 75% of the total. This highlights the crucial importance of the UW and the Hutch in Seattle’s health innovation ecosystem. This ratio is similar to each of the other cities, looking at the top 50 organizations receiving NIH funding.

For more information on financial capital in these regions, please see our financial capital blog post

Life Science and Biotech Institutions

Washington State is home to 567 life science companies and research organizations with a majority of those located in the Greater Seattle area. There are 274 medical device companies, 182 biopharma companies and 92 nonprofit research organizations or academic research centers[v]. These companies combined add $11.4 billion to Washington’s GDP and represent the 5th largest employment sector, with a 12% growth in jobs from 2007 – 2013.

Out of the top 15 pharma companies by 2014 revenue[vi], Seattle is only has ties to three: Sanofi (some manufacturing), Gilead (inflammation/respiratory and hematology/oncology therapeutic areas and clinical research), and Bristol Myers Squibb (Zymogenetics ). In June 2015, Bristol Myers Squibb announced the relocation of the 40 Seattle based research and development jobs to San Francisco, leaving their early manufacturing group (approximately 120 employees) in Seattle[vii]. Amgen had a presence is Seattle until this past year when they closed down their facilities to cut costs. Seattle’s biotech sector is predominately small, early stage companies and some large nonprofit research institutions. For example Juno Therapeutics, an immunotherapeutics company, went public in December 2014 with $265 million IPO and a valuation of more than $3 billion. Juno recently announced a partnership with Celgene for $1 billion to work on the development and commercialization for immunotherapies[viii]. Presage Biosciences, an oncology start-up in Seattle that works to use human efficacy data earlier in drug development, announced August 20, 2015 that they received a strategic undisclosed investment from the venture capital arm of Takeda Pharmaceutical[ix]. About half of Washington’s life science companies are medical device companies, with Philips Healthcare being the largest medical device company located in the Greater Seattle area. Despite Seattle’s lack of large biopharma and medical device companies, there is still potential for collaboration with larger companies.

Seattle’s strong technology industry can help foster growth in the digital health space, as well as innovation in medical devices.  In 2014, there was $1.1 billion in transactions across Washington State including IPOs, M&A activity, and venture equity and as of August 2015, there have been $2.5 billion in life science transactions, which is expected to reach $3 billion by the end of 2015. Transactions are approximately 38% medical technology, 31% pharmaceuticals, 23% health IT and 8% other[xi].

Boston, New York City, and San Francisco are home to many of the top biopharma and medical device companies (Johnson and Johnson, Novartis, Roche, Merck, GlaxoSmithKline, AstraZeneca, Bayer, Amgen, and Eli Lilly) and smaller startup companies as well. Chicago is home to fewer top healthcare companies than Boston, NYC, and the Bay Area but is headquarters for few larger companies, such as Abbott Laboratories (AbbVie), Baxter, Takeda (US headquarters), Walgreens, and Allscripts.

In Summary

The presence of institutions with both the resources and the business drivers to innovate are favorable to health startups. Seattle’s position relative to the comparison cities is not as strong as it could be but still offers ample opportunities for health startups:

1. The healthcare delivery system market in Seattle is similarly concentrated as other cities but the per capita staffed bed ratio suggests that hospital systems here may still lack the existential competitiveness of other cities and may not yet be ready to look outside to the startup community for innovative approaches.

2. The health insurance industry in the Northwest has not been a national launchpad for startups.The recent activities of Cambia Health Solutions is a positive development.

3. NIH funding in Seattle lags Boston, New York, and San Francisco but is still respectable. This provides a critical funding stream and keeps Seattle in the running as an attractive location for health startups. This is mostly due to the influence of the UW and Fred Hutch in attracting federal research funds and spinning off new companies.

4. Seattle has a vibrant community of life sciences organizations that are not as  large as those found in Boston and other life sciences hubs. The economic impact of this sector has been strong, with 12% job growth 2007-2013, as the 5th largest employment sector in the state.

[i] http://www.citylab.com/work/2013/01/does-human-capital-tend-cluster-center-cities-or-suburbs/3245/

[ii] https://www.ahd.com/state_statistics.html

[iii] http://elevarco.com/2015/08/evergreenhealth-cambia-grove-and-elevar-seek-digital-health-startups-to-improve-the-patient-and-provider-experience/

[iv] http://www.masslifesciences.com/why-ma/research/

[v] http://c.ymcdn.com/sites/washbio.site-ym.com/resource/resmgr/WBBA_IndustryTrends-1Page.pdf

[vi] http://www.fiercepharma.com/special-reports/top-15-pharma-companies-2014-revenue

[vii] http://www.geekwire.com/2015/bristol-myers-squibb-relocating-40-seattle-scientists-to-san-francisco-five-years-after-acquiring-zymogenetics/

[viii] http://www.bloomberg.com/news/articles/2015-06-29/celgene-buys-stake-in-juno-in-1-billion-partnership-deal

[ix] http://presagebio.com/releases/Presage_PR_08202015.pdf

[x] http://www.biospace.com/News/seattle-biotech-nanostrings-revenue-up-20-as/386850

[xi] http://www.bizjournals.com/seattle/blog/health-care-inc/2015/08/washington-state-life-sciences-deals-led-by-juno.html?ana=twt

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Secured By miniOrange