The BCBS Venture Fund: Six Steps to Protect Member Data

The BCBS Venture Fund manages over $500 million on behalf of 29 BCBS entities and invests in technology and services business that are defining the future of healthcare. As our Fund team looked at key investment themes and sectors for 2016, IT security and data privacy quickly rose to the top. Many experts argue that a consumer’s medical identity is their most valuable data asset. The market data makes it difficult to argue that fact. Medical identities are now selling for $60-70 on the black market or approximately six times more than credit card data^[1]. Data breaches have grown rapidly in recent years (23% CAGR from 2011 to 2014) and nearly half of all breaches in 2014 were focused in healthcare (43%)^[2]. In particular, BCBS Plans have been a popular target. Three of the top seven breaches in 2015 were at BCBS Plans^[3], which has led to IT Security becoming a key priority for Blue Cross and Blue Shield Plans nationally and the launch of the BCBS National Credit Monitoring Program.

Given this strategic focus, the BCBS Venture Fund team launched an 18-month process to find potential strategic partners to help BCBS combat this growing problem. After speaking to dozens of entrepreneurs and evaluating emerging trends in the space, a few themes emerged:

1. IT security is undergoing a massive transformation. New software tools are giving enterprises new visibility into threats that are growing in volume and sophistication.
2. That said, enterprises, particularly in healthcare, still remain behind. In the near-term and mid-term, breaches are likely to continue and likely at an increasing rate.
3. Increasingly complex regulatory requirements for breach notification are also causing a huge burden on the compliance departments of regulated industries, such as healthcare.
4. Healthcare fraud is unique. In addition to health information, medical records often contain personally identifiable information, such as name, date of birth, social security number, and financial information.
5. Consumers have limited ability to protect themselves and have a lack of tools to understand when they may have been compromised.
6. Enterprises, across all industries, need to improve their processes and tools for managing data breaches and protecting consumer identities. It is just as important to handle a data breach well as it is to invest in technology for prevention.

All of these trends made it clear to us that investing in the team at ID Experts was the right decision. The Blue Venture Fund believes that ID Experts has built a scalable, market-leading platform, known as MyIDCare, that enables consumers to protect themselves from all of the most common types of fraud and enables enterprises to protect their customers when their data has been compromised. In particular, we believe ID Experts is positioned to be a leader in the healthcare space with their innovative consumer-driven medical identity alert system, called MIDAS, and their incident response software solution, called RADAR.

As part of the investment/partnership, we are excited that BCBSA has decided to partner with ID Experts as part of their national credit monitoring program, which we believe will fuel future growth. We are excited to work with Bob Gregg and the ID Experts team to guide the future direction of the company. We believe the Company has brought together a talented and passionate group of executives to tackle this big and important problem and look forward to being a part of the team. Now it’s time to get to work!

Mike Spadafore is a Vice President at Sandbox Industries and Board Observer at ID Experts. Sandbox Industries is the exclusive provider of investment management services to BlueCross BlueShield Venture Partners.