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Software // Enterprise Applications

Aggressive Treatment

A $402 million deal between IBM and the University of Pittsburgh Medical Center aims to cut operating costs with improved efficiency, while also co-developing IT products the rest of the industry may use

The health-care industry, which has stubbornly held on to its paper-burdened processes and disparate software-application silos, is trying to figure out how to become an integrated world of digitized information that leads to better patient care and lower costs. The University of Pittsburgh Medical Center started down a new path to get there last week when it struck a far-reaching, $402 million, eight-year deal with IBM.

The most unusual part of the deal has UPMC and IBM each committing to invest $25 million--and up to a total of $200 million during the life of the contract--toward joint development of software and systems to tackle major problems facing health care, including IT tools for coping with epidemics and bioterror attacks, researching and treating cancer, and using electronic health records. If it works as planned, the medical center and IBM will create IT systems and innovations that help deliver health care and insurance better and then sell the jointly developed products and share the profits. "This is a landmark relationship," says Dan Drawbaugh, CIO at UPMC, which operates 19 hospitals in the region, along with a physician group, health-insurance company, and other health-related businesses.

This is a landmark relationship, UPMC CIO Drawbaugh says of the deal.

"This is a landmark relationship," UPMC CIO Drawbaugh says of the deal.

Photo by Scott Goldsmith
IBM has a lot at stake as well, since the deal represents one of the biggest tests of a nascent business strategy, hinging on what it calls "business-transformation services," exactly these kind of deep, industry-specific deals that involve a wide range of products, consulting, and research. This is IBM's biggest deal in health care.

The more conventional part of the deal--and the largest, valued at $352 million--is moving UPMC to IBM infrastructure, increasing capacity while consolidating its IT operations. IBM will help the medical center go from 40 storage systems to two, while increasing capacity 25% a year to keep up with the ballooning quantity of digital data UPMC will produce. By the eighth year, UPMC expects storage capacity of 825 terabytes, up from 180 today. It expects to go from 162 Unix servers to 61 new ones and from 624 Windows/Intel-based servers to 244 new systems. IBM will bring in 24,000 new PCs and refresh all hardware every three years. The medical center will keep its staff and run its own IT operations but turn to IBM consultants to improve its IT management and software development. The companies predict cost savings of 15% to 20% in IT operations.

The larger impact from the deal will come if, through co-development work, UPMC and IBM can move the health-care industry forward in its use of IT. However, exactly where that investment will land isn't spelled out. Wireless and radio-frequency ID applications in hospitals are a possibility, Drawbaugh says, along with bioterror tools, cancer research, and electronic records.

UPMC has some experience funding companies based on technologies developed there, notably Stentor Inc., which makes digital medical-imaging systems. The most likely first commercial products are tools for dealing with bioterrorism and for helping regional health-care providers electronically share patient data, predicts Dan Pelino, IBM's VP of global corporate marketing.

With this deal, UPMC is pursuing a different approach to electronic health records from most other companies taking a lead in IT health care, many of which are aligning themselves with regional efforts. Such alliances often bring together competing hospitals, medical groups, and insurance plans to work on tests related to sharing clinical information that resides on a variety of systems and platforms. A notable example is the Massachusetts eHealth Collaborative, a group of 34 health-care providers, health plans, and insurers that's launching pilot programs to get three communities using and sharing digitized patient information. Blue Cross Blue Shield of Massachusetts provided $50 million to start that effort.

But UPMC's size and scope makes it a regional medical community of its own in western Pennsylvania, providing care and insurance to patients across 29 counties, from doctors' offices to cancer centers to in-home care and nursing homes. That size means any success the medical center has can be viewed as a "center of evidence for development of these technologies to prove they can work on a national, and even a global, level," Drawbaugh says. UPMC will use electronic health-record software from Cerner Corp., which already is deployed at some of its facilities; UPMC is expanding a co-development effort with Cerner.

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