(March 2007) Over the past two years, the University of Pittsburgh Medical Center has signed more than $800 million worth of partnership deals with various I.T. companies and consulting firms.
The delivery system has collaborated with IBM Corp., Intel Corp., Cerner Corp., Alcatel, dbMotion Ltd., and Carnegie Mellon University.
Each agreement calls for the implementation or creation of technologies that meet UPMC's immediate needs, but executives also hope the investment strategies lead to additional revenue down the road.
"Most of the relationships are driven by a strategic requirement internal to our core business," says Dan Drawbaugh, CIO. "But they also are designed to provide commercialization opportunities that will lead to alternative revenue streams within our delivery system."
UPMC is no stranger to partnerships that lead to commercial I.T. ventures-for example, its longstanding collaboration with the University of Pittsburgh led to the development of the Stentor picture archiving and communication system, now owned by Netherlands-based Royal Philips Electronics.
To manage its strategic I.T. partnerships, the delivery system recently created a new division-the Office of Strategic Business Initiatives-to pursue and fund I.T. development and commercialization for UPMC.
The SBI, as UPMC executives refer to it, has been pursing various initiatives for several years but only in the past two has it announced formal partnerships.
Through the new division, UPMC evaluates and invests in each partnership as it develops over time, instead of using a venture fund strategy where all the money is invested upfront, Drawbaugh says.
Its strategic relationships are classified into six categories. The delivery system has frequently used a joint investment fund where UPMC seeks development partners for technologies in a particular area.
UPMC classifies its April 2005 agreement with IBM Corp.-in which both companies invested a minimum of $50 million for the development of medical information technologies, potentially including biosecurity information software-as a joint investment partnership. The agreement, however, also has UPMC paying IBM $352 million to integrate electronic medical records systems across the delivery system. Preliminary assessment results for this agreement will soon be available, Drawbaugh says.
A year later, UPMC announced another joint investment fund with Cerner Corp., to develop and commercialize various health care technologies including a "smart room" initiative where interactive technology would be used to improve caregiver workflow.
Additionally, UPMC's agreement with Alcatel, announced last November, calls for $25 million in joint investment funds from UPMC and the vendor to develop public safety technology. An additional $300 million will be paid to the vendor to pull out UMPC's wired and wireless information networks, telephone system, and contact center platforms and replace them with a converged network for voice, data and video.
"UPMC has a significant amount to contribute to I.T. development and commercialization," Drawbaugh says. "So these investment funds are designed to capitalize on the creation and innovation of I.T. in the areas where these companies excel."
Other partnerships
UPMC also seeks and develops partnerships to commercialize existing I.T. For example, it recently brought supply chain technology to market via a partnership with Carnegie Mellon University that resulted in the organizations forming a new company, CombineMed.
UPMC has signed other agreements with Carnegie Mellon University, including one that creates a collaboration with one of the school's research labs and another that calls for a $2 million academic partnership.
"Academic partnerships enable UPMC to take part in academic research and development as well as get access to and view technology that's applicable to health care," Drawbaugh says. "Then we make decisions with the partner and inventor to determine any joint commercialization opportunities."
Another type of funding partnership that UPMC uses is an equity investment agreement where the delivery system takes an equity ownership in a company.
Last fall, UPMC announced a $25 million equity investment in Israeli-based dbMotion Ltd., along with a $59 million contract to build a platform to support interoperability among clinical systems across its delivery system. UPMC's investments in dbMotion also call for joint development of some I.T., including advanced decision support applications.
The delivery system also looks for more conventional venture fund agreements, Drawbaugh says. And its SBI division is pursuing partnerships in all investment categories, he adds.
"We have a couple of strategic initiatives we are working on in more unique areas," he says. "We believe our partners can help us be successful in joint commercialization and development."
Partnership agreements between large delivery systems and vendors or consulting firms have become common, especially when the delivery system is frustrated with technology offerings on the market, says Lewis Redd, managing partner of the provider practice at New York-based Accenture.
Partnerships can offer a way for provider organizations to take part in the development and commercialization of technology that fits their core needs, he adds.
But such agreements often don't end successfully because either the vendor doesn't believe the customization the delivery system has contributed will result in a lucrative commercial product, or the delivery system becomes frustrated with the slow pace of I.T. development, Redd says.
To help ensure a successful partnership, delivery systems should develop a performance-based contract before the initiative begins, he contends.
"It's not always black and white whether a partnership is successful. A delivery system might get to a certain point and realize they aren't where they wanted to be, so they want to call it quits," he says. "But they should first ensure their payment stream is aligned with achieving targeted results so they don't end up losing a lot of money."
This article is also available on-line at Health Data Management.