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IBM Signs $402 Million Deal With University Of Pittsburgh Medical Center

The deal is the kind of "business transformation" effort that IBM has tied its future to. UPMC expects to co-market the innovations it and IBM create.

In what's being dubbed the largest technology deal to date in the health-care industry, the University of Pittsburgh Medical Center has made a far-reaching, eight-year, $402 million pact with IBM to overhaul its technology infrastructure and conduct joint research and development.

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--to strategic joint development work to address challenges faced in the health-care industry overall, including biosecurity for coping with epidemics or bioterror attacks, cancer research and treatment, and electronic health records. IBM and UPMC would sell these jointly developed products or systems to others in the health industry.

If it works as planned, UPMC will create IT systems and innovations that help it run a better hospital and medical research center, but also produce IT-enabled systems that solve problems the entire health-care industry faces. "This is a landmark relationship," UPMC CIO Dan Drawbaugh says.

The other facet of the deal will have IBM move UPMC's technology infrastructure to an "on-demand" environment that will provide flexibility in supporting UPMC's growth needs while also integrating UPMC's many operations, so that patient information, for instance, can be readily shared across UPMC, says Dan Pelino, IBM's VP of global corporate marketing and IBM executive sponsor of the deal.

In addition to the medical center, UPMC's other many operations include a physician group, a health insurance plan, a children's hospital, and a biosecurity center. The infrastructure reengineering and transformation portion of the deal is valued at $352 million.

Among the first products likely to be commercialized by the partnership will be technology tools to help regional health-care providers share patient data electronically, as well as tools to help public health officials and communities deal with possible bioterrorism crises, Pelino says.

The health-care industry overall is in the early stages of a major transformation to replace paper-based processes with digitization. The Bush administration last year set out the goal for most Americans to have interoperable electronic health records by 2014. "Disparate systems, silos of applications in health care, have to go away in order for there to be an interoperable national exchange of health information," UPMC CIO Drawbaugh says. The federal government has emphasized vendor-neutral tech standards for a national health infrastructure. But Drawbaugh believes real-world examples will offer a model to speed the process. "Standards are being developed, but at the same time, the implementation of standards need to occur," he says. UPMC can be looked to as a "center of evidence for development of these technologies to prove they can work on a national level," he says.

IBM CEO Sam Palmisano has set forth these kinds of "transformation" services--combining IT services and industry-specific knowledge--as the centerpiece of its strategy. Health-care is a target industry for IBM. Earlier this week, IBM revealed the acquisition of Healthlink Inc., a provider of health IT services and consulting.

Drawbaugh says UPMC considered other vendors but decided no other vendor would be better than IBM to partner with UPMC to achieve its internal tech transformation. While other vendors offered "components," he says, no other vendor had the scale and "breadth and depth" of technology, nor the national clout, to help UPMC achieve its own transformation goals and create a model for the industry in changing how health care is delivered.

While the industry overall lags in its use of IT, UPMC is among the leaders in using in applying IT to health care, including the use of electronic records in its highly regarded children's hospital.

Before this deal, UPMC had relied on Hewlett-Packard hardware for much of its infrastructure; Pelino says IBM had 13% market share in UPMC's technology environment. About 30 months ago, UPMC purchased IBM "P" Power architecture, and UPMC approached IBM about expanding the relationship.

UPMC and IBM predict cost savings of 15% to 20% in IT operations by the end of the eight-year transformation project. UPMC plans to reduce its number of operating systems from nine to three, servers from 786 to 305, the storage arrays from 40 to two. The deal isn't an outsourcing effort, however; Pelino says UPMC will retain its own IT staff in the infrastructure transformation.

Marianne Kolbasuk McGee is a former editor for InformationWeek. View Full Bio

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