UPMC cost management tool slated for market under Health Catalyst deal

UPMC on Monday said it will partner with Health Catalyst to take on the rising cost of healthcare by commercializing the healthcare system's cost management technology.

Neither partner is releasing the financial terms of the deal, but Health Catalyst CEO Dan Burton said it was the company's biggest yet to a new customer. The Salt Lake City-based company's first similar partnership with a healthcare provider was with Minneapolis-based Allina Health. That deal was valued at $100 million.

While previous deals were aimed at boosting healthcare quality and outcomes while also reducing cost, but none has been as focused on cost as the UPMC does.

Under Monday's announcement, the 20-hospital healthcare system's in-house cost management technology and cost management team will benefit from Health Catalyst's enterprise data warehouse as well as its expertise in analytics and forging partnerships.

[Also: Partners HealthCare, Health Catalyst team up on population health center]

UPMC Chief Financial Officer Robert DeMichiei and his team were directed by the health system's board six or seven years ago to attack the cost issue, to somehow develop the capability of understanding the cost of care, just like any manufacturing company would do.

"Our board had the foresight and the vision to think about this, and as a management team, we went about executing it in an expedited way," he said.

The result today is a cost management system that blends quality data with physician- and patient-specific cost data. UPMC and its physician leadership have been able to drive significant changes in clinician behavior leading to improved care at lower cost, and they have also worked on driving out variation in care delivery.

"We heard the industry talking about, 'well, this is something that we all need,' and so we thought there was a great opportunity for this," DeMichiei said.

It was also clear to DeMichiei and the management team they needed a partner if they were to turn a system developed to specifically meet UPMC needs into one that could be adapted for other health systems and hospitals. After a search of "big names, small names," it became clear that Health Catalyst was the right partner, both for its technology and the cultural fit.

"We bring this engine – this activity-based costing engine – and what Health Catalyst brings are a number of templates, some very impressive visualization tools and a large number of ancillary systems," DeMichiei said. "This cost management system can't live by itself. It needs that connectivity with other types of clinical analytics."

Burton likens the agreement with UPMC to those Health Catalyst has with Allina Health and Partners HealthCare in Boston. Both had developed outcomes management technology in-house that was commercially viable and relevant for the broader industry.

[Also: UPMC says it will stop accepting Highmark Health's Medicare Advantage as in-network]

From UPMC, Health Catalyst purchased the cost management capability "so that we can be a commercialization partner of building out a technology solution and then commercializing it across the broader industry," he said.

Burton sees it as the right opportunity, one that has arrived in the nick of time.

"We've built our technology capabilities and our services expertise around enabling our health systems to measurably and systemically improve outcomes," he said.

"When you really stare that down, a foundational component of doing that is that you've got to know what your actual costs are. If you're going to try to find where there are costs to be wrung out, there are inefficiencies that exist that are not improving patient outcomes, you need to have a precise view of your cost structure."

Like Healthcare Finance on Facebook

As DeMichiei sees it, cost and outcomes go hand in hand.

"To me you have completely energized the discussion and the passion around improving quality when you can, in terms of budget and financial result and reimbursement, talk about what it's actually costing the organization," he said.

"It allows us to have a sharper dialogue, a sharper focus on eliminating those avoidable readmissions, those wrong-site surgeries, hospital-acquired infections. All the things that we view as defects, we can now add a finer point on it by knowing their actual costs."

"That intersection of cost and quality is what I always refer to as: 'the Holy Grail of healthcare,'" he said. "We talk about it a lot – cost and quality – but the Holy Grail of actually understanding the cost and being able to optimize around the optimal quality pathway – the convergence of the two, to me, is the Holy Grail."

Burton agreed.

"We look at the foundational problem we're trying to solve," he said. "It's 30 cents out of every dollar that's wasteful – a trillion dollars out of 3 trillion that is wasteful, inefficient, and needs to be identified and then dealt with. That's a problem every health system faces."

As Burton sees it, within the next 10 to15 years, "any surviving health system will have to have a more precise view of exactly what the costs are by procedure, by patient, by facility at a very granular level."

"I think we're hitting this thing right at a sweet spot in that people are realizing the importance of that information and they're going to be searching for solutions to be able to deliver it," DeMichiei said. "We're going to be hitting the market at a really great time."