We've been married for over five years and the relationship has just increased in its benefits and its intensity." McKesson Information Solutions' Jim Nemecek isn't talking about his wife, but about his company's long-term software development deal with Vanderbilt University Medical Center.
McKesson has development relationships with Vanderbilt and Duke University Medical Center involving Horizon Expert Orders, its computer-based physician order entry (CPOE) system. As senior vice president, Nemecek's job is to support the implementation and enhancement of the product at those academic institutions and then integrate those improvements into the product it sells to the wider market.
In the healthcare industry, the term partnership is commonly used to describe relationships between vendors and their customers, but often that description is just marketing spin. Some companies and entrepreneurial nonprofit health systems, however, are starting to formalize long-term development deals that involve royalty payments, governance boards and liability clauses. Companies such as McKesson, GE Healthcare (Chalfont St. Giles, U.K.) and IBM (Armonk, N.Y.) are drawn to the spirit of innovation on hospital campuses today.
Many health systems are developing clinical information system expertise but lack the software tools or marketing clout to commercialize it. The offspring of these marriages may lead to the next generation of clinical applications, but these new partners are learning that there are cultural complexities to merging the efforts of their organizations.
Based in West Valley, Utah, with satellite offices in other cities, a development team made up of 240 employees from nonprofit health system Intermountain Health Care and for-profit GE Healthcare is working on a series of Centricity clinical information applications, including electronic health records, that the division of General Electric Co. plans to market to the industry. The two companies are collectively investing more than $200 million in the 10-year project announced in July 2005.
"People talk about embedded reporters. Well, I call this concept 'embedded engineering,â€™â€ says Giri Iyer, general manager of strategic relations at GE Healthcare. "It's a new way of collaborating between suppliers and consumers."
A co-developed electronic medication administration record product is scheduled to be introduced in the fourth quarter of this year, to be followed by emergency department, critical care, and ambulatory care products that leverage the strength of Salt Lake City-based Intermountain's clinical IT infrastructure.
Because it was not a traditional sales relationship, the parameters of the deal required serious negotiations. "We are co-owners," Iyer stresses. "We had to sit down and decide who's going to hold whom accountable. We are both making an investment in people and resources."
Kevin Smith, Intermountain's general manager of the alliance, believes that equal investment by both parties is crucial. Otherwise the vendor might dictate to the provider and its commercial considerations might weigh more heavily in decisions.
"Intermountain's ideas may be clinically relevant, but if we weren't paying our own way, our viewpoint might not be listened to," he says. "I think that's why efforts like this have failed in the past."
The IT executives at Intermountain, which has 21 hospitals and 92 clinics, had looked at the products on the market and decided to build their own enterprise clinical information system. But they also wanted a development partner to mitigate risks. "We sought a commercial provider with a broader view of the market and deeper development resources," Smith says.
Besides saving Intermountain money in development costs, the GE deal should help it collaborate with other providers using the same software. "We wanted to avoid becoming an island," Smith says. "We want something that's widely used so that if they're doing something at places like Mayo Clinic or Duke, we can collaborate and have interoperability."
Both Iyer and Smith say managing the partnership projects is tricky. One problem is that some employees had responsibilities outside the GE-Intermountain projects that their managers still expected them to do.
"We had to completely break those responsibilities," Smith says. Some employees have tried to manipulate decisions in ways that violate the guidelines established in the partnership governance structure, Smith adds. "Many of the people assigned to steering committees are getting reports once a month. They're used to getting reports once an hour and they are having separation anxiety," he says. If the joint effort fails, it will be because of a lack of trust, Smith says. "They are now part of a shared organization and they have to trust their managers and the managers of the other organization to do the right thing."
In 2001, McKesson bought the rights to a CPOE product called WizOrders that Vanderbilt had spent years developing and was looking to commercialize. McKesson renamed the product Horizon Expert Orders. "But we didn't just buy it and sign off on the deal," McKesson's Nemecek notes. "They helped us integrate it with our Horizon Clinicals and they have continued to develop functionality and content on an ongoing basis."
To keep current with McKesson and other users, Vanderbilt back-installed the commercial product rather than continuing to use its own internally developed version. "They have hosted 150 site visits from other customers over the past four years and we take Vanderbilt personnel to other customer sites, so they are partners working with our customers," Nemecek says. "I spend about 50 percent of my time at Vandy and have staffers on site all the time. The return on investment has been extraordinary."
McKesson did, however, face challenges early on in its relationship with Vanderbilt. "We had to learn how to treat customers as co-equals," Nemeck says. They had to set up a structure whereby development teams reported to a joint governance board that looks at metrics and whether or not the partnership is working for both parties. "It was a huge cultural shift," he says.
"One of the reasons that the healthcare industry has not reached its potential is that we haven't yet figured out how to mesh academia and industry," says William Stead, M.D., associate vice chancellor for health affairs and CIO at Vanderbilt University Medical Center. "We've devoted six years to making that work."
The McKesson deal, which has been worth more than $20 million to Vanderbilt, has been "organizationally challenging," Stead says. "We wanted to create something that takes advantage of what each organization does best separately. We had to push back and forth as we worked out which parts of the work were best for each organization to do." He says the contract negotiation phase took longer than anybody wanted it to, but that original framework has held up throughout the partnership. "Good contracts are like fences," Stead says. "They make for good neighbors."
When Asif Ahmad came to Duke University Medical Center in Durham, N.C., three years ago as vice president and CIO, Duke had already signed an agreement with McKesson for its CPOE and pharmacy system.
"We realized the product couldn't be deployed without some development work, so we started to rethink the transaction," Ahmad explains. "Rather than just a purchase with McKesson responsible for installation, we started to look at it as an intellectual property relationship where we could work to develop a rigorous system that would be deployable not just at Duke but at other hospitals as well."
Duke staffers developed content, order sets, and dosing algorithms. Duke has a unique process that drives decisions on what content should be in the product and a unique rollout scheme that can be reproduced, Nemecek explains. Duke gets cash in return for its intellectual property and McKesson gets to fill major gaps in its products.
"It's a lovely relationship," says Ahmad, who adds that Duke's entrepreneurial culture makes the deal work. "Our focus is never to customize for just a few users, but to focus on what is best supported by broad-based evidence. This is not just for Duke, and that's the mindset of the whole team."
A team made up of 12 McKesson and 12 Duke staffers has now begun work on a Horizon ambulatory care product. "With CPOE, we took something commercially available and made it better," Ahmad says. "With ambulatory, we are working on something that's missing in the industry and jointly doing the specs, design and implementation. It's a true joint collaboration."
Innovation in the Bronx
In some cases, product development partnerships begin when executives in a provider organization have a workflow improvement concept and seek out a vendor to make their innovation a reality.
At North Bronx Healthcare Network's Jacobi Medical Center in New York, CIO Dan Morreale had an idea to use patient wristbands embedded with a unique patient ID number. When the clinician scanned the wristband using a tablet PC, the patient's medical file would be instantly accessible at the bedside. He thought it would simplify patient identification, save doctors and nurses keystrokes, reduce patient identity mix-ups and make the handling of administrative tasks easier.
"I came up with a process innovation and went shopping for a vendor willing to work with me," recalls Morreale, who is now CIO of AtlantiCare in Egg Harbor Township, N.J. "I had a very specific idea in mind, but I needed someone with the technical expertise to make it work."
Morreale remembers walking the floor at the HIMSS show in 2004 trying to interest vendors in his idea, to no avail. "I'm a CIO, so they were nice and polite, but no one was interested," he recalls.
But in mid-2004, he showed his idea to executives at Malvern, Pa.-based Siemens Business Services Inc., who thought it had commercial possibilities. "They made me an offer," Morreale says. "If I would pay them $35,000, they would do the development work and provide the systems needed to get it up and running at Jacobi. Then they would go and sell it. I thought that was reasonable."
From Siemens Business Services' perspective, the deal offered an innovative way to use radio frequency identification (RFID) in healthcare.
"We had the expertise in RFID and software integration, but we needed their help in figuring out how to integrate it into the systems they were already using and how the clinical work force was going to use it," says Jerry Moy, a senior client executive. "We saw how an RFID environment could automatically initiate the workflow.
"A nurse with an RFID reader can scan the tag and it knows she is a nurse. With built-in logic, it calls up medication administration records and allows her to automatically fill in fields as medications are administered at bedside. "They looked at the time nurses saved and figured it at a half hour per nurse per shift," Moy says. Across the two-hospital system, they figured it could save $800,000 per year.
Moy says the Jacobi solution is definitely applicable as Siemens works with other hospital clients, and RFID can be used in many other hospital applications. Siemens has since rolled out the patient ID solution to another hospital, Saarbrucken Medical Center in Germany, which is also using RFID to match blood transfusion bags. Another potential use of RFID, Moy says, would be locating patients as they move around a hospital during their inpatient stay.
IBM, UPMC invest together
Some co-development projects grow out of more traditional vendor-customer relationships. When fast-growing University of Pittsburgh Medical Center sought to streamline its IT infrastructure in 2005, it realized that the major internal project UPMC was contemplating with IBM could become even more significant if the tech giant could help the university commercialize its innovations.
"At the same time that our spending on technology was increasing, we were looking to establish a strategic partnership to market solutions developed here," says Dan Drawbaugh, UPMC's CIO.
UPMC, which has spun off several medical products companies over the years, is a fertile environment for new products because of its size and complexity and the amount of medical research and development that takes place there. But it doesn't have the expertise or structure needed to market those innovations. So the infrastructure project being discussed evolved into a joint product development partnership as well.
The $402 million, eight-year deal calls for UPMC and IBM researchers to work side by side on products in the areas of biosecurity, patient safety and electronic medical records. "UPMC is very entrepreneurial," Drawbaugh says, "so this fit in well with the direction we were already going."
During the 36-month infrastructure transformation, IBM is helping UPMC — which sees about 200,000 patients a year at its 19 hospitals — move from 780 servers to 305 and from nine operating systems down to four. They estimate the streamlining will save UPMC $100 million over the course of the eight-year agreement.
The second part of the deal is an investment fund, with a commitment of $100 million from each organization. They started by investing $25 million each over the first 36 months of the deal. A governing board with three senior executives from IBM and three from UPMC evaluates a variety of research projects brought before them.
When investments are deemed worth pursuing, intellectual property ownership issues, such as equity positions and royalties, are negotiated and joint commercialization is discussed. "Several are in the pipeline now — some related to robotic technology and others to software interoperability," Drawbaugh says.
IBM executive Dan Pelino believes the two parts of his company's deal with UPMC complement each other. He sees UPMC becoming a model of IT efficiency for other healthcare organizations as well as an incubator for new solutions.
"As we help them build out their infrastructure, we can start to influence the industry around standards, applications and interoperability and around sharing patient information," says Pelino, general manager of healthcare and life sciences at IBM. He sees a trend developing in which healthcare organizations are starting to commit to technology partners to both help drive costs down and build new applications.
Pelino adds, "We're demonstrating that if you make an investment in running more efficiently, you can create savings that can be invested in solutions valuable to the patients."
David Raths is a Portland, Maine-based freelance writer.