Health Data Moonshot: IBM Takes it to the Next Level with Truven Acquisition

by Nancy Fabozzi 25 Feb 2016
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Truven Health Analytics may well be the jewel in the crown for IBM Watson Health

Nancy Fabozzi, Principal Analyst, Connected Health

25 February 2016

The health IT industry is gearing up for its biggest event of the year next week when Las Vegas hosts the Healthcare Information and Management Systems Society (HIMSS) Annual Conference and Exhibition. This huge tradeshow is where vendors usually roll out the big announcements for new product launches and deals. One of the biggest splashes at last year’s HIMSS event was made when IBM announced its new healthcare business division centered on Watson, the company’s cognitive computing platform that leverages natural language processing and machine learning to derive new insights from vast amounts of data. IBM Watson Health provides cloud-based analytics to government and commercial payers, health systems, life sciences organizations, patients, and others. The launch of Watson Health last April was accompanied by the announcement of two acquisitions in the population health and disease management space, Explorys and Phytel, as well as expanded strategic partnerships with Apple, Johnson & Johnson, and Medtronic. Over the course of 2015, IBM Watson Health continued to line up some impressive deals, most notably its $1 billion acquisition of Merge Healthcare, a large medical imaging and picture archiving company, and a landmark partnership with CVS Health, the leading US retail health clinic, in which CVS will leverage Watson for the prediction and management of common chronic conditions.

Big Blue’s health IT deal momentum certainly seems to be continuing in 2016. Last week and, interestingly, right ahead of the HIMSS show, the company announced its acquisition of Ann Arbor-based Truven Health Analytics for $2.6 billion in cash, which makes this not only IBM Watson Health’s biggest deal to-date but bigger (in terms of value) than all its combined deals for 2015. Truven Health Analytics sells healthcare data and analytics solutions to customers across the care continuum. Some of the company’s brands include MarketScan®, Micromedex®, Advantage Suite®, ActionOI®, 100 Top Hospitals®, CareDiscovery™, and more. Truven also provides a range of consulting healthcare capabilities, bolstered by its acquisition of two LEAN performance management consulting capabilities in 2014 - Simpler Consulting and Joan Wellman & Associates.

Truven was formed in 2012 when Veritas Capital acquired the healthcare business of Thomson Reuters for $1.25 billion. The company has approximately 2,500 US and global employees; 2015 revenues are estimated at around $544 million. Last year, the company was said to be considering an IPO valued at $3 billion.

The Truven Value Proposition for IBM

For IBM Watson Health, this deal is not only big but a potential game-changer. While IBM has made a lot of very smart choices over the past year in building out the Watson Health business, carefully putting together the essential building blocks needed to educate and nourish the vast medical brain that is the Watson Health Cloud, the coming together of Watson and Truven creates a new and important dimension to the business that we feel will propel IBM to an entirely new level. Here’s what IBM gets from this deal -

Scope – Watson, like all cognitive computing platforms, needs to consume a wide array of data to be useful. Watson already incorporates patient clinical data including medical images and can now pull in crucial cost and payment data from Truven, including detailed coding on disease categories, diagnoses, treatments, and medications. Fully understanding the true costs of care across disparate settings is one of the most complex yet imperative data needs and vital to enabling the transition to value-based care and population health management. Healthcare organizations will never successfully move away from fee-for-service business models to assume new risk-based reimbursement models without this foundational knowledge.

Market Reach - The acquisition gives Watson Health a considerably expanded customer base with the incorporation of 8,500 new healthcare clients including federal and state government agencies, commercial payers, employers, hospitals, doctors, and life sciences companies.

Scale - Watson can now crunch data on a huge number of patients. Truven has accumulated data on the cost and treatment of over 200 million patients. Its cloud-based data set and health claims data will be integrated into the Watson Health Cloud, eventually creating a database encompassing 300 million lives.

Talent – With Truven, IBM Watson Health will grow to around 5,000 employees across the US and internationally. Truven’s talent pool features a strong roster of hundreds of healthcare experts including clinicians, policy experts, economists, and consultants.

Culture and Brand Equity - The deal seems like a strong cultural fit, oftentimes a key factor in M&A success. The companies share important DNA in terms of commitment to R&D and innovation and belief in the transformative potential of predictive data analytics in healthcare. Truven is a proven and well-established vendor of analytics solutions within the payer, provider and pharma space; some of its brands have been around healthcare for 30 years or more.

Data Analytics is the Future of Healthcare but the Complexity of This Evolution is Extraordinary

To say that healthcare is rapidly evolving is the understatement of the decade. The digitization of data brings many new opportunities and challenges. First, clinical, financial, and administrative data exit across numerous silos that are the legacy of our convoluted fee-for-service payment system. Many of these data are, unfortunately, inaccurate, inconsistent, or incomplete. Healthcare organizations large and small have often done a poor job of data collection, governance, storing, sharing, and as is increasingly clear, protecting the privacy and security of personal health information. But digital health data is here to stay and will only grow in size and importance with advances in medical science and, especially, cognitive computing. The potential for the application of these health-related data to solving complex issues of quality, cost, and access is one of the most exciting and transformative developments in the history of medicine. But data must first converge before it can be properly analyzed, cleansed, and applied and this takes considerable computing power, scale, reach and financial resources.

Medical milestones are not easy and the application of cognitive computing to healthcare is on par with—or even beyond—other great transformative medical advancements like the discovery of DNA, germ theory, or vaccination. We are just beginning to comprehend its potential and the possibilities for the future are breathtaking. However, getting there will not be easy. The incorporation of advanced analytics into the healthcare system and clinical workflow requires a whole new way of thinking and acting. There will be many bumps along the road as the industry figures out how to do this, and how to pay for it. The signs are that it’s going to be a tougher and longer road than is being currently acknowledged. But the journey can’t even begin without gathering together comprehensive data resources that can be put to work to solve these problems.

Why IBM is Positioned for Success in Healthcare Cognitive Computing

Healthcare is a very big ship to turn around but turnaround it must. IBM Watson Health is building a foundation to transform an industry. It has the potential to not only reshape scientific discovery but more importantly to improve healthcare delivery by expanding access to care while at the same time facilitating greater financial and operational efficiencies that are so desperately needed.

More often than not, and especially in the US, change in healthcare is steady and incremental rather than big bang. Healthcare has more complexities and entanglements than almost any other industry and things just take longer to accomplish. But IBM is committed to putting the right pieces together. In the course of slightly less than one year, the company has spent $4 billion growing its repository of health data assets. This is part of the company’s broader corporate turnaround strategy to increase its focus on next generation health IT, or as CEO Ginni Rometty calls it IBM’s” moonshot." The addition of Truven to IBM’s existing data assets across all its businesses creates a massive new health data powerhouse that is uniquely positioned to take the lead in the increasingly competitive health data analytics and cognitive computing space. It’s an ambitious plan and IBM has faced criticism and naysayers about the viability of its healthcare business model. Is Watson ready for the market? How is this data being applied? How is it making a difference? Where’s the beef? We think many of these questions are misguided and that the market needs to stop expecting instant gratification, especially in healthcare. Rather, market watchers should keep in mind the massive magnitude of what is going on here. Getting healthcare organizations to embrace cognitive computing is not analogous to getting consumers to adopt smartphones. Incorporating advanced predictive data analytics in healthcare is a very complex endeavor for any technology company. Market watchers need to consider the broad, long term view. Where are we headed and why? What do we need to get there? In terms of healthcare, IBM understands this holistic vision better than almost any other technology vendor.

What’s Ahead for IBM and Health IT

As we head into the HIMSS conference, it is interesting to reflect on the past five years in health IT. It’s been a wild ride, with literally hundreds if not thousands of start-ups of every kind, including in the analytics space. We’ve seen billion dollar valuations based on a lot of fluff. But, today, there is growing sentiment that the party’s over, with signs that the market is coming back to reality as witnessed by cancelled or delayed IPOs and falling valuations. And it’s not just happening in health IT. Silicon Valley is retrenching from all IT. Investors funded fewer U.S. startups in the fourth quarter of 2015 than any period in more than four years. We think the health IT market is entering a new phase in which it will strongly favor large established vendors like IBM. And Big Blue is making all the right moves to grow their lead. Overall, IBM’s acquisition of Truven Health Analytics looks like a win-win-win— for the investors, for the healthcare industry, and, ultimately for patients. We applaud IBM’s continued efforts to solve the grand challenge of improving healthcare. It will be interesting to see if any more big announcements will come out of HIMSS. Stay tuned!

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