Things continue moving forward at a rapid pace at the University of Pittsburgh Medical Center (UPMC) health system, the vast, 20-plus-hospital integrated health system based in Pittsburgh. On a scale that is virtually unique in U.S. healthcare, senior executives at UPMC have been pursuing the development of technology solutions that can potentially be commercialized, and that, when successful, have been commercialized.
While several other large integrated health systems are pursuing the path of technology development incubation, and sometimes, of commercialization, of internally developed technology solutions (among them Cleveland Clinic and Intermountain Healthcare), senior executives at UPMC have for a number of years been moving forward to develop and to co-develop, with partnering organizations, solutions that might gain traction across healthcare. As its website notes, “UPMC Enterprises believes that the smart integration of technology within the health care industry is an opportunity to both improve the quality and lower the cost of health care.As a leading integrated delivery and finance system (IDFS), we harness the strength of our clinical, technical, business, and capital resources to develop, test, and deploy health care products and services that improve the lives of patients across the globe and reduce costs.”
Talbot C. “Tal” Heppenstall, president of UPMC Enterprises, the division of the UPMC organization that is developing technology solutions, spoke recently with HCI Editor-in-Chief Mark Hagland about some of the recent developments at UPMC Enterprises, and the broader context of the health system’s strategies. Below are excerpts from that interview.
What has been and is the vision of UPMC around developing technology solutions that can be brought to the broader U.S. (and even international) healthcare market?
Our vision here is to continue to be what we’ve been for the last 40 years, which is ahead of the curve. If you look at our health system’s $12 billion in annual revenue, we got to that level by acquiring hospitals and medical groups earlier, and by building our own health plan. Meanwhile, like many of our peer health systems, we’ve been looking to diversity our revenue stream. But unlike many others, we’re making much bigger plays in the development sphere than many of our peer health systems.
Tell me a bit about your role and about the evolution of UPMC Enterprises.
My role is as president of UPMC Enterprises. How this has evolved is that, originally, we had a department called the International and Commercial Services Department, and half of that became UPMC International; and we took the commercial half of that and merged it with the Technology Development Center, and now call it UPMC Enterprises. So we continue to try to create diversified revenue for UPMC, and most of that will come from technology companies. In the past year, we’ve tried to focus our efforts even more, so we’ve divided the efforts into four different domains: Business Services and Infrastructure; Clinical Tools; Population Health; and Consumer.
Two examples of companies we’ve launched are Prodigo Solutions, which is a supply chain [cost management] company; and , Ovation [Revenue Cycle Services], which is a revenue cycle company. Both of those are really spinouts from our existing support services group. Most of the revenue, we expect to come out of the other three divisions. Clinical Tools is really aligned with our hospitals and physicians. Businesses they’re looking to start should help UPMC’s own hospitals and physicians. Two pillar areas for us are New Models of Care and Good Science. New Models is really better patient care. Sometimes, it’s not so much of it sometimes; or to practice more efficiently. Population Health is aligned with our insurance plan. We’re an integrated delivery and financing system, and our expertise is something that a lot of provider organizations want to learn to do—to take on risk. So they come to us. And we’ve launched two companies in that space. One is Health Fidelity, a company in California that does natural language processing and helps insurance companies around their hierarchical category codes. We bought that company three years ago and have been increasing our investment in it. And the other is Evolent, a company that UPMC started as a joint venture with the Advisory Board Company five years ago and which was intended to teach other non-profit organizations around the country how to become integrated delivery and financing organizations. Evolent was so successful that it was able to do an initial public offering last June 5. We own 22 percent of that company.
And the final domain is one in which we continue to see a lot of opportunities, Consumer. There, we want to help make healthcare a consumer-facing business, which it isn’t really new. So we have a lot of efforts ongoing there.
Have there been any challenges in all this work?
Yes, there have been a lot of challenges. In any kind of innovation and entrepreneurship, a large percentage of the activity doesn’t yield success. A large percentage of what we work on doesn’t work. But the reason we have a higher percentage of success than others is that, as the largest insurer and the largest provider in western Pennsylvania, we’re also a customer, so we can test out these concepts before commercializing them.
Essentially, you can do “test-kitchen” work internally, then, to test out solutions early on development, correct?
Yes: “living lab” is the term we use. And in our case our test kitchen is filled with 3,700 physicians. So yes, we do we have the same challenges that any kind of incubator, venture capital investor, etc., has. And some things don’t work, and we don’t talk about those. But one of the things we’ve also done in the last year is to put together a more formal pipeline process. We’ve probably got 200 things in the pipeline at any time, and maybe no more than five to 10 will ever see the light of day, commercially. And truly, we’re really excited about the amount of innovation, entrepreneurship, and ideas, we’re attracting.
Can you share overall revenues at UPMC Enterprises?
We don’t actually disclose those because, remember we’re starting up companies. The revenues aren’t really the metric we would use.
You are in common parlance, profitable though?
Yes, but it depends on how long a timeframe you want to talk about. If you look at what we’ve invested since the early 1990s, yes, we are very profitable. But that is not true on a quarterly basis, on which there is always very volatile earnings.
Intermountain, Geisinger, and Cleveland Clinic, are doing similar things, on a certain level, correct? Are you all in the same ballpark?
I think I’d call it playing the same game. I think our ballpark is different from theirs from a pure scale standpoint. You look at things like Evolent, and being able to assume the risk of investing $36 million in one company, with a multi-hundred-million-dollar gain when they went public, those other organizations are working on smaller margins. We play in a bigger ballpark, one more populated by venture capital firms than by our non-profit healthcare peers.
Is there ever a perceptual problem because of the profits involved?
I find that the closer we are to our headquarters, the more of a negative perception there is; but the further you get from downtown Pittsburgh, the more that changes. For example, we’ve affiliated with hospitals in Erie and Altoona, one each, and they’ll talk about how wonderful UPMC is for helping them to revitalize their communities. Ben Bernanke told a story in China about how Pittsburgh came back from its steel decimation, and cited UPMC. And yes, if you read the local papers, you see lots of negative stories. But it’s different outside downtown Pittsburgh. The building we occupy is 80-percent occupied by Google, for example. And we’re the largest employer in the state of Pennsylvania.
Will you and your colleagues be the same thing going forward, basically?
We’re going to continue to do the kinds of things that need to get done for healthcare and for us, and then our job is actually to take it and spread it across the country, and then UPMC International spreads it around the world. So our focus is to take what we’ve done and expand it.
What would your advice be for those who might want to follow in this path?
It would be to hire good people, because the people who would do this kind of work, versus people in patient care delivery or health insurance, they’re different kinds of people. So you need people you wouldn’t normally find in a non-profit healthcare system.
Overall, across the U.S. healthcare system, would you say that there’s a fair amount of clarity about where everything is headed—“where the puck is headed,” as they say? Or would you say there’s still some confusion about the overall direction of U.S. healthcare?
I think there’s definitely confusion about where the puck is going to get us to. I don’t think anyone has a magic bullet for healthcare cost in this country. The successful solutions will provide better patient care at a lower cost. For many healthcare companies [vendors] working on solutions and innovations, lower cost isn’t really in their playbook. It’s an area that’s ripe for innovation. But being an insurer and provider gives us a better sense of what’s happening in the industry.
Are you optimistic overall, going forward?
Yes, we’re very optimistic. We won’t run out of problems to work on in healthcare in my lifetime, that’s for certain.
