By Nancy Fabozzi, Senior Industry Analyst, Healthcare IT, Frost & Sullivan

COMPANY BACKGROUND

IBM (Armonk, N.Y) is one of the largest and most well-established technology vendors in the world with over $100 billion in annual revenues. IBM's differentiation in the marketplace and long track record of success stems from its end-to-end portfolio of capabilities and extensive experience in software and application development, hardware management, and systems integration. IBM has approximately 436,000 employees worldwide and serves numerous global industry sectors including healthcare. IBM, whose history dates back to the 19th century, is well-recognized for its leadership role in technology innovation and currently holds more patents than any other U.S.-based technology company. IBM's broad patent portfolio covers more than 40,000 inventions in a variety of categories and includes technology products used by millions of people around the world. A key focus for innovation at IBM has been in the area of advanced analytics, where the company continues to gain substantial market share driven by a robust R&D program and an investment of over $14 billion for 25 key acquisitions made since 2005. Today, IBM offers one of the broadest portfolios of analytics solutions to customers across multiple industries. In healthcare, IBM's wide breadth of service offerings range from simple transaction reporting systems to data integration/data warehouse solutions, clinical decision support analytics, and state of the art predictive analytics solutions.  IBM's analytics solutions are sold under the Business Analytics and Optimization (BAO) umbrella and include Cognos, SPSS-based analytics and more.  The company's deep expertise in business intelligence and analytics is a key strength for serving its global healthcare clients. In 2011, health plan giant WellPoint and IBM announced an agreement to create the first commercial applications for IBM's Watson.  Watson is a new class of industry specific analytical solution. It can interpret the meaning and context of human language to offer precise answers to complex questions in a matter of seconds. Using deep content analysis, advanced analytics and evidence-based reasoning, it can quickly find responses to questions by culling through mountains of medical data, helping doctors identify the optimal diagnosis and treatment options. Responses are weighted with a respective probability and access to supporting evidence helps physicians have the information they need to make the most informed decision. Wellpoint will develop Watson-based solutions that are specifically designed to help clinicians treat patients by identifying the most likely diagnosis and by suggesting evidence-based treatment options targeted to a patient's individual circumstances.

PERSONAL BACKGROUND

Daniel S. Pelino

As general manager of IBM's global healthcare and life sciences business, Dan Pelino works closely with public and private healthcare providers and payers, biotech and pharmaceutical companies, and medical device and instrument companies worldwide to create smarter, better-connected healthcare systems. A recognized expert in healthcare IT transformation, Dan has helped countries, states, provinces, health plans, and providers redefine their value and success. Dan serves on the Executive Committee for the Patient Centered Primary Care Collaborative (PCPCC) and on the Board of Directors of the Healthcare Executive Network (HEN). Since joining IBM in 1980, Mr. Pelino has served in a number of leadership positions, including vice president of corporate marketing and strategy; vice president of global distribution channels management; vice president of the Americas, Central Region, responsible for customer relationships, revenue, profit, and market share for 15 Midwestern states; and group vice president of global sales, marketing, and support for the Technology Group. Mr. Pelino received a BS in business administration and public relations and a master's degree in organizational communications from Western Kentucky University.

FROST & SULLIVAN INTERVIEW

You've had long and successful career at IBM that has spanned a variety of core business areas across the globe. Talk about your areas of expertise and what you were doing prior to your current role.

I've had a terrific career and fascinating jobs at IBM.  As for expertise, I would describe myself as a collaborator - a behavioral science person focused on organizational communications and organizational behavior. IBM as a company is committed to innovation, creating value and helping organizations transform their business and operations,  I try to bring together the organizations, individuals, and innovative thinking and approaches to address levels of inefficiencies in an industry or broader market. I believe you create value off of a T-shaped model - horizontal value applicable to all types of organizations and deep vertical industry knowledge and skill sets. As you picture the junction of that T, the value zone is how you would expand both horizontally and vertically. I come to healthcare and life sciences with a systems of systems view and then work toward how you can actually create value within the ecosystem.

How did you move from focusing on technology integration to heading IBM's global healthcare and life sciences business? What was the thinking that drove that decision and how was this a departure from the way that IBM approached healthcare in the past?

Around six years ago, while involved in a number of key projects at our corporate headquarters, IBM leadership approached me about heading up our healthcare and life sciences business.  They envisioned that healthcare was going to go through some dramatic changes and that the way we approached this business needed to dramatically change as well.   To be honest, I hadn't considered this type of an assignment because in the last 20 years IBM has had only four leaders in its healthcare and life sciences industry and each held either a medical or a doctorate degree.

Healthcare has traditionally operated in industry silos - health plans and government payers operating by themselves, providers operating by themselves, pharma operating in a blockbuster drug mentality, and so on. And our research and strategy work clearly showed the inefficiencies in the system due to each of these silos. We thought that, if each of these segments approached it differently and focused on the patient, it would not only create tremendous value, but would start to address some of the inefficiencies in the system and ultimately lower costs and deliver better outcomes. This idea of the patient or consumer was coming to the forefront and more broadly how countries would provide healthcare for their citizens. This was what was on the minds of the executive team when they offered me the position to provide leadership in this vertical.  After they asked me to think it over, I went to a friend who is doctor for advice. I explained that IBM wanted me to step into this role of creating value within healthcare and life sciences and asked him if my not being a physician might be an obstacle. He actually confirmed that the healthcare industry really needed a business leader who was more of a collaborator that could look across the entire spectrum, bringing experiences from other industries to help transform healthcare from its current siloed state. He helped convince me that I needed to take on this challenge.  I accepted the position.

The first thing we did was to gather more than 130 leaders for a five day executive forum to examine and define priorities and chart a course for the future healthcare business.  We brought in thought leaders from outside of IBM and, for the first time, we formed a partnership with our own internal HR team to find out what kind of care and insurance coverage we, IBM, wanted to provide for our own employees.  Since IBM is one of the top corporate spenders for healthcare services for employees, families, and retirees, we felt that understanding our own situation and experience would be very valuable.   We learned that continuum of care and integrated solutions focused on the patient are important priorities.  Certainly we care about managing chronic disease and multiple morbidities, but we are also focused on getting in front of diseases by focusing on preventative measures, overall wellness, and coordinated care -  so much so that for our U.S. employees today, there are no co-pays to see their primary care physician.  Another part of our research at this early stage was to go directly to the physicians - the American Academy of Family Physicians (AAFP), the American College of Physicians (ACP), and nineteen different specialty societies. We asked them to tell us how we can help.  What are the problems from their perspective?  The feedback we received was very enlightening.  We learned that the physicians wanted to move off the fee for service model and into new types of incentives; that they wanted a different type of relationship with the health plans and that they were interested in trying to do something different with drug companies and the way medications were marketed to them.  We heard these issues from both family practitioners and specialists. Surprisingly, the specialists also expressed concern about the reimbursement and incentive models because too often they were put in the position to act as a primary care physician, when they would rather focus on their specialty. Also, all agreed that population health was an issue that needed to be addressed.

So we looked at healthcare from all angles - patients, physicians, payers, pharma, governments etc.  You know, IBM has celebrated many notable achievements in healthcare.  We were active in developing electric limbs, the first heart-lung machine, and lasers used in LASIK eye surgery to mention a few.  There are many things we've done and been involved in over the years but we hadn't put healthcare together as a system of systems. We hadn't looked at healthcare as the integration of care centered around the patient. It was from that initial forum held at the beginning of my tenure that we decided to take our all our capabilities - research, software, hardware, and services - to redefine value and success in healthcare and life sciences.  We agreed to look at the entire ecosystem and start to position it as a system of systems, as opposed to only computational biology or high performance computing.  That was a major switch in our thinking.

You developed a good solid understanding about where you needed to go with healthcare based on this input from various stakeholders. How did you proceed from there? How did you prioritize what needed to be done?

When we started to look at the maturity or gestation model of what you need to do in healthcare, we realized that first you have to address infrastructure. You have to virtualize it, rationalize it, and optimize it in order to be able to identify the patient across the entire enterprise and through the ecosystem. As we continued to talk to key stakeholders and look at what our capabilities were, we knew that we could start to create this virtualized infrastructure and take costs out.  For example, when you look at the work we've done with providers like the University of Pittsburgh Medical Center (UPMC) over the past three or four years, we've saved them over $80 million by rationalizing their infrastructure.

That's where we started - looking at inefficiencies in IT and determining what we could do to try to create a platform for the exchange of data where the patient would be at the center of the discussion. Now all of a sudden, there's a beacon of hope whereby providers can start to have information about patients that would go across the system of systems. Sometime after we had made the commitment to go in this direction, along came the discussions around ARRA, HITECH, and healthcare reform, so we knew we were on the right track.

According to our view of the health IT maturity model, after you address the infrastructure, then obviously you implement EMR's.  Then you start to look at analytics. For example, look at the HIMSS EMR Adoption curve. In 2005, out of the 5,214 U.S. hospitals that participated in the annual HIMSS survey, half of them, roughly 48 percent, were at Stage 2 - early EMR. Then we saw in 2010 that about that same percent had moved to Stage 3 -  clinical documentation and first level decision support. Following the same maturity model going to Stage 4 with Computerized Physician Order Entry (CPOE) and Clinical Decision Support (CDS) coming on board - it's all about data, analysis, and insight. This is happening because we're at a point in healthcare where we are into a redefinition of value and a redefinition of success, and this is impacting everyone. Patients are starting to become more educated and engaged in their care - they know which providers they prefer.  Due to the changing regulatory environment, providers and health plans must do a better job of managing risk.  They know that if they can provide information that defines them as best in class, they will receive more of the commercial health plan clients. That's important because many of the 32 million Americans that are coming into the system as a result of Patient Protection and Affordable Care Act (PPACA) will be covered by Medicare and Medicaid. Hospital systems know it's tough to make margins on Medicare and Medicaid, so they want to have the right payer mix. That's why having the best performance metrics becomes so important today. Now, all of the sudden, the discussion on analytics is critical.

Analytics can define and defend who you are. And analytics capabilities enable you to look at best practices differently. Today, some healthcare systems are further along the path of enablement around analytics than most. For example, Kaiser has a wonderful care consideration (i.e., best practices guidelines) library. IBM just brought out Watson and we are increasingly applying this deep question and answering technology to healthcare. We expect the demand for knowledge based systems to accelerate dramatically over the next five to seven years moving healthcare further toward care coordination and evidence based medicine.

We think all of these challenges - the right infrastructure, empowered patients, changing reimbursement models, focus on care coordination, proactive health and wellness - will drive the discussion around analytics and being able to defend and define yourself.  I am suggesting that the movement in front of us is a redefinition of value and a redefinition of success for most stakeholders. Once you enable analytics, you get into new care consideration models which can be accessed through websites and portals to reach out to providers, payers, patients, consumers, etc.  Finally, at some point, we get personalized medicine incorporating DNA - genotyping, biomarkers. That's the maturity model in healthcare IT.  I call that Maslow's hierarchy of needs in healthcare. You do the infrastructure work that includes EMR, you bring in analytics, then care consideration, then personalized medicine enabled by genomics.

Obviously we are seeing some dramatic structural changes happening in healthcare today. Talk about some of these disruptive trends and how relationships among patients, payers, and providers are changing.

What I'm seeing today is that large integrated delivery systems are getting bigger. They are forming relationships with health plans. They are creating a relationship with their patients whereby the data that the patient wants has to go through the relationship that they have with the delivery system. For patients, it's about the ability to be able to reach your doctor online; to pay online; to have your physician actually make the referral and the appointment for you, and to know that your information flows with you to that referral. This process changes the dynamics of the referral system. That's why a lot of organizations are creating their own integrated delivery networks where dermatology, oncology, pediatrics, orthopedics, etc. are all coming underneath the same roof.  They want to keep the referral patterns in house. They want to scale the inefficiencies in the administrative systems, and then they can create incentives to the physicians that drive adherence and compliance which they know will result in better outcomes for the population they manage.  They can then use that data to define themselves and to create success so that they can be in a position to attract business from the commercial health plans. And they are doing all this in front of the health insurance exchanges. So these structural changes and new processes are being put in place to support what's coming.

There was a book written in 1997 by Ian Morris called The Second Curve: How to Command New Technologies, New Consumers and New Markets. Morris says you have to see the second curve coming, pay attention to it, and decide when to get on that second curve. You don't want to abandon the first curve too early but you also don't want to get caught by missing the second curve. So for healthcare, what does this mean? What's the first curve?  It's fee for service.  The second curve starts to get into this idea of the quality of care - of paying providers on metrics that are tied to success and not necessarily to episodic or acute care. That's the idea of the continuum of care. That's why we are seeing health plans and even some integrated delivery systems like Kaiser, UPMC, Geisinger, etc. starting to pay their physicians incentives for better quality scores.

Many health plans are trying to understand who are the best performing delivery systems. They're forming partnerships by which they agree to move the care of their population into a particular delivery system because that system's metrics prove to be better than the other competitors in the market.  And some of those health plans are actually starting to acquire providers.  Why? Because health plans are looking for those delivery systems and organizations that can handle their commercial members. They are giving providers advanced incentives and they are doing it all in front of the government mandated health insurance exchanges. The health plans are making decisions now to group up with the better performing delivery systems.

The change that's happening today in healthcare has the impact to affect our society as a whole.  We're now talking about citizen-based services and the health of our communities. After the 2010 healthcare reform bill was passed, I was asked by Mark McClellan of CMS to speak with the 220 Representatives involved in that decision.  In a closed door session, I reiterated that this is about the health of your people and your community. You want to be able to attract jobs within your community. You want to be able to have industries that will create jobs. You want a healthy population. So, you need to be able to talk about healthcare in the terms of population health, as well as chronic disease management. If you can make that connection and if you can start talking about the health of your community through the backbone of the healthcare infrastructure, you will find that people will have a better understanding of this important concept.

As a collaborator and systems integrator, I see these movements happening within markets. We're focused on being able to help our clients position themselves to be able to succeed in this new market reality. Ultimately, the value is in better outcomes and lower costs and the benefit is health and wellness through activating patients to take more accountability and responsibility.

As we focus more on integration, population health, the continuum of care, and personalized medicine, how does this impact or change the traditional physician-patient relationship?

We are starting to encourage patients to be more involved in their care and take more responsibility. What's important, however, is that the patient does not self diagnose, self prescribe, or self medicate .The quality metrics and the quality scores are still the responsibility of the physicians. But physicians need to help patients change their behavior and to be more adherent and compliant to treatment plans. That means the providers have to build a different kind of relationship with patients and that relationship has to be based on the continuum of care. Ultimately, care will be based on personalized medicine based on an individual's genetic profile. How do you enable better patient compliance? It's not necessarily going to be based on the things we've discussed like a great IT infrastructure, a great EMR, or even robust analytics. Outreach through patient portals and other patient engagement solutions - maybe. But behavioral change is still going to depend on the ability to have a relationship that is based on an individual. Then you can make progress, and that's critical when we move into personalized medicine.

The interesting thing is that 99.8 percent of us - men and women - share the same genes, but that .2 percent of a difference is important.  So, you can solve a medical problem for that .2 percent of the population but that .2 percent is potentially the difference between life and death. When I talk to physicians about where healthcare is going, I refer to that concept of Maslow's hierarchy of needs in healthcare - infrastructure, analytics, care consideration and personalized medicine. That concept is depicted as a triangle. So I draw this and I flip it and say what we are all chasing here is behavior. What's initially big at the bottom (infrastructure) becomes small at the bottom and what's small on the top (personalized medicine or the .2 percent) becomes huge on the top. So the triangle inverts.  Physicians understand this concept because we are talking to them about what they know is the grand challenge. That is, they can be the best physician, but if their patients don't comply with the treatment plan, the physician is still held accountable for the outcome.

You mentioned the "second curve" in healthcare and moving away from fee for service towards new models of reimbursement and incentives. Talk more that and how IBM's solutions are at the center of these changes.

When we look to the future, we believe we will continue to see industry consolidation across the board. We are going to see the second curve emerge with a focus on quality and outcomes. We are going to see organizations traverse and go up this Maslow's hierarchy of needs with a focus on rationalization and optimization of the infrastructure; getting EMRs in place; using analytics to defend and define their value proposition; reaching out to patients, members, and constituents through websites and portals; developing care considerations based on best practices; and then providing personalized medicine, This will lead to engaging people in a whole new way about their healthcare. And when we get there, then we will have a chance to change behavior because everyone will be striving  for compliance with the best treatment patterns whether that's in preventive care or in managing chronic disease.

The other trend that's going to happen in the next three to five years is the extension of care from the hospital to the home. Home care is often better for patients and can allow them to have a better quality of life. Things like infections and all the other reasons why you don't want to be in the hospital can be alleviated.  In the past, health plans have not paid for the hospital to home service.  But going forward, to avoid patient readmittance, hospitals are going to pay for home care for their patients. This is part of the incentive toward quality and cost reduction. Changes in reimbursements are driving this move as hospitals will no longer be paid for patients readmitted for the same health issue.

Our goal is to line up what is needed as a result of these various incentive changes and to provide the technology that enables this. This is the system of systems discussion and IBM is at the center of this. The system of systems concept is enabled by trusted, secure, and scalable solutions based on data and analytics. And to succeed at this, you have to understand the new incentive models along with the workflow and process changes. This is something IBM excels in and it's reflected in our strong healthcare business today.  IBM manages the IT infrastructure for Kaiser and for almost all of UPMC and Mayo. When you look at where we've gone with these large integrated delivery systems, you start to see IBM in the underpinnings of this system of systems.  We are serious about enabling healthcare system change.

We've been talking about the U.S, but IBM is obviously a global company and your position takes you all over the world.  How do some of the challenges we are facing in the U.S. compare to what you see in other healthcare systems and what can we learn from this?

IBM runs Denmark's healthcare system which is ranked number one in the world, according to the World Health Organization (WHO). The country has 5.5 million people, so that's about the same as a region in the U.S. What's different is that in the U.S. about 75 percent of our physicians are specialists and 25 percent are in primary care. In Denmark, it's the exact opposite - about 75 percent of physicians are in primary care. They've also significantly consolidated their hospitals in Denmark. They started with 155 hospitals and they are now down to 25 hospitals. Spain is interesting.  They were ranked about 19th by WHO.  Then they went to Denmark and made changes based on what they saw there. They added more primary care physicians and were able to improve their WHO ranking to third place.

Recently I was speaking at IBM's Research Center in Haifa Israel, which by the way, was one of the first IBM research labs to specialize in the healthcare and life sciences domain. On this trip, I also had the opportunity to meet with members of Prime Minister Benjamin Netanyahu's National Economics Council to talk about healthcare and our approach to population heath and our philosophy about integration.  The message resonated well there, just as it does in many other parts of the world.

Finally, what do you see as your legacy at IBM?

A lot of people have asked me questions about my background. While I'm not a physician nor do I come from a medical background, I've spent a lot of time with physicians and healthcare practitioners to better understand their challenges and help shape the future of this industry. I'm gratified by the fact that IBM has been embraced by many renowned doctors and healthcare organizations. Many people would say that healthcare has been somewhat of an insular group with its own fraternity and sorority but we've found that physicians, nurses and others involved in this industry have offered to teach us what they know to help us understand how we can support their grand challenges. They understand that we are helping them to scale the inefficiencies in the system. We are going after the issues that frustrate them and impede them in reaching their ultimate goals.

IBM has just completed its centennial year.  We like grand challenges, we like the idea of putting a man on the moon, and we like the idea of helping to transform healthcare. We have 8,000 people in our group with 60 MDs on the team.  We are blessed within IBM to have some wonderful talent and to have the company be so committed to make a difference in healthcare. We accept this undertaking as another grand challenge. Today, we have put ourselves right in the middle of this discussion about healthcare. We are focused on helping to innovate, integrate, to create value, and help to solve the problems of a system of systems in the U.S., and around the world. I'm personally flattered, honored, and mindful of my place in this process. Ultimately, I want people to say that IBM and its dedicated healthcare and life sciences team gave the industry the courage to do what it needed to do to change.