How UPMC and Health Catalyst Improve Outcomes Using Innovation in Activity-based Costing

July 24, 2018

Article Summary

UPMC and Health Catalyst created a great business partnership focused on sharing risks and rewards to innovate how activity-based costing (ABC) is done in healthcare.
The partners relied on complementary intellectual property, complementary talent, and complementary risks and rewards to drive benefits that extend beyond either organization’s borders.
Health Catalyst licensed UPMC’s activity-based costing software, which served as the foundation for the Health Catalyst CORUS® suite. Together, the partners will continue to work for innovations in ABC to drive outcomes improvements in healthcare.

Medical professionals surround a computer deep in discussion

Strong business partnerships are essential in today’s increasingly complex healthcare environment, with unprecedented joint ventures, mergers and acquisitions (M&As), and other shared business relationships between segments of the healthcare economy. The combination of payers and providers into integrated financing and healthcare delivery systems, the rise of strategic venture capital in healthcare, the combination of Aetna and CVS, and Roche’s acquisition of Flatiron are just a few examples of cross-segment relationships in healthcare.

Great business partnerships aren’t possible without adhering to several best practices, such as fairly sharing risks and rewards, that Health Catalyst and UPMC have been able to demonstrate throughout their partnership of unprecedented shared resources and risk. Other healthcare systems can keep these best practices in mind when considering a similar alliance.

Mission Alignment: Start with a Shared Commitment to Improving Outcomes through Activity-based Costing

Successful healthcare business partnerships start with a shared commitment to improving outcomes. For UPMC and Health Catalyst, the shared commitment was to managing cost through activity-based costing (ABC), and commercializing innovation that focused on outcomes improvement. This shared vision culminated not only in the successful launch of the product, but in UPMC becoming an investor in Health Catalyst.

Complementary Intellectual Property

UPMC developed advanced cost models but needed the data extraction process (a critical component of ABC) to more efficiently scale the application. At the same time, Health Catalyst saw how UPMC’s working ABC modules could be scaled in conjunction with its Data Operating System (DOS™) ;solution. Health Catalyst licensed UPMC’s ABC software, which served as the foundation for the Health Catalyst CORUS® suite. Health Catalyst contributed the data extraction and sales components, as well as DOS, to enable significant new opportunities for innovation.

Innovation has been at the core of the partnership, requiring a shared commitment by both organizations to develop and commercialize new technology through DOS, which could ingest more data from more sources than previous platforms (e.g., transactional systems, legacy data applications, data lakes, and other enterprise data warehouses). DOS could do this at scale and in the cloud, providing a much more accessible and flexible platform on which to execute. With the emergence of DOS, the partners could commercialize applications like the CORUS suite.

Complementary Talent

UPMC committed financial management expertise to the partnership, many of whom ultimately became Health Catalyst team members. Health Catalyst committed data scientists and process improvement expertise. The combination of data scientists from Health Catalyst and UPMC’s financial management expertise proved powerful. This cross-sourcing was a way to stabilize the costs of the data science function, make it a more predictable cost center, add efficiencies, and scale in ways that, had they remained internally sourced at UPMC, would have been difficult. This real-time operating experience has created a living laboratory that informs the commercialization of future product development.

Complementary Risk and Reward

UPMC shared critical functions with an external vendor and entrusted its valuable IP to Health Catalyst. In return, UPMC received access to dedicated talent and a scalable technology platform. Health Catalyst licensed third party intellectual property, and assumed the integration and commercialization risk that comes with taking inorganic technology to market. In return, Health Catalyst received a proven cost methodology and front line operational experience in running cost management operations. Both organizations, as owners, continue to benefit from Health Catalyst’s continued growth, which is further enabled by the continued co-development between UPMC Enterprises and Health Catalyst’s DOS for CORUS.

The UPMC and Health Catalyst Partnership Result: Outcomes Improvement

The Health Catalyst and UPMC partnership is healthy and productive, with benefits that extend far beyond either organization’s borders. One of the most significantly improved outcomes has been UPMC’s ability to extract and apply data within a matter of hours, a process that used to take weeks. Together, UPMC and Health Catalyst are now extending these benefits to the industry.

The evolving healthcare landscape calls for consistent and widespread outcomes improvement. Strong partnerships have a multiplier effect, producing more—and better—outcomes than either partner could produce individually. The real value of a successful partnership is how it positively transforms the marketplace and contributes to a greater good. By applying the best practices Health Catalyst and UPMC have employed to create and sustain their successful business partnership, like staying focused on outcomes while fairly sharing risk and return, healthcare leaders can vigorously explore partnerships, remain entrepreneurial, and commercialize products and services that address healthcare’s greatest challenges.

Additional Reading

Would you like to learn more about this topic? Here is an article we suggest:

Activity-Based Costing and Clinical Service Lines Team up to Improve Financial and Clinical Outcomes

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