IBM’s sale of its Watson Health data assets to a private equity firm may not rate among the biggest deals of 2022, at least not by size alone. But the transaction, reportedly valued at more than $1 billion, was significant for other reasons.
It effectively marked the abandonment of IBM’s years-long quest of harnessing its artificial-intelligence technology to transform healthcare. That vision, which the IT giant ultimately struggled to realize, involved using Watson to tailor cancer treatment and assist in drug discovery, among other pharma and med-tech applications.
As such, the sale of Watson Health renewed questions about the emerging use of AI in medicine. A number of startups say their proprietary AI models can predict which treatments lead to improved outcomes, anticipate which patients are more predisposed to have a certain disease in the future or arrive at a diagnosis more accurately than a physician.
“When evaluating these startups, I have thought the same thing I did when I read about the Watson sale: It takes more than an AI program to effectively help physicians to be able to treat patients,” one angel investor noted.
In Watson’s case, it required combining data from electronic health records, billing claims and published research to provide a unified, accurate product — something IBM proved unable to do. Cancer doctors who used the service rarely altered treatment course, and the tool was discontinued in late 2020.
Francisco Partners, the PE firm that will soon own the data assets (which include the MarketScan claims database), is poised to be able to integrate them into its existing holdings. Several companies in the firm’s portfolio, which range from GoodRx and ZocDoc to Edifecs and Office Ally, deliver services using AI.
That offers Francisco Partners the potential to pick up the scattered pieces from IBM and create an AI platform that’s more reliable and predictable. The current Watson management team will continue in similar roles in the new standalone company.
Whether Francisco Partners can integrate all the data and analytics assets to create a better data provider — not just a more robust one — remains to be seen. The company did not make its executives available for comment.
As for IBM, the IT giant said in a statement that it remains committed to Watson and its healthcare clients, and that the company will continue to pursue its cloud and AI strategy.
The Watson Health sale followed a busy year in the health IT sector. There were 290 healthcare technology deals in 2021 ‒ or 9% more than in 2020, according to KPMG’s 2022 Healthcare and Life Sciences Investment Outlook Survey, released Tuesday.
In KPMG’s companion survey of corporate and private equity deal makers, respondents ranked virtual health, EHRs and clinical workflow solutions as the most attractive health IT investment areas in the next 12 to 24 months.
IBM’s struggle, and ultimate failure, highlight another sobering fact: No one entity has been able to revolutionize healthcare, though many have tried. We asked Brett Glover, national HCLS financial due diligence leader for KPMG, to weigh in on the dealmaking landscape within health IT and Watson’s place in it.
MM+M: When you look at health information (HI) deals of the past year, growth in deal volume is modest but the deal size is not — like Oracle buying Cerner for $28 billion and the $17 billion acquisition of Athenahealth by PE firms Bain Capital and Hellman & Friedman. What’s motivating those deals? What trends are driving deal activity?
Glover: These examples speak to a few trends of what’s driving deal activity in HI. We’re seeing a continued push by large software companies to get deeper in healthcare, for example. Although we have gone through cycles like these before where tech companies try to do more in healthcare, fail and then leave. Overall deal activity is also being driven by the maturing profile, in terms of profitability, of healthcare IT companies.
The industry has a long way to go to realize a digital future, so more entrants are expected as no single player has locked in that digital vision or reality.
You observed that many of the HI deals involved “middle-office systems,” along with acquisitions in consumer engagement, telehealth, network management and claims repricing. It sounds like administrative processes account for many of the deals. Is that a fair characterization?
Yes, a major driver for these transactions is the elimination of waste and administrative efficiencies in healthcare through process automation and streamlining of workflows, for example.
As the industry moves toward consumer-facing engagement and experiences, middle-office integration and modernization of process flow, process mining and robotic process automation (RPA), as examples, are imperative to deliver that compelling and scalable experience. Further, the integration to back-office is required as well, delivering on that connected experience.
The report notes that, “There is still much to be done to harness patient and clinical data to drive better patient outcomes.” What are the biggest obstacles?
While publicly EHR vendors have been behind interoperability mandates, there is opportunity for improvement. This adoption of interoperability will be accelerated by cloud vendors.
What health data platforms — EHRs, claims data, et cetera — have the most potential in the next few years for being used at bedside and having a real impact on improving patient outcomes?
Most likely platforms and solutions that sit on top of EHR systems. We believe the best-of-breed system will include four types of data: clinical/EHR; consumer, based on preferences/buying patterns and retail history; payer/claims history; and plan eligibility, whether public or private.
IBM’s sale of the Watson Health assets probably will not register as one of the biggest deals of 2022, but it’s significant for other reasons. What do you think needs to be done to unlock the potential of AI in medicine?
Continued standardization and access to healthcare data via interoperability mandates. Watson and others exemplify the foray into AI, but there won’t be a single-vendor or major-vendor solution. AI is going to be dispersed in every aspect of the industry.
About 70% of KPMG’s survey respondents said they expect to increase their M&A activity in 2022. Where can we expect to see HI deals over the next 12 months?
Companies that provide solutions to eliminate waste, fraud and inefficiencies. Underlying technologies that will be increasingly leveraged are machine learning, natural language processing, RPA, value-based care solutions and technology-enabled primary care models.