Selling IBM Watson Health data to include population health imaging and software

IBM Corp. plans to sell its imaging and population health software as well as Watson Health’s data and analytics business, the company announced on Friday.

Tech conglomerate and private equity firm Francisco Partners have signed a definitive agreement and expect the deal to close in the second quarter, subject to customary regulatory approvals. The transaction, the financial terms of which were not disclosed, includes medical imaging and population health software from IBM, Merge Healthcare and Phytel.

IBM has been gradually selling off parts of its artificial intelligence-powered Watson Health business, illustrating the complexity of applying the nascent technology to the highly regulated healthcare industry, analysts said. But IBM’s “missteps” should not downplay the potential of AI in healthcare, industry watchers said.

The IT industry chronically underestimates the complexity of human disease by defining healthcare as a “big data” problem, not a human problem, said Jeff Goldsmith, founder and president of consultancy Health Futures. .

“I bet IBM spent $6 billion on it, before they started buying out the collateral companies to cover the core failure,” he said, describing Watson Health as a “huge corporate embarrassment” that left behind broken promises. “I have no idea what Watson Health’s remaining business is worth and I don’t know anyone who does.”

As part of the agreement, the current management team will continue to perform similar roles in the new standalone company serving its existing customers.

The news comes after IBM sold three components of its Watson Health portfolio to group-buying organization Vizient in 2020: ActionOI, CareDiscovery and Market Expert.

“If IBM can get a fair price for Watson Health, we believe it’s a wise move to get rid of the asset given the significant barriers to adoption in the healthcare industry,” wrote Julie Bhusal Sharma. , an equity analyst at Morningstar, in an email to Modern Healthcare.

IBM acquired Truven Health Analytics in 2016 for $2.6 billion, which added more than 8,500 customers to Watson Health’s portfolio, including US federal and state government agencies, employers, health plans, hospitals, clinicians and life science companies.

The acquisition follows the company’s purchase of Merge Healthcare in 2015, which was then used by 7,500 healthcare facilities to aggregate and analyze medical images. IBM also acquired population health software Phytel in 2015 as well as Cleveland Clinic’s Explorys, a cloud-based application for clinical integration, at-risk population management, cost-of-care measurement and models. alternative payment.

The “assets associated with” Merge and Phytel are part of the deal with Francisco Partners, according to an IBM spokesperson, who declined to confirm or deny whether Explorys was included in the sale. Francisco Partners has invested in more than 400 technology companies over its two decades in business, including eSolutions, Capsule, GoodRx and Zocdoc.

These deals have partly fueled the hype for IBM Watson Health’s artificial intelligence tool for cancer treatment, Watson for Oncology. But he reportedly struggled to navigate the health system‘s electronic health records, leading to internal disputes and management turnover.

“There were some early missteps in oncology, which didn’t work out as well as expected and failed to gain the trust of clinicians. It’s possible that IBM has undertaken something big and bold and it didn’t work,” said Paddy Padmanabhan, founder and CEO of Damo Consulting, noting very public disputes with MD Anderson and Memorial Sloan Kettering Cancer Centers. “The whole (of IBM Watson Health) was supposed to be greater than the sum of the parts, but now the parts seem to be worth more than the whole.”

Google, which has expanded its relationships with health systems like the Mayo Clinic, and Amazon, which recently launched its pharmacy delivery service and expanded its healthcare service for employers, have had more success in recent years than Watson Health, analysts said. Healthcare-backed Truveta continues to gain support in its efforts to host anonymized medical records, images, and genomic data on Microsoft Cloud for Healthcare.

But progress for most tech companies is slower than expected given the stringent healthcare regulatory environment, among other factors, Morningstar’s Bhusal Sharma said.

Oracle’s proposed $28.3 billion acquisition of Cerner likely caused IBM to rethink its overall strategy around Watson Health, said Andrew McDonald, healthcare consulting leader at LBMC.

“IBM is not a major player in healthcare and those early mistakes did not help them. In the end, they were unable to leverage the investment and the return on investment was not not there,” he said. “I think at this point IBM is simply divesting itself of any assets that could damage its reputation and any capital it can recoup will be beneficial with a potential refocusing of its current healthcare game plan.”

IBM Watson Health may have struggled to operate under the corporate umbrella, Padmanabhan said. But taking it down shouldn’t discredit advances in artificial intelligence in health care, he said.

“IBM’s decision to sell the assets of Watson Health is not an indictment of the promise of AI in healthcare,” he said, adding that AI was the one of the top technology investments for healthcare systems in 2021. “There are challenges with the quality and bias of AI data in healthcare, but there is a broader story about the experience of AI in healthcare. ‘IBM and how it should influence the next iteration of AI in healthcare.

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