Mergers, Acquisitions, And PartnershipsDramatically Reducing IT Consolidation Expenses

With a Data Operating System

Dale Sanders

September 2017

Thanks, Rus Tabet, for graphic

• I work for Health Catalyst and the technology we produce is related

to the concepts that I advocate in this lecture

• The technology strategies and concepts advocated herein, I would

also follow myself, if I were still an operational healthcare CIO

Disclosure

One of our Four Operating Principles

• Digitizing healthcare… EHRs we’re just beginning

• Mergers, Acquisitions, and Partnerships and IT

strategy

• What’s a Data Operating System and what role

does it play in M&A?

Today’s Story

1. For better or worse, faster or slower, your company runs at the

speed of software now

2. Everything you want and need to do is either helped or hindered

by software and data

3. All C-levels now need to be a little bit Chief Information

Officer and Chief Digital Officer

Advice to C-levels About a Digital Health Future

Thank you, Russel Reynolds Associates for the graphic

• The world’s largest taxi company… owns no taxis

• The world’s largest voice/video communications companies… own no telco

• The most popular media company… owns no content

• The largest lodging company… owns no property

• The world’s most valuable retailer… owns no inventory

• The world’s largest software vendors… don’t write the apps

Digital Disruption is Already Happening

Thanks for the inspiration, Ron Kalifa of Worldpay; and IBM

The world’s largest and most successful healthcare and health management companies,

will own no hospitals

In the Digital Future of Healthcare…

The Parallels Between Health and Car MaintenanceAn ounce of prevention is worth a pound of cure

• Every 10 hours, Tesla collects 1 million miles of

driving data

• 25Gbytes per car per hour

• We collect 100Mbytes per patient per year, on

average

• “We can fix problems in your car and make it

safer, long before you know you need it.”

• ”10,000 fatalities and 500,000 injuries per year

will be prevented.”

• Ram Ramachander, Chief Commercial Officer, Social

Innovation Business at Hitachi

80% of Factors Affecting Health Outcomes Fall Outside Traditional Healthcare Delivery

The Breadth of the Human Health Data EcosystemWhat data do we need for research, personalized care, and community health?

And, by the way, we have barely

any data on healthy patients

Humans Gravitate Towards Freedom of Choice6 billion smart phones by 2020 in a world population of 8 billion

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Evolution of Healthcare IT

In The Meantime, This Is What’s Possible…

• 103 applications on my iPhone

• 89 different vendors

• They build on a common platform with open software standards

• I wouldn’t expect nor hope for a single vendor to meet all my needs

Mergers, Acquisitions, & PartnershipsAnd the IT strategies that help or hurt

• It’s not over…

• 11 straight quarters of more than 200 M&As in healthcare,

totaling $49.6B

• PwC

• “Top performers across all industries focus first on data

integration and have a plan to do so within six months post-

merger.”

• “40% of M&A value in healthcare is directly tied to IT strategy.”

• McKinsey

Mergers, Acquisitions, Partnerships

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• Your new company is not integrated until your data is integrated

• HIE’s are not sufficient for data integration… not even close

• Ripping and replacing EMRs and ERP systems with a single, common vendor

is not an affordable or timely strategy

• M&A strategy in the digital world is more about data acquisition than

bricks & mortar acquisition– but that’s not happening in healthcare

Sanders’ Assertions

IT Integration vs. The Technology Stack

Computing Infrastructure, e.g., severs, networks, data centers, storage

Databases and Operating Systems, e.g.

Oracle, SQL, MySQL, Hadoop, Spark, iOS, Android, Linux, Windows

Data Content

Software Applications, e.g. EHR, HR, Finance, Email, Web, etc.

The data content layer is the

only layer in the stack that

can be “peeled” away without

impacting the other layers

There is a tendency to

start here in healthcare

• Economies of scale… more efficient through consolidation of

shared services and other infrastructure

• Combining scarce resources

• Move into complementary markets, by geography or product

• Reduce risk through larger populations and revenue

• Improve an underperforming organization or asset and thus

increase revenue

Common Motives Behind M&As in Healthcare

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• There generally isn’t one, other than the hope of administrative

savings through IT consolidation

• The strategic value of data acquisition is still largely ignored

What’s the IT Strategy in Healthcare M&A?

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IT Strategies that Drive M&A Success

• The acquirer gets its own IT house in-order, first

• Many develop a “Services Oriented Architecture” anticipating the need to be flexible and

adaptable

• IT leaders are heavily involved in the due diligence prior to acquisition

• Forecasts of revenue growth and cost synergies are driven by financial rules of thumb,

ignoring the challenges of integrating the business and clinical functions that IT enables

• Carefully plan post-merger integration, during due diligence, and factor those into the

overall acquisition costs

• A data integration plan within 6 months post-merger

• Not a systems or application integration plan

10-15% cost savings from a successful IT integration strategy

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• The prevailing solution: Rip and replace

• You’ll be finished in 3-4 years, if you’re lucky, and be 74% over-schedule,

59% over-budget, and deliver 56% less value than predicted*

• In the meantime…

ERP, EHR, and Other Systems Consolidation

*McKinsey, 2012; Standish, 2013

Costs to Rip & Replace... Just for EHRs

These are my personally calculated numbers, based on first-hand

experience…

• $13K, minimum, per employee

• $41K, minimum, per physician

• Hundreds of millions of $$ is common

That’s one of dozens of application software systems in today’s healthcare systems

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“Will you ever consolidate to a single EHR?”

“Oh no, I can’t imagine. We’ve looked at it a few times, but the total

costs are in the billions, and for what? Minor incremental value? We’re

using our data warehouse and building a software services layer to tie

them together until there are better options.”

--C-level at the largest for-profit health system in the U.S.

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• The demand for EHRs

was stretched by

federal incentives.

That’s over.

• The underlying

software and

database technology

of EHRs was

commoditized a long

time ago.

• We can stretch the

lifecycle and value of

EHRs with DOS and

open APIs, e.g. FHIR.

You Can Extend the Life of Existing EHRs With a Good Data Strategy

So, What’s a Data Operating System?

Back to the Technology Stack

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Cloud Computing, e.g.

Amazon, Microsoft, Google

Databases and Operating Systems, e.g.

Oracle, SQL, MySQL, Hadoop, Spark, iOS, Android, Linux, Windows

Domain-Specific Data Content, e.g. Health and Healthcare

Software Development Environments, e.g.,

Git, Eclipse, Angular, D3, Mono, Node, Python, R

Amazing capability

Amazing capability

This is the layer of the

Data Operating System

Amazing capability

• Sitting on top of a cloud-based, lake of data

• All of the healthcare and health-related data in your

organization; publicly available health data; and the data of

your health system partners

• >100 different, disparate sources of data, integrated and

bound together in logical groupings

• 100 terabytes of data, and more

• Organized and optimized for software developers to

leverage that data content so they don’t have to

reinvent the wheel

• And the applications they write are contributing data back to

the DOS, enhancing its data content

• Dozens or hundreds of applications of your choice,

meeting your specific needs

Imagine Your Smart Phone…

Using Related Concepts…

DOS is a combination of the following,

but enabled by modern technology,

designs, and software…

1. HIE

2. Clinical Data Repository

3. Enterprise Data Warehouse

DOS is a platform of constantly updated raw and organized

data, from multiple transaction systems, within a domain

such as healthcare, that enables rapid development and

changes to the software applications built upon it.

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DOS is a Hybrid Architecture

Gartner: Hybrid Transactional/Analytical Processing (HTAP)

“Because traditional data warehouse practices will be outdated by the end of 2018, data warehouse solution architects must evolve toward a broader data management solution for analytics.”

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1. Reusable clinical and business logic: Registries, value sets, and other data logic lies on top of the raw data and

can be accessed, reused, and updated through open APIs, enabling 3rd party application development.

2. Streaming data: Near or real-time data streaming from the source all the way to the expression of that data through

the DOS, that can support transaction-level exchange of data or analytic processing.

3. Integrates structured and unstructured data: Integrates text and structured data in the same environment.

Eventually, incorporates images, too.

4. Closed loop capability: The methods for expressing the knowledge in the DOS include the ability to deliver that

knowledge at the point of decision making, including back into the workflow of source systems, such as an EHR.

5. Microservices architecture: In addition to abstracted data logic, open microservices APIs exist for DOS operations

such as authorization, identity management, data pipeline management, and DevOps telemetry. These

microservices also enable third party applications to be built on the DOS.

6. Machine Learning: The DOS natively runs machine learning models and enables rapid development and utilization

of ML models, embedded in all applications.

7. Agnostic data lake: Some or all of the DOS can be deployed over the top of any healthcare data lake. The

reusable forms of logic must support different computation engines; e.g. SQL, Spark SQL, SQL on Hadoop, et al.

Seven Attributes of a Data Operating System

DOS Can Bridge the Data and Applications

Health Catalyst Applications

Client-BuiltApplications

Registry

Builder

Leading

Wisely

Care Management

CAFÉ

Benchmarks

ACO

Financials

Choosing

WiselyPatient

Safety

Measure

Library

Patient Engagement

Catalyst Analytics Platform

Data Ingest Data ExportData Pipelines

Source

Connectors

Hadoop/

SparkData Lake

Fabric Real-Time Services

Real-Time

ProcessingHL7

Real-Time

Streaming

Machine

Learning

Pipelines

Marketplace

Atlas and more …SAMD & SMD

Fabric Application Services

Registries Terminology

& Groupers

FHIREHR Integration

Security, Identity

& Compliance

Patient & Provider

MatchingMeasures

Fabric Data Services

Data

Governance

Pattern

RecognitionNLP

Data QualityMetadataStandard

Data Models

ML Models

3rd Party Apps

Reusable

Content

Data Operating Systems, and their recent

predecessors, Enterprise Data Warehouses, cost a

fraction of ripping and replacing EHRs, ERPs, and

other applications

• ~$3M-$5M to install and deploy in a few months

• ~$2M-$3M per year to operate and evolve

• ~$340 per employee vs. $13,000 per employee

for an EHR

What About the Costs?

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Between 2001 and 2009, they implemented similar concepts to DOS as well

as a “DevOps” culture in software development.

The results in their software were dramatic…

Related Impact at Amazon

• The digital future of healthcare is about data that

persists for a patient’s lifetime, but applications that

last for months or, at most, a few years

• It’s about choice, adaptability, and personal software

preferences

• The wrong IT strategy will haunt M&A value for

decades

• Rip & Replace: Incremental value for massive investment

• Focus on integrating data, not applications, through a

DOS or Enterprise Data Warehouse

The Moral to This Story…