UPMC launches supply-chain venture with IBM's Watson

UPMC is enlisting the help of IBM's Watson computing system to launch an independent company tasked with managing providers' supply-related spending.

The Pittsburgh-based academic medical center and renowned supply-chain leader will own the majority of the for-profit company named Pensiamo, which will manage a hospital's entire supply-chain operation, including sourcing, contracting, purchasing and payment for drugs and supplies. Pensiamo will offer supply-chain strategies based on insights derived from Watson's cognitive analytic abilities. Armonk, N.Y.-based IBM be a minority owner.

The new company is further evidence of providers' growing interest in scrutinizing their second biggest cost after labor. But Pensiamo, which means "we think" in Italian, is the first to apply technology to its decisions. Watson previously has driven clinical insights, but this its first foray into healthcare supply chain and the first time it connects clinical and operational insights.

The marriage brings together a provider known for its massive, innovative supply-chain operation and the computing abilities of IBM, which has managed over $7 billion of supply spending in several non-healthcare industries.

Watson will provide advanced analytics to inform and automate a number of processes, including purchasing. The system will grab from structured data like electronic medical records, published clinical research and even unstructured data such as physician notes. The goal is more efficient decision-making.

The system could also offer assistance in many other business processes, including logistics and helping with predictive planning for ordering and distribution of supplies across a health system. And Watson won't just alert employees to problems like a forthcoming product shortage – it could also hypothesize a solution to the problem, such as using or purchasing alternative products or moving product from other locations, said Dave Liederbach, a vice president within IBM Watson Health. In the case of a nationwide drug shortage, that process could take much longer in a manual, non-computerized fashion because supply-chain professionals would have to call clinicians and vendors to find alternatives.

Jim Szilagy, UPMC's chief supply-chain officer, will lead the new company, overseeing 150 supply-chain employees transferred from UPMC, which will be Pensiamo's first customer under a long-term contract.

UPMC will create a “senior client partner” position to serve as the health system's head supply-chain executive and coordinate with Pensiamo as a customer. About 550 employees will remain in UPMC's supply-chain division following the foundation of the new company, managing its distribution network and other in-house functions.

In the past decade, many providers have formed or expanded their own supply-chain organizations, like Ascension's The Resource Group and Mercy's ROi, in addition to several provider-led GPOs created in recent years, including the AllSpire Health Partners GPO formed by seven northeast providers last week.

Like UPMC, a small but growing number of providers have also decided to handle distribution of drugs and supplies in-house, including Livonia, Mich.-based Trinity Health, which announced a system-wide supply-chain network in March.

Szilagy said he was looking to form a company that would leverage UPMC's advancements in supply chain and offer them to other providers who may not have the same resources.

“I knew that what I wanted to continue to do was invest in (UPMC's) supply-chain organization,” Szilagy said. “I knew others were unwilling to invest in their supply-chain organizations to the level that UPMC has in the last few years and are not as advanced down the maturity curve as we are.”

Pensiamo will be an operator, not a consultant, Szilagy stressed. Some of the company's managed services may be performed on-site and some may be aggregated in a centralized fashion, depending on the particular customer's needs, which could mean self-distribution, like UPMC's centralized system that moves product to its 13 hospitals and various facilities.

Pensiamo will work alongside GPOs, Szilagy said, examining vendor relationships and looking at whether GPO contracts are the best fit for each spending category. He said UPMC will continue its longstanding relationship with its own GPO, Irving, Texas-based Vizient.

“We're not going into replace the GPO,” Szilagy said. “We're there to optimize every supplier relationship, and extract as much value out of each supplier as we can.”

But many GPOs provide similar services, though not necessarily in a turnkey offering. Brent Johnson, the recently retired CEO of Intalere, the St. Louis-based GPO owned by Intermountain Healthcare, has repeatedly touted the company's consulting and outsourcing offerings that provide managed services for a provider's supply chain, and nearly all of the providers offer consulting, analytics, software or other value-added services.

Until today, however, no company has had Watson's capabilities.