Allina Health and Health Catalyst's Unusual Deal

Teams building analytics technology for healthcare organizations find themselves jointly holding intellectual property and equity in new arrangements not seen before in healthcare.

Follow the money, they say. It's not always easy. "Terms of the transaction were not disclosed" is the common coin of many a deal. But despite this, some deals are harbingers of bigger things.

To make my point, I will appropriate a word: extrapreneur. It's a word that you won't find in most dictionaries. In 1992, the American Heritage Dictionary defined intrapreneur as "a person within a large corporation who takes direct responsibility for turning an idea into a profitable finished product through assertive risk-taking and innovation."

So what's an extrapreneur? One suggestion from England: Someone who shares information among organizations that they wouldn't share among themselves.

That's a good place to start when trying to understand what is occurring at Cleveland Clinic, Geisinger Health System, and, most recently, Allina Health, where teams building analytics technology for healthcare organizations find themselves jointly holding intellectual property and equity in new arrangements not seen before in healthcare.

Extrapreneurial energy turns intrapreneurial analytics initiatives into companies in which healthcare enterprises retain some equity, remain customers, and benefit other healthcare enterprises who wish to purchase analytics technology and services.

The term extrapreneurial also reminds me of extranets, the early e-commerce concept that extended intranets (internal TCP/IP-based corporate networks) to business partners as supply chains started being built when the World Wide Web was young.

In 2009, Cleveland Clinic's extrapreneurial initiative spawned Explorys, an analytics platform which now counts numerous large healthcare systems among its clients. Yet, for quite some time, Explorys remained located on the Cleveland Clinic campus. And Cleveland Clinic remains an investor.

Geisinger created xG Health "to bring Geisinger's expertise in healthcare delivery transformation to organizations nationwide," according to xG's Web site. xG describes itself as the primary provider of Geisinger's health performance improvement intellectual property.

Launched in 2013 with $40 million of financing from venture capital partner Oak Investment Partners, and located in Columbia, Maryland, xG is not far from Geisinger's Pennsylvania base of operations.

Allina and Health Catalyst
Then, on January 6, Allina Health joined the extrapreneurial ranks. A few terms of the agreement are intriguing the entire analytics industry. Allina took an undisclosed stake in analytics firm Health Catalyst. 

Health Catalyst had just come off an impressive year, having raised $41 million in funding in January 2014, and convening a conference of its own rapidly-growing healthcare system analysts last fall in Salt Lake City, where the company is located.

But back to those interesting terms between Allina and Health Catalyst. It's a definitive ten-year agreement valued at more than $100 million, to combine technologies, some of which Allina developed since becoming the first customer of Health Catalyst technology in 2008.

Once a year, a governing committee of the Allina / Health Catalyst partnership will identify a prioritized list of improvement projects, each designed to provide measurable care improvement and financial value to Allina. As the partnership achieves each goal, both partners will share in the benefits of that success.

The deal also means that Allina is outsourcing its data warehousing, analytics, performance improvement technology, content, and personnel to Health Catalyst to accelerate advances. Beginning this month, in phases, Allina employees working in these areas—some 60 in all—will become onsite Health Catalyst team members.

When you have a partnership of this magnitude, extrapreneurial forces also allow each partner to remain agile rather than locked into an arrangement that has the possibility of souring due to the changing vicissitudes of technology and healthcare.

The $100 million represents the cost of what the staff and tools were costing Allina, says Penny Wheeler, MD, president and CEO of Allina Health, a $3.7 billion not-for-profit organization whose more than 90 clinics, 12 hospitals, and related healthcare services provide care for nearly 1 million people across Minnesota and western Wisconsin.

Use the Best Tool
"We weren't falling back on hope as a strategy," Wheeler says. "We have a lot of confidence in our partner in Health Catalyst. Eighty percent of that [$100 million] is standard, but 20% of it is at risk, based on how we perform on key indicators, like how well the tools perform, for example, on reducing readmissions or unnecessary admissions for people who can spend nights in their own bed.

Wheeler says use of Health Catalyst technology has permitted Allina clinicians to significantly reduce readmissions, elective inductions of labor, time required to diagnose breast concerns, and sepsis rates.

"Our agreement with Health Catalyst says that if we find a better tool out there, we can use it," she says. "So, for example, if [Epic analytics software] Cogito excels at the capabilities that we work with, then we use that," she says.

"So it's more about what can you use the best to improve care than any exclusivity. That just speaks to the confidence level we both have in our ability to partner and make things better, despite what else is out in the market.

"I'm pretty confident that we're going to have a ten-year agreement and beyond," Wheeler says.

"The margins in healthcare right now are so razor-thin, and that's pretty apparent at Allina, given some of their recent financials. But they want to be able to create a little bit of a for-profit business around this core competency they've built in terms of managing their clinical performance with IT, which is what's going on here," notes Judy Hanover, research director of provider IT transformation at IDC Health Insights.

In the era of extrapreneurs, it's all part of doing business.