<img alt="dcsimg" id="dcsimg" width="1" height="1" src="//www.qsstats.com/dcs8krshw00000cpvecvkz0uc_4g4q/njs.gif?dcsuri=/index.php/c/a/Projects-Management/Is-UPMCs-402M-Deal-With-IBM-Paying-Off/2&amp;WT.js=No&amp;WT.tv=10.4.1&amp;dcssip=www.baselinemag.com&amp;WT.qs_dlk=XaogqrKPJl9RXXCbt8Lv0wAAAAI&amp;">

Moving to On Demand

By David F. Carr  |  Posted 2007-07-18 Print this article Print

University of Pittsburgh Medical Center had runaway growth in its server and storage infrastructure. Here's what it did.


UPMC is a complex operation that puts great demands on its information systems. Through acquisitions and expansion, it has become the largest private employer in western Pennsylvania and the second largest in the state, behind Wal-Mart. Though not actually part of the University of Pittsburgh, UPMC built its reputation on a research partnership between the medical school there and UPMC Presbyterian Hospital that dates to the 1960s, and, more recently, as a center for organ transplants.

In addition to operating 19 hospitals, UPMC manages physician practices and clinics around the region and has even established clinics in Italy, Ireland and Qatar. It's in the insurance business, through its UPMC Health Plan. In the first nine months of the current fiscal year, it had revenue of $5 billion, up 13% from the same period last year. That's a substantial portion of the $6 billion in revenue it brought in during all of fiscal 2006. During those same nine months, UPMC's operating margin was $185 million and its "excess margin," which is essentially its profit including money made on investments, was $459 million.

Consumer groups and competing hospitals in the region sometimes grumble that the result looks more like a major corporation than a non-profit community hospital system. But the financial war chest funds capital improvements (including $71 million for information technology so far this fiscal year) and acquisitions such as the pending $100 million purchase of Mercy Hospital, a Catholic facility that had been losing money in the same market where UPMC makes its home.

UPMC views its expansion as a way of "exporting" the medical knowledge produced through its university partnership, while producing "the same economics for our community as the steel industry did in its heyday," says Mark Laskow, vice chairman

However, each time UPMC integrates the systems of a new hospital, or simply adds a new computer system to its current mix, it increases the complexity of its information systems infrastructure. So, it turned to IBM for help making its systems and processes more manageable.

Before picking IBM, UPMC considered a similar multi-year package of technology and services from Hewlett-Packard. And perhaps HP should have had the inside track, given that much of UPMC's existing infrastructure ran on HP equipment and its HP-UX version of Unix. Except for an IBM mainframe, UPMC made very little use of IBM technologies prior to this deal.

"We were a very small percentage of their budgetary spend on infrastructure," says John Reed, an IBM Systems and Technology Group project director who worked with UPMC. (Reed has since joined EDS). An IBM-approved PowerPoint slide show that he and Sikora sometimes run through includes these bullet points on what UPMC thought of IBM at the time:

  • Too hard to do business with—inflexible.
  • Too expensive—not price competitive.
  • Too slow—organization size prohibits quick decisions.

Of course, the point of showing this from IBM's perspective is that UPMC ultimately changed its mind. But Sikora says it reflects what he used to think of IBM until relatively recently. However, prior to the negotiation he had one other positive experience working with IBM on porting its Cerner health-care management system off OpenVMS (an operating system created by Digital Equipment Corp. and now maintained by HP). The successful move to AIX, IBM's version of Unix, "set the stage for my comfort level for talking to IBM about this project," Sikora says.

Ultimately, UPMC chose IBM for its "superb technology," combined with the flexibility of the contract it offered, Sikora says.

The transformation would simplify and consolidate UPMC's technology and create an on-demand environment—meaning that resources such as storage and processor power could be assigned and reassigned to different applications in a flexible way. The simplification effort revolved around whittling down the variety of operating systems and software supported by the data center.

For example, with most applications ported to either IBM's AIX or Microsoft Windows, UPMC is cutting the total number of operating systems supported by its data center from nine to four. While a mainframe remains in the mix and UPMC runs some Linux servers, operating systems such as HP-UX, Solaris and OpenVMS are being jettisoned. Further, by employing virtualization technologies for both AIX and Windows, UPMC is simplifying its environment by running more systems on a smaller number of servers.

Overall, UPMC aimed to consolidate the functionality of 786 servers and 40 storage configurations onto 305 servers and two storage configurations. Sikora says UPMC wound up tackling the server virtualization aspect of the project about a year ahead of schedule and expects to achieve even greater consolidation. The original plan was to standardize operating systems first, then virtualize servers, but he elected to do both at the same time in order to respond to a surge in demand for new applications, such as a new financial system, without busting his budget.

The contract with IBM is valued at $352 million, or $402 million including a $50 million contribution to a joint venture fund UPMC and IBM established to turn the relationship into a true partnership. Through the joint venture, the two agreed to contribute up to $100 million each to advance R&D on new technologies in a variety of areas, such as one project focused on defenses against biological warfare or terrorism.

This more speculative part of the deal is consistent with UPMC's emphasis on new technology and business ventures, some of which have had significant payoffs. For example, in 2005 UPMC earned $36 million from the sale of Stentor (now part of Philips Electronics), which commercialized radiology imaging software developed at UPMC. In addition to the bio-defense project, IBM and UPMC are teaming up on various hospital management systems, including one that's specific to cancer treatment data, as well as a research informatics system.

MC's Transformation Project, says he also values being able to spend less time requesting and reviewing those bids, thanks to IBM's status as his default technology vendor.

In return for the multi-year commitment, IBM agreed to bundle in consulting services and commit to a "technology refresh," where desktops, servers and other hardware would be replaced with newer products on a regular schedule (generally, every three years).

Rather than using the Transformation Project to cut jobs, Sikora says UPMC is using it to bring new skills into the I.T. organization. So, the IBM deal was not an outsourcing agreement—if anything, UPMC is using the project to build the expertise that would enable it to become an outsourcer to other hospitals and doctors' offices. Sikora thinks there could be a business for UPMC in operating electronic medical records systems for other hospitals that are too small to do it themselves, or which would prefer the simplicity of a hosted application. UPMC is already acting as an application host to Johns Hopkins, which remotely accesses health plan software running in UPMC's data center.

To some extent, the deal obligates UPMC to say nice things about IBM, since one part of the contract was a joint marketing agreement to sell information-technology solutions created through their work together. But Sikora says the tight relationship also allows him to reach outside normal support channels when necessary. For example, his staff was able to call on the senior technologists IBM refers to as Distinguished Engineers to debug an obscure memory management conflict between IBM's virtualization technology and products from Kansas City, Mo.-based Cerner, one of UPMC's major suppliers of hospital management software.

For independent verification that the project is delivering results, IBM and UPMC hired analyst International Data Corp.'s Health Industry Insights service.

"From my perspective, they have accomplished a great deal," says Marc C. Holland, the analyst assigned to "audit" the project metrics, both for review by UPMC's board and for IBM marketing purposes. His report estimated that UPMC's server virtualization efforts alone will save $18 million to $23 million, and more informally Holland estimates the savings will top $30 million by project's end.

Holland, who began his career in hospital I.T. and has also worked for consulting and outsourcing firms that serve the industry, says he is impressed because standardizing and consolidating systems can be particularly tough in health care. "Hospitals are very heterogeneous," he explains. "Every particular partner has its own political culture, so getting them to sing from the same sheet of music is a real challenge. But what UPMC realized was that if they were going to effectively manage such a large, diverse empire as a single entity, they needed to standardize their platform."

But that meant that UPMC had to embrace some big changes.

Next page: Promoting Virtual Efficiency

David F. Carr David F. Carr is the Technology Editor for Baseline Magazine, a Ziff Davis publication focused on information technology and its management, with an emphasis on measurable, bottom-line results. He wrote two of Baseline's cover stories focused on the role of technology in disaster recovery, one focused on the response to the tsunami in Indonesia and another on the City of New Orleans after Hurricane Katrina.David has been the author or co-author of many Baseline Case Dissections on corporate technology successes and failures (such as the role of Kmart's inept supply chain implementation in its decline versus Wal-Mart or the successful use of technology to create new market opportunities for office furniture maker Herman Miller). He has also written about the FAA's halting attempts to modernize air traffic control, and in 2003 he traveled to Sierra Leone and Liberia to report on the role of technology in United Nations peacekeeping.David joined Baseline prior to the launch of the magazine in 2001 and helped define popular elements of the magazine such as Gotcha!, which offers cautionary tales about technology pitfalls and how to avoid them.
eWeek eWeek

Have the latest technology news and resources emailed to you everyday.