WellPoint Tries IBM Route To Comparative Effectiveness

Includes: AET, ANTM, GE, HUM, IBM, T, UNH
by: Dana Blankenhorn

WellPoint (WLP)is trying to overcome one of the big political objections to ObamaCare through its deal to “hire” the IBM Watson supercomputer for medical diagnoses.

The objection is a fear of rationing. The fear came from Administration efforts to build an academic discipline called “comparative effectiveness” into its health care plan.

Wellpoint's idea is that Watson will combine patient medical histories, tests, medical literature and (perhaps most important) clinical best practices to decide quickly what doctors should be doing. In other words, Watson will be doing comparative effectiveness on-the-fly.

The deal between IBM (NYSE:IBM) and WellPoint is not unique. AT&T (NYSE:T) calls its competing system ForHealth. GE (NYSE:GE) has been selling a hospital system called Qualibria for a year that aims to bring this knowledge to the patient bedside.

Qualibria is based on work done at Intermountain Healthcare of Utah, a non-profit hospital group that also offers insurance coverage. Kaiser Permanente, which also combines low costs with control over its income flows, is similar.

The idea in all these cases is the same, to take some measure of decision making out of the hands of doctors, and give the people paying the bills a rationale for denying expensive treatments when less costly, equally effective ones are available.

The entire health insurance industry is hoping WellPoint can succeed. The fact is that no system, public or private, can accept an unlimited draw of funds from a limited pool of resources. Ever since the market rejected “managed care” in the 1990s insurers have been fighting a losing battle to re-assert some control over doctors.

With IBM and Watson, WellPoint believes they have found it. If they have, it's also bullish for such companies as Humana (HUM), United Healthcare (UNH) and Aetna (AET).

The insurers are carefully positioning Watson as an aid to doctors, not as cost control. Or it's being called medical advice.

Doctors are having trouble getting the arms around the latest threat to their autonomy. Some studies, like this one at Genomeweb, worry Watson may give different answers depending on who is asking a question, or that it could misdiagnose a patient.

Only a few bloggers are sounding the alarm that doctors' discretion might be replaced by Watson's decisions but as the savings become obvious, expect that chorus to swell.

The only way this deal works for WellPoint is if the company starts basing payment decisions on doctors' refusal to accept Watson's diagnoses. On that question will rest the future of the health insurance system, both public and private.

Disclosure: I am long IBM.