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Sequoia-backed Health Catalyst swaps stake for hospital’s data

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(Bloomberg) — A startup backed by Sequoia Capital is giving up a stake in the company in exchange for a mountain of hospital data that will help predict which patients are bound to come back to the ER.

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Health Catalyst Inc. will license Allina Health System’s data and predictive models for an undisclosed stake, the companies said today. In the 10-year deal, Allina — a nonprofit hospital system in Minnesota and Wisconsin — will also pay as much as $108 million for Health Catalyst to run its analytics to slash costs and improve patient health.

The pact comes as health care is increasingly turning more to Big Data to steer patient care, with health analytics set to grow at 8 percent a year through 2018, according to IDC Health Insights. Revenue at Health Catalyst surged more than fourfold last year as it doubled the number of clients.

About 20 percent of the $108 million Allina will pay Salt Lake City-based Health Catalyst for running its analytics is dependent on hitting cost and health goals.

“The way that it was set up is quite novel,” Judy Hanover, an analyst at IDC who was briefed on the deal, said in a phone interview. “A risk-based relationship that’s actually based on the performance, the operational performance of the health system, is novel. That was new to me.”

The transaction is designed to give both companies an incentive to reach goals for improving results, Dan Burton, Health Catalyst’s chief executive officer, said in a phone interview. “The portion that’s at risk is significant,” he said.

Predictive models

The deal will give Health Catalyst access to Allina’s models that compare patient outcomes, such as whether too many births were induced or not enough biopsies were taken in time.

“We have predictive models that allow us to ascertain with about 75 to 80 percent surety who’s at highest risk for readmission,” Penny Wheeler, Allina Health’s chief clinical officer, said in a phone interview.

Health Catalyst, which a year ago raised $41 million from investors such as Sequoia Capital and Kaiser Permanente Ventures, is considering raising another round in 2015, Burton said in an e-mail. In two years, the company plans to be prepared to go public, he said.

See also: Insurance & tech: What is big data and how to use it?