The Sale of IBM Watson Health — How a Flagship of Medical AI Ended Up with an Investment Firm

On 21 January 2022 IBM announced a definitive agreement to sell the healthcare data and analytics assets of its Watson Health business to the investment firm Francisco Partners. The assets were MarketScan, Micromedex, Health Insights, Clinical Development, Social Program Management and imaging software; financial terms were not disclosed. The deal closed on 30 June 2022 and the assets became a new company, Merative, headquartered in Ann Arbor, Michigan. IBM's flagship push into medical AI, launched in the wake of a game-show victory, had passed into other hands in less than seven years.

How Watson won Jeopardy!, and IBM's announcement right afterwards that it would take Watson into medicine, are covered on that page. This page follows Watson Health as a business, from its creation to its sale.

A division and a buying spree, 2015–2016

IBM announced the Watson Health unit on 13 April 2015. The release said IBM was establishing a "Watson Health Cloud" for physicians, researchers, insurers and health companies, and set out three moves: partnerships with Apple, Johnson & Johnson and Medtronic; the acquisition of the health-analytics companies Explorys and Phytel; and a dedicated business unit headquartered in the Boston area. It cited IBM's estimate that a person is likely to generate more than one million gigabytes of health-related data in a lifetime.

More acquisitions followed. According to TechCrunch, IBM bought the medical-imaging company Merge Healthcare for $1 billion in August 2015 and announced in February 2016 that it would buy Truven Health Analytics for $2.6 billion. IEEE Spectrum's 2019 investigation summed it up: by mid-2016 Watson Health had acquired four health-data companies for a total of about $4 billion.

MD Anderson's setback

The gap between promise and practice was most visible at the University of Texas MD Anderson Cancer Center, which had been building an oncology advisory system on Watson, the Oncology Expert Advisor (OEA).

According to the special review by the University of Texas System Audit Office, dated November 2016 and made public in February 2017, the IBM contract was signed in June 2012 for six months at a fixed fee of $2.4 million and was then extended 12 times, for total fees of $39.2 million. Through 31 August 2016 about $62.1 million had been paid to external firms, more than half of it from gifts donated or pledged for the project. Only one of seven related service agreements had been competitively procured, and "Fees were consistently set just below the amount that would have required Board approval." The gift account had a deficit of $11.59 million, meaning MD Anderson had spent donations it had not yet received.

As of September 2016 the system was not in clinical use and had not been piloted outside MD Anderson. IBM ended support for the pilot and demo systems effective 1 September 2016, the agreement in force prohibited using the system to treat patients, and it had not been integrated with MD Anderson's new electronic medical records system.

The report stressed that its objective was solely procurement and that it should not be read as an opinion on the scientific basis or functional capabilities of the system. Separately, IEEE Spectrum in 2019 reported evaluations published by hospitals abroad: at Manipal Comprehensive Cancer Center in India, Watson's treatment recommendations matched experts' in 73% of 638 breast-cancer cases, while at Gachon University Gil Medical Center in South Korea its top recommendations for 656 colon-cancer patients matched the experts only 49% of the time.

What was sold

Announcing the deal in January 2022, Tom Rosamilia, senior vice president of IBM Software, said: "Today's agreement with Francisco Partners is a clear next step as IBM becomes even more focused on our platform-based hybrid cloud and AI strategy." He added that IBM remained committed to Watson, its broader AI business, and its healthcare IT clients and partners.

According to Francisco Partners, Merative's products were organised into six families: Health Insights; MarketScan; Clinical Development; Social Program Management and Phytel; Micromedex; and Merge imaging solutions. Paul Roma, general manager of Watson Health, became a senior adviser to Francisco Partners. IBM's announcement said the existing management team would continue in similar roles at the new company, serving clients in life sciences, providers, imaging, payers and employers, and government health and human services.

What it raised

As IBM's own label, "data and analytics assets", suggests, the heart of the sale was the databases and analytics products assembled by acquisition rather than an AI reasoning engine.

Watson Health is still cited as a dividing line in debates about medical AI. IEEE Spectrum quoted Martin Kohn, chief medical scientist for IBM Research at the time of the Jeopardy! match, who left IBM in 2014: "Merely proving that you have powerful technology is not sufficient," he said. "Prove to me that it will actually do something useful—that it will make my life better, and my patients' lives better." On IBM's side, John E. Kelly III, who had guided Watson since the Jeopardy! days, told the same article: "It's a difficult task to inject AI into health care, and it's a challenge. But we're doing it."

Many parties had a stake. At MD Anderson, donated money was spent; abroad, Spectrum reported, hospitals used the IBM Watson brand in their marketing, telling patients they would get AI-powered cancer care. Management and clients moved over to Merative, while IBM said it would concentrate on hybrid cloud and AI. IBM's later direction is covered on the IBM page.

For other medical-AI landmarks of the period, see the regulator-reviewed IDx-DR and EndoBRAIN; the Epic Sepsis Model, an EHR-embedded predictor that fell short when validated externally; and Med-PaLM, medical question answering with large language models. The wider story is on the AI and society timeline.