Not surprisingly, Grundy explained that he had received questions from the IBM CFO about the regional cost of care in the U.S., which the company was considering when deciding where to locate jobs. As it turns out, IBM decided to locate a call center in Dubuque -- partly as a result of the low health care costs there.

And when looking at the costs of various health care markets, Grundy noticed "tremendous waste." Depending on which economist one listens to, administrative costs and overhead make up 19 to 30 percent of the health care costs, he said.

When asked what kind of health care they wanted, IBM employees stressed the importance of the relationship with physicians. "We decided that we really fundamentally wanted to change the covenant between the buyer and the provider of care," Grundy said. "And that is happening today."

While the U.S. has some of the best partial care in the world, the country is poor at coordinating care. "We do not know how to play as a team," Grundy said.

As a solution, Grundy put forward the concept of the Patient-Centered Medical Home, which emphasizes collaboration. The system has been backed by Anthem, Wellpoint, and government agencies such as the Department of Defense.

Grundy explained that, in a recent study with IBM employees, the new delivery system model resulted in the following gains in efficiency, which he ascribes to "robust prevention in primary care:"

36 percent drop in hospital days

32 percent drop in ER use

9.6 percent drop in total cost

Another study by CareMore that tried out the Patient-Centered Medical Home model found the following:

a hospitalization rate 24 percent below average

hospital stays 38 percent shorter

an amputation rate among diabetics 60 percent lower than average

these improved outcomes have come without increased total cost

Next, Kohn, chief medical scientist of care delivery systems at IBM Research, gave the audience at FutureMed an in-depth look at the medical applications of Watson, which famously bested human competition in Jeopardy! about a year ago. "Our goal, with [Paul Grundy]'s leadership, is to understand what is necessary to support the transformation of health care to the patient-centered evidence-based outcome-based system that actually makes people healthy and reduces cost," Kohn said.

Kohn explained that Watson in health care could offer the following benefits:

improve quality of care

reduce errors

engage patients

improve audit trails

improve efficiency

better utilize skills

Watson was developed for Jeopardy! and, on the game show, could only access internal data. In the future, the system could be used to actively look for new data from multiple sources, including the Internet. While Watson now only understands English, in the future it could understand multiple languages, which it can leverage to process even more data.