MedAs­sets deal could pave way for re­gional, provider-led GPOs

Modern Healthcare - - NEWS - By Adam Ruben­fire

The VHA-UHC Al­liance’s planned ac­qui­si­tion of MedAs­sets’ group pur­chas­ing or­ga­ni­za­tion and con­sult­ing busi­ness could open the mar­ket to dis­rup­tive mod­els, ex­perts and industry in­sid­ers say.

The deal could push providers to­ward smaller, re­gional GPOs that fo­cus on lo­cal sourc­ing and niches, they say. The mega-GPO cre­ated from the merger, sub­ject to cus­tom­ary ap­provals, could lose mem­bers that are un­com­fort­able with the GPO’s size and the changes that may come af­ter in­te­grat­ing the two com­pa­nies.

MedAs­sets an­nounced last week that it had been ac­quired by Pam­plona Cap­i­tal Man­age­ment for $2.7 bil­lion, which would sell its spend and clin­i­cal re­source man­age­ment seg­ment to VHA-UHC for an undis­closed price. Pam­plona said it would in­te­grate MedAs­sets’ re­main­ing rev­enue-cy­cle man­age­ment busi­ness with Pre­cyse, its own rev­enue-cy­cle soft­ware.

Sev­eral con­sul­tants were con­cerned that VHA-UHC is still com­bin­ing op­er­a­tions af­ter its own merger. VHA, a ma­jor not-for-profit hospi­tal GPO, and UHC, an al­liance of most of the na­tion’s aca­demic med­i­cal cen­ters, closed their deal in April.

To make mat­ters more con­fus­ing, MedAs­sets is still adopt­ing the cul­ture of its former ri­val, Broad­lane Group, which it ac­quired in 2010 for $850 mil­lion, said former Broad­lane CEO David Ricker, who is now CEO of Broad­Jump, a de­vel­oper of soft­ware that helps hos­pi­tals man­age their costs and see what oth­ers are pay­ing for sup­plies. Some former Broad­lane mem­bers liked the GPO’s stricter, more-com­mit­ted model in­stead of MedAs­sets’ more flex­i­ble mod­els that let hos­pi­tals use other ven­dors, he said.

“You’ve got former Broad­lane clients still with MedAs­sets who were still push­ing very hard to get to that Broad­lane model,” Ricker said, adding that those hos­pi­tals may not wait to see what VHA-UHC does next.

Dal­las-based Tenet Health­care Corp., both a former mem­ber and ma­jor­ity owner of Broad­lane, ear­lier this year dropped MedAs­sets and signed a fiveyear con­tract with HealthTrust, a more-com­mit­ted model owned by HCA. Ex­perts said Tenet of­fi­cials were look­ing for bet­ter prices.

Former Broad­lane ex­ec­u­tive Brian Pel­le­grini, now man­ag­ing di­rec­tor of spend per­for­mance con­sult­ing at the Ad­vi­sory Board Co., expects HealthTrust to go af­ter MedAs­set mem­bers, es­pe­cially the legacy Broad­lane cus­tomers. Those mem­bers “are prob­a­bly go­ing to be the ones with the hard­est time see­ing a path that makes sense for them to re­main with this new or­ga­ni­za­tion,” Pel­le­grini said.

Ricker and Pel­le­grini said they ex­pect that emerg­ing re­gional GPOs, of­ten de­vel­oped by health sys­tems, will be win­ners in this deal. Smaller, re­gional GPOs tend to pick a niche, such as physi­cian pref­er­ence items or pur­chased ser­vices, and fo­cus on de­liver- ing strong con­tracts that sup­ple­ment a provider’s na­tional GPO.

“Hos­pi­tals are go­ing to be a lot smarter about how much their sup­ply cost goes up ev­ery year, and sav­ings touted by some of th­ese or­ga­ni­za­tions just aren’t real,” Ricker said. “The only way to get your physi­cian-pref­er­ence item spend un­der con­trol is to source lo­cally and re­gion­ally, and that’s not what a mas­sive or­ga­ni­za­tion (such as VHA-UHC and MedAs­sets) is go­ing to ac­com­plish.”

Th­ese smaller firms now have a chance to show hospi­tal ex­ec­u­tives why it pays to have more than one GPO, said Daniel May, a man­ag­ing di­rec­tor at Huron Health­care. He pointed to the Plano-based Texas Pur­chas­ing Coali­tion and At­lanta-based Part­ners Co­op­er­a­tive, which have both suc­cess­fully honed in on cer­tain sup­ply seg­ments, with TPC show­ing strength in physi­cian-pref­er­ence items and Part­ners fo­cus­ing on com­modi­ties.

Ricker, Pel­le­grini and May all men­tioned that provider-led GPOs such as Amer­inet, which is owned by Salt Lake City-based In­ter­moun­tain Health­care, and HealthTrust could also ben­e­fit from the MedAs­sets fall­out. Amer­inet CEO Brent John­son is bet­ting on that too, as he trans­forms his or­ga­ni­za­tion from a tra­di­tional GPO to a pro-

fes­sional sup­ply-chain or­ga­ni­za­tion.

“Th­ese peo­ple do this to make money,” John­son said. “In­ter­moun­tain didn’t. We did it be­cause we trusted that (our mem­bers) were go­ing to be a model to the industry, teach us best prac­tices ... and we’ll go from there. If down the road peo­ple just aren’t will­ing to get off the ad­min­is­tra­tive fee and the tra­di­tional GPO, then maybe our model is wrong, but I don’t think so.”

John­son fully ac­knowl­edged that na­tional GPOs have a hard time adopt­ing the com­mit­ted model that tends to get the best prices from ven­dors. He sees cus­tomers in­creas­ingly be­ing more in­de­pen­dent and look­ing lo­cally to get bet­ter deals. That’s why Amer­inet is rolling out con­sult­ing so­lu­tions and out­sourc­ing ser­vices to help cus­tomers man­age their sup­ply spend be­yond their con­tracts with the GPO.

“Peo­ple will un­der­stand the im­por­tance of to­tal non-la­bor spend,” John­son said. “That isn’t done through a tra­di­tional GPO.” Th­ese ser­vices will be of­fered at a lower cost than Amer­inet’s com­peti­tors and the GPO will have fewer ad­min­is­tra­tive fees, John­son said.

The new Amer­inet could help the grow­ing re­gional GPO mar­ket set up an ad­min­is­tra­tive fee struc­ture and other com­plex sys­tems to man­age it, John­son said. And if they don’t have the tal­ent or resources to han­dle some of those pro­cesses, they can out­source them to Amer­inet.

“We wel­come the change (at MedAs­sets) be­cause we think it adds flux and a lot of con­fu­sion in the mar­ket that al­lows us time to build our so­lu­tion, and I think it builds a lot of un­cer­tainty for a lot of their cus­tomers, which al­lows us to go to peo­ple who didn’t want to talk to us be­fore,” John­son said.

A lot of health sys­tems were al­ready con­sid­er­ing their op­tions for switch­ing GPOs be­fore the an­nounce­ment, said Dr. Mitch Mor­ris, U.S. leader of Deloitte’s providers industry prac­tice. The new GPO en­tity cre­ated fol­low­ing the MedAs­sets/VHA-UHC merger will need to con­vince cus­tomers that it will drive even greater value, Mor­ris said.

The im­pact as far as lost cus­tomers will prob­a­bly not be felt for years, he added. The scale of the merged GPO might at­tract bet­ter prices from ven­dors, “but clients won’t feel very spe­cial when they’re a part of some­thing so big,” he said.

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