CONVERSATION: MedAssets grows into major supply chain player
By Robert Neil
Those predicting consolidation in the group purchasing arena were given credence in May when MedAssets Inc., Alpharetta, Ga., announced it had acquired Health Services Corporation of America (HSCA), Cape Girardeau, Mo. The Missouri company is one of the industry's major GPOs with approximately 2,000 members and annual supplier contracts of $2.5 billion. MedAssets already operates InSource Health Services, Chatsworth, Calif., a group with 11,000 members and $2 billion in annual supply purchases.
Combined, the two units will become the country's largest privately held GPO, and the fourth-largest group overall based on purchasing volume, a key negotiating tool for supplier contracts.
HSCA was founded in 1969 as Norman and Associates by Earl Norman, who began making the decision to sell his operation to MedAssets as far back as the fall of 1999. Technological goals and e-commerce strategies ultimately could make the acquisition a compatible marriage, but the companies also will benefit from similar philosophies at the top.
Like HSCA, MedAssets' President and CEO John Bardis has been at the controls from the beginning as founder and chief architect for growth. With the purchase of HSCA complete, Bardis' next major job will be to combine the buying powers of MedAssets' two GPOs, which should increase savings for members and expand markets for vendors.
In an exclusive interview, Hospital Network.com spoke with an enthusiastic Bardis about the new acquisition and opportunities that lie ahead.
Hospital Network.com: Can we refer to you as a "Super Group," now?
BARDIS: That's not a term we would use necessarily, but we certainly feel pretty good about our overall volume.
Had you considered acquiring a GPO smaller than HSCA? You've bought a fairly large company, and while that puts you in a good position in many ways, it also requires more work and more effort in transitioning everything over. Was that a concern at all?
Not really. We have a management team that is pretty darn experienced when it comes to having worked with acquisitions and merging organizations, so we are welcoming that opportunity, but we welcome it with the realization that volume within this business is very important, so the size and scope of this transaction was very important to the ultimate goals we have to build our GPO business. The large size of HSCA was actually a positive.
How long had you been interested in acquiring another company, and specifically in acquiring another GPO?
We acquired our first GPO in September 1999—and that was InSource—so we've been interested in GPOs from the beginning as a company."
What was the interest specifically in HSCA?
I've been in the industry for quite sometime and have always known HSCA to be a business of high integrity as well as an extremely well run business. More importantly, recently, the investments that have been made in their computing and electronic and Internet catalogues really, in our mind, have created the top Internet catalogue in our business, and we wanted to see if we could integrate those into our current businesses along with InSource.
How compatible are the two companies—MedAssets and HSCA—right now, as far as technology is concerned?
There are pieces of both companies' technologies which are very good, and in fact, additive to both businesses. What HSCA has devolved relative to their e-catalogue and the ability to enable clients to review not only price and products, but review historically what they've purchased off HSCA contracts, is unsurpassed in our industry. Their ability to access a catalogue and to access historical purchasing information by product, by product-line and by vendor—all over the Internet—is really outstanding.
MedAssets uses what you call the iGPO contracting engine. Can you explain what that is?
It's basically an Internet-based catalogue capability that also has a dynamic pricing technology within it that enables our buyers to identify the correct price across a broad range of products that encompasses many, many classes of trade—those classes of trade being surgery center, a hospital, a nursing home, a clinic, etc. Each of those classes of trade tends to have a different price for the same product. So, accurately identifying the correct price in our industry has by and large been the single greatest challenge for our buyers. Our technology enables them to do that and enables them to do that using the Internet.
HSCA has been developing its electronic catalogue and its Internet strategy without any kind of outsourcing agreement like we've seen Premier and Novation do. Will that continue? Will it all be in-house?
I believe so. Right now, we have clearly defined our mission from a technology point of view to help our clients identify product and price with great speed by utilizing our contract pricing and catalogue engines, which are a huge part of our value proposition to our members. Those are the technologies completely inside both HSCA and InSource—through MedAssets—so we don't see, at least in the near term, our migrating to external technologies.
What is the first thing HSCA hospitals might notice with this change in ownership?
Early on, there will be limited change, but in the intermediate term we expect to put the company's buying power together and further improve not only the pricing they have today, but the breadth of services they have today—enabling them to more broadly rely on us to help improve the cost of doing business through our group purchasing organizations.
Does enhancing the "buying power" mean having HSCA work closely with InSource?
Absolutely.
How will that work? Will you give vendors that have worked closely with InSource an opportunity to now work with HSCA hospitals?
I think as our contracts come up for renewal, we will look to those renewal opportunities to create a single contract for the combined businesses.
InSource services primarily alternate sites. As far as products are concerned, what kind of crossover is there between alternate site and acute care facilities?
Well, first, InSource service both acute care and alternate site.
But it's heavier on the alternate site, isn't it?
About 60 percent alternate site and about 40 percent hospitals, so we still do have a very substantial hospital base, which means we're required to provide quality pricing and products to those hospitals clients. As a result—you raise the question about product overlap—our product portfolios are actually very similar—even if they're with different vendors. We both cover pharmaceuticals, medical/surgical, radiology, laboratory and food. So, there's a tremendous amount of volume and product overlap.
Would you say the acute care market is more competitive than the alternate site market?
I think you could say the acute care market typically has substantially lower prices than the alternate site market.
What have you been hearing from vendors so far?
We just had our annual meeting in San Diego. That meeting produced the opportunity to introduce the new combined company to both our vendors and our customers. The response was overwhelmingly positive, and specifically the vendors like the idea of us bringing together these two relatively large group purchasing organizations and finding ways we can help vendors more efficiently sell their products into that market in the future.
I imagine they'll have to be more competitive with their bids, though, because they have a chance at getting a larger group of customers if HSCA and InSource can combine with their contracts.
I think down the road that's quite accurate, in fact, we expect vendors to be really receptive to providing greater economics to the buyer as long as they can be assured higher volumes.
How long of a transition period do you think this will take?
It's too early to tell, yet. We're doing that analysis now and the first thing we want to say about that is we will honor all the agreements we have in place for the duration of those contracts. We have a lot of very good relationships with vendors both at HSCA and at InSource, and we will continue that…but we are doing analysis and looking at which contracts have the best pricing and which contracts produce the greatest opportunities for us to grow our business internally—as well as which contracts will help our vendors grow. So far, the analysis is proving that this combination of HSCA and InSource—once they are ultimately put together—will be financially very positive for both the buyers and the sellers.
I know Earl Norman is going to be a member of the MedAssets board. How active a role is he going to take?
A pretty active role—not only through the board, but Earl founded the Health Careers Foundation, which I am personally going to be directly involved with. That has its focus on educating single parents into health careers, and the integration of the Health Careers Foundation activities along with our board of directors and the overall function of MedAssets is something Earl is going to be directly involved with, so he's going to be very, very involved with us.
Robert Neil is an Orange County, CA-based healthcare business writer and syndicated columnist who serves as a correspondent for Hospital Network.com. He contributes monthly to Hospital Network's "Conversation" interview series with industry leaders and his columns "Net Smart" and "Group Dynamics" rotate monthly on HospNet. Neil can be reached via his website at www.RobertNeilOnline.com or via e-mail at rneil@hospitalnetwork.com.
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