After a years-long lull in mergers and acquisitions on the group purchasing front, MedAssets has acquired Health Services Corporation of America, creating a major independent player in a field dominated by hospital cooperatives.
In less than two years, Alpharetta, Ga.-based MedAssets has leaped from being a nonplayer in the GPO market to one of the top four and the largest that is privately held. Still, that might sound better than the reality, considering that the two largest cooperatives-Irving, Texas-based Novation and San Diego-based Premier-easily command two-thirds of the acute-care purchasing market between them. Dozens of groups crowd the remaining third.
But John Bardis, president and chief executive officer of MedAssets, said there is plenty of untapped market share to go around. The healthcare industry purchases in excess of $100 billion in supplies yearly, yet by his estimate, GPOs account for perhaps $45 billion of those purchases, he said.
"There is room for GPOs to become more relevant than they are today," Bardis said. "Our objective is not to spend 100% of our time going after our competitors' business. Our objective is to expand the size of the market as well as to grow the business."
The acquisition more than doubles the volume of MedAssets' annual healthcare purchases and gives it a measurable stake in the highly competitive hospital purchasing market. Terms of the deal, which was completed May 2, were not disclosed.
HSCA contracts generate about $2.5 billion in medical supply purchases annually on behalf of more than 2,000 members, most of them hospitals. Meanwhile, InSource Health Services, Chatsworth, Calif., which MedAssets acquired in 1999, handles about $2 billion in supplies annually, serving 11,000 members primarily in the nonacute-care market.
The combined $4.5 billion total puts MedAssets fourth in size nationally based on volumes reported by GPOs in Modern Healthcare's 2000 Group Purchasing Survey (Oct. 9, 2000, p. 26). Novation and Premier, both of which accomplished their consolidations in the latter part of the 1990s, dominated the market, estimating that in 2000 their hospital members would purchase $14.6 billion and $12.5 billion in supplies, respectively.
AmeriNet, St. Louis, came in a distant third. Its members, including 1,950 hospitals, spent $4.9 billion in supplies in the fiscal year ending September 2000, said spokesman Mark Moyer.
Considering rumors have been circulating for several years that the legendary Earl Norman, chairman and CEO of HSCA, had his Cape Girardeau, Mo.-based GPO up for sale, industry observers were not exactly caught by surprise when the deal was announced earlier this month.
And because group purchasing operates on the fundamental premise that there is no such thing as too much volume in terms of bringing business to vendors and discounts to buyers, consolidation is a fact of life for GPOs.
"When you look at the survival of the fittest, you need some size," said Jody Hatcher, a spokesman for Novation. "Consolidation is one way to make that happen."
Other GPOs may not be surprised, but they are curious about what MedAssets plans to do now that it's made an inroad into the acute-care market. Among the inquisitive is AmeriNet, which shares a history with HSCA. Before becoming a neighbor and competitor, HSCA was an AmeriNet shareholder. It left the fold about eight years ago because of different strategies: for-profit vs. not-for-profit, Moyer said.
"Whether it ends up being a strong competitor depends on how they bring the two organizations together and then (what the combined company's) long-term goals (are)," Moyer said.
MedAssets is demurring on providing specifics, but simply by increasing volume, the acquisition affords it the opportunity to offer its members better pricing on supplies and at the same time, more customers for its vendors, Bardis said. Being privately held also gives MedAssets an edge, he added.
For the time being at least, both InSource and HSCA will retain their brand names, which have strong customer recognition in their respective geographic areas, Bardis said. The acquisition will not immediately change the services or contracts offered by either GPO.
"But we will look to bring the best of breed in any category to all our members, and down the road there will be opportunity to merge the best of both portfolios," Bardis said.
The purchase was taken in stride by HSCA's largest customer, Kansas City, Mo.-based Associated Purchasing Services Corp., a wholly owned subsidiary of the Health Alliance of MidAmerica, which is jointly owned by the Missouri and Kansas hospital associations. The corporation's 160 hospital members purchased more than $50 million in supplies under the HSCA contract in 2000, according to Bob Meling, Associated Purchasing's senior vice president.
"Associated Purchasing Services is looking forward to the additional value the blending of MedAssets and HSCA can bring to hospitals across Kansas and Missouri," said Don Wilson, Associated Purchasing's president, in a written statement.