Scorekeepers tracking the development of a bevy of healthcare online marketplaces watched the number of players dwindle in the past year from dozens to just a handful, but those that remained kept busy with a flurry of signings of new hospital and supplier agreements.
The landscape changed anew last week as two of the fiercest competitors dropped their weapons and agreed to work as one to recruit suppliers and hospitals to the same electronic shopping mall.
Neoforma, San Jose, Calif., and Global Healthcare Exchange (GHX), Denver, announced that they have signed a three-year agreement to integrate their respective marketplaces. While remaining independent, the two organizations intend to jointly develop, market and sell technology and services. The collaboration unites two companies that until now have openly competed to lure to their sites the other's core customers.
In e-commerce terms, the alliance compares to the dismantling of the Berlin Wall. But it still leaves one major player out of the loop: San Diego-based Medibuy, which is developing marketplaces for the Premier hospital alliance and HCA. Until last week's announcement, Medibuy and Neoforma had been making tit-for-tat announcements regarding new suppliers that had committed to their respective marketplaces.
Two weeks ago, the two GPO-supported e-commerce companies announced almost simultaneously that Johnson & Johnson had agreed to sell its products through their sites (Aug. 27, p. 6), even though J&J is a founding member of GHX.
Neither Neoforma nor GHX issued any equity in connection with the agreement. Other financial terms were not disclosed. However, officials did not rule out that the relationship is a prelude to an even closer affiliation in the future. Noting that the agreement was constructed in less than a month, Robert Zollars, Neoforma's chairman and chief executive officer, indicated during a conference call with analysts that a merger was not pursued only in the interest of time.
"We could get this opportunity to market much more quickly than a merger would have," Zollars said.
Similarly, Curt Nonomaque, executive vice president of business operations for VHA, one of Neoforma's strongest backers, said it marks "an important first step in developing a relationship," although he declined to speculate on whether a merger is a possibility in the future.
"It allows them to work aggressively together," Nonomaque said. "Whatever happens in the future depends on how successful they are in working together on this integrated solution."
Each of the parties to the deal has had a major challenge that may be answered by the affiliation. Neoforma, bolstered with a hefty equity stake from Novation, the joint supply company of VHA and University HealthSystem Consortium, has effortlessly signed on more than 500 hospitals but hasn't had much success in attracting the major medical device and pharmaceutical companies. Alternatively, more than 100 leading suppliers are flocking to GHX, which is funded by dominant companies such as J&J and GE Medical Systems, but hospitals have shied away.
At the same time, Neoforma, virtually the only one of its breed that has gone public, has been struggling in recent months with the sour market for e-commerce companies. Just two days before the announcement with GHX, the company initiated a 10-to-1 reverse stock split to shore up its sagging stock price and maintain its listing on the NASDAQ exchange (Aug. 27, p. 6). Neoforma officials said during the conference call that the agreement with GHX serves to reinforce its promise to begin turning a profit by the first quarter of next year.
The former adversaries said that when they sat down and shared their team lists, they surprisingly found little overlap. Together, they have signed commitments to conduct Web-based purchasing from more than 900 hospitals and 200 suppliers-only 14 of which they already share.
For example, GHX has 95% of the cardiology market tied up through the suppliers that have committed to its marketplace. Neoforma doesn't have any of them. But Neoforma does have commitments from 95% of the medical-surgical distributors, while GHX has just a few.
The collaboration aims to give both companies the leverage and critical mass they need to make Web-based hospital purchasing a viable enterprise. In addition, it will eliminate duplicative costs in developing the technology to conduct Internet-based purchasing.
Perhaps most importantly, they said, the agreement will spur the speedy adoption of product-coding standards across the supply chain-the lack of which is often blamed for clogging up the works in hospital purchasing departments.
"We think this accelerates the benefits of e-commerce for suppliers and buyers," Zollars said. "We need everyone on the supply chain participating."
Under the agreement, GHX will now inform its customers that the Neoforma-GHX solution is the "preferred solution" for its customers, GHX President Michael Mahoney said. Along the same lines, Neoforma will ask its customer base of 97 suppliers and 514 hospitals signed on to purchase through the [email protected] to commit to the new agreement, Zollars said.
The agreement won't change Neo-forma's business model in which hospitals pay a $10,000 implementation fee and Novation's fees are tied to gross transaction volume. Suppliers pay Neoforma in a variety of ways, including transaction fees or subscription agreements. Supplier sign subscription agreements with GHX.
"Some customers have been on the fence (about signing on to Neoforma)," Zollars said. "This now makes that choice very easy for them seeing we have this relationship."
One hospital that welcomed the agreement was 445-bed Robert Wood Johnson University Hospital. The hospital, which shares the New Brunswick, N.J., skyline with J&J, purchases a lot of its supplies through Novation as a University HealthSystem Consortium member, but nevertheless committed to GHX more than a year ago. An account representative at J&J, and later a representative from GE Medical Systems, pitched the exchange to the hospital, said Stephen Jones, senior vice president of operations.
But the hospital still watched with interest as Neoforma developed its marketplace and never ruled out a relationship in the future. "I think anything that brings together multiple partners for the benefit of the hospital helps us and all hospitals," Jones said.
Although Medibuy was not invited to the bargaining table with GHX and Neoforma, the accord does not throw a monkey wrench into Medibuy's plans, said Donald Chartrand, Medibuy's senior vice president of marketing. "We have a very effective, rapidly growing marketplace, but we will be watching for anything that brings customer advantage," Chartrand said.