Global Healthcare Exchange, the 500-pound e-commerce gorilla backed by some of the most dominant manufacturers in the healthcare industry, scored two major triumphs in recent days that have the potential to keep its electronic marketplace as busy as a shopping mall before Christmas.
Dismantling the walls separating the three tiers in the healthcare supply chain-providers, manufacturers and distributors-Westminster, Colo.-based GHX brought distributor-backed electronic marketplace HealthNexis into its fold, announcing an agreement last week to merge the two into a single exchange under the GHX name.
Financial terms were not disclosed, but HealthNexis' four distributor owners will have "a significant equity position" in GHX and two seats on the privately held company's board of directors, said Michael Mahoney, president of GHX. David Hurley, chief executive officer of HealthNexis, will work on the transition only through year-end, he added.
Barely one year ago a sea of cultural differences seemingly divided the two. AmerisourceBergen, Cardinal Health and other distributors launched HealthNexis in the first half of 2000-at about the same time several medical-products manufacturers, including Baxter International and Johnson & Johnson, launched GHX.
Originally called the New Health Exchange, the distributor-backed exchange operated under the radar since its founding. Renamed HealthNexis and relaunched last March, it never lured hospital customers to its marketplace, but then HealthNexis officials always maintained they weren't interested in that. Instead, they said HealthNexis aimed to provide the same kind of invisible backroom purchasing activities in the virtual world that distributors traditionally provide in the real world.
The announcement that manufacturers and distributors have joined forces arrived less than two weeks after GHX revealed that it had coaxed St. Louis-based AmeriNet to its electronic shopping mall. The nation's largest membership-based group purchasing organization, AmeriNet has the potential to deliver as many as 1,900 hospitals and 12,000 nonacute-care organizations to GHX's doorstep.
GHX has been on a roll, luring hospital customers to its site since late summer when its one-time competitor, San Jose, Calif.-based Neoforma, unleashed another huge block of potential hospital customers. In a move just short of a merger, the former rivals signed a three-year agreement to integrate marketplaces (Sept. 3, p. 17). As a result, the healthcare purchasing exchange once viewed as a threat by GPO-backed e-commerce ventures may be swarming with hospital shoppers in the near future.
Combined, GHX and HealthNexis have more than 100 manufacturers, 20 distributors, three GPOs and nearly 600 hospital members-"the critical mass" needed to operate a thriving electronic marketplace, Mahoney said.
Analysts have long prophesied that the bevy of fledgling healthcare online marketplaces would consolidate, but the crumbling of the walls between suppliers and hospitals represents an upheaval in the landscape. The promise of this cooperation is that it will facilitate the digital wiring of the supply chain-an integration that advocates say will streamline healthcare purchasing by squeezing out savings and reducing purchasing errors.
AmeriNet President Robert "Bud" Bowen said the three-year "working agreement" his GPO struck with GHX had no financial components but simply means that AmeriNet will recommend GHX to its members as the preferred e-commerce provider. GHX's agreement with Neoforma, the e-commerce provider for AmeriNet's group purchasing competitor Novation, will not have any bearing on AmeriNet's agreement, Bowen added.
Officials at San Jose, Calif.-based Neoforma agreed with that assessment.
"We're not surprised to see ongoing consolidation in the market. When we agreed to work with GHX, there was no preclusion to work with any other party that made sense. We were not caught off guard that they would work with another GPO," said Rebecca Oles, a spokeswoman for Neoforma.
Neoforma enthusiastically welcomed HealthNexis to the GHX exchange. In the past Neoforma has had a good but informal relationship with HealthNexis because HealthNexis always promised it would concentrate on the backroom functions of purchasing without competing for hospital customers.
"We consider it a positive for us and the industry," Oles said. "Now that (GHX and HealthNexis) are not competing, that simplifies our working relationships with them. It works out a solution that satisfies the providers, manufacturers and distributors."
"What's comforting and pleasing for us is that we are staying on course with our vision of opening a neutral exchange," Mahoney said. "To the extent that we add new trading partners-whether they be hospitals or suppliers-it only makes us strong and drives the benefits (for everyone in the supply chain.)"
The consolidation will accelerate the adoption of industry standards and in general speed up the wiring of the healthcare electronic marketplace, he promised.
Indeed, the only major player missing from the GHX mix is the Premier-backed e-commerce exchange, Medibuy. But "to stay true to our mission," GHX is always talking to potential trading partners such as Medibuy, Mahoney said.
"Medibuy is not too concerned (about GHX's agreement with AmeriNet)," said Jeffrey Caplan, a Medibuy spokesman. "We currently have agreements in place with 42% of the healthcare providers in the U.S. and a growing list of suppliers."
For AmeriNet, the working alliance ends a one-year search for an e-commerce provider after it ditched plans to merge with Broadlane, the full-service GPO backed by investor-owned hospital chain Tenet Healthcare Corp. (Jan 1, p. 4). At the time, AmeriNet officials characterized the parting as amicable but said the nuts and bolts of integrating e-commerce strategies were more complicated than anyone had anticipated. They also complained about Broadlane's revenue model, based on transaction fees, which nobody in the supply chain wanted to pay, they said.
AmeriNet had its eye on GHX since GHX was first formed in March 2000, Bowen said.
"We always liked the business model. It was started and funded by six large, significant healthcare manufacturing companies whose notion was rather than each of us doing it separately, let's pool and build a single portal. That to me makes a lot of sense," he said.
Bowen said he also believed that GHX is not in the business to make money but to streamline purchasing.
"We wanted to make sure (the e-commerce partner) took cost out, not put it in," Bowen said. "We always had a problem with the transaction fee approach taken by Medibuy, Broadlane and Neoforma."
GHX generates revenue by charging suppliers annual subscription fees, which will be reduced as more suppliers sign on, Mahoney said.
Hospitals pay a one-time integration fee of about $10,000, and in the future, they may be asked to pay an annual licensing fee of $1,200 to cover GHX's costs, he said. So far even without the AmeriNet boost, the exchange has signed on nearly 600 hospitals and 120 suppliers.
Considering GHX has been approaching every GPO, the agreement with AmeriNet was not unexpected, said Lee Marston, chief information officer of San Francisco-based Broadlane.
"I think the industry is seeing that more partnerships are needed to move this e-commerce adoption faster than it's going, and I think the GHX people are realizing they need the cooperation of provider-based exchanges to make this work," Marston said. "Likewise, many of these exchanges have had problems getting suppliers, so there are not a lot of transactions flowing."
Still, Marston said he wonders how quickly suppliers and purchasers are moving toward the next major milestone: standardizing product coding so that all the exchanges speak the same language.
"It seems to be gaining momentum, but the problem I'm having is, I can't get a proof point from anyone whether it's real or whether it's rhetoric," Marston said. "The parties are playing it close to the vest."