As it stands poised to emerge into the black side of the accounting ledger, Neoforma, San Jose, Calif., has a lot riding on Arthur Andersen's expertise in both auditing and consulting.
But like other healthcare companies, the e-commerce partner of group purchasing giant Novation said it is sticking by the beleaguered auditing firm at least for the short term (See related story, this page).
"We are pleased with the quality of work and the professionalism of our auditors," Neoforma officials said in an e-mail responding to questions from Modern Healthcare. "Andersen is very thorough and has a deep knowledge of our business. Our stockholders have approved Andersen as our accounting firm of record."
The loyalty comes at a time when Neoforma is staking its reputation on its audits, especially the audit for its first quarter ending March 30. As Neoforma boasted of growing net revenue and shrinking losses each quarter since its initial public offering in January 2000, it vowed that it was on track to achieve profitability this quarter.
Life as the only publicly traded electronic marketplace for hospitals hasn't been easy for Neoforma. Like most e-commerce ventures, Neoforma suffered breathtaking declines in its share price after the technology industry flew south in 2000. To sustain its viability on the NASDAQ exchange, Neoforma in August 2001 implemented a 1-for-10 reverse stock split to boost share prices (July 9, 2001, p. 6). With its year-end earnings report last month, Neoforma officials pronounced that strategy a success, but the true story won't really be known until Andersen tabulates the numbers for the first quarter.
The joint supply company of VHA and University HealthSystem Consortium, Irving, Texas-based Novation serves 2,500 hospitals and manages more than $17 billion in healthcare purchases yearly. In 2001, Neoforma reported $25.7 million in revenue through its Internet marketplace. It reported a net loss of $276.6 million for the same period. Net losses since 1999 have totaled $536.4 million.
On the consulting side, Neoforma tapped into Andersen for a key marketing tool: a six-month study sponsored by Novation and Neoforma on the value of buying and selling hospital supplies through an Internet-based marketplace such as what Neoforma offers to Novation hospitals (May 7, 2001, p. 26). The study, published last June, calculated the potential cost savings for each level of the supply chain-hospitals, distributors and manufacturers-with the obvious goal of coaxing participants to Neoforma's online marketplace. The cost of the study was not disclosed.
"Our experience with Arthur Andersen consultants was a positive one," Novation officials said in a written statement. "As with any third-party consultant, we put forth our expectations of the project-the size, scope and time frame-and are pleased with the outcomes and performance of the company." Novation employs Ernst & Young as auditors.
Andersen's stamp on the study hardly taints the results, said Lawton Burns, director of the Wharton Center for Health Management and Economics at the University of Pennsylvania, Philadelphia. In fact, it is quite the opposite, considering that in the past Andersen consulting services have produced many respected reports, he said. "I thought the study was decent," Burns said.