A long-rumored move by MedAssets to become the first publicly traded company with roots in the group purchasing industry raises big questions for GPOs and their members. Industry executives are asking if shareholders desire to earn money will ultimately conflict with hospital members needs, and if MedAssets infusion of stockholder capital will give them a competitive advantage over other GPOs.
While its still too early for answers, one thing is for certain: The planned initial public offering of the Alpharetta, Ga.-based company could turn into a financial windfall for MedAssets executive management and board members, who currently own 58% of the companys privately held shares, and its venture capital investors, who hold the remaining shares.
According to initial documents filed by MedAssets with the Securities and Exchange Commission on Aug. 24, the offering is expected to raise up to $230 million. The capital will be used to finance company growth and pay down $189 million in debt that MedAssets acquired when it purchased MD-X and XactiMedwhich both offer revenue-cycle management softwareearlier this year.
MedAssets officials were unavailable to be interviewed for this story because of SEC rules requiring a silent period prior to the launch of public offerings. According to the companys preliminary prospectus, however, a date for the IPOs commencement is contingent upon completion of the SEC Registration Statement.
The IPO could help MedAssets transform itself into a new kind of company. Curtis Rooney, president of the Health Industry Group Purchasing Association in Washington, said MedAssets move is interesting in that it may catapult GPOs into the next phase of their movement to provide revenue-, spend- and clinical-management services for hospitals. I think this (public-corporation) model is the new kid on the block in terms of industry growth, Rooney offered. I dont think MedAssets sees itself as strictly a GPO. They say theyre 60% GPO and 40% (other) services, and that services is where their growth has been.
Similarly, other GPOs are looking for ways to boost their revenue (See Special Feature insert, p. S1).
But some in the GPO industry question whether becoming a publicly traded company will necessarily put MedAssets in an advantageous position for its GPO business. They suggest potential conflict between stockholders and member hospitals.
I see a confusing, inherent conflict in any public GPO, because their objective will be to (optimize) the revenue of stockholders, said Lee Perlman, president of the New York-based GPO GNYHA Ventures.
Peter Freytag, senior vice president and chief financial officer of the Colorado Hospital Association, which signed a regional-GPO affiliation deal with MedAssets in April, said hes not surprised to hear rivals naysay MedAssets move toward an IPO. He added that the announcement has not caused concern for the association or its member hospitals.
For Jody Hatcher, vice president of the Irving, Texas-based GPO Novation, the jury is still out on whether GPOs can work as publicly traded companies. Its really too early to tell what effect (MedAssets move) will have on the marketplace, but I do think that theres room for a number of GPO models, he said. Hatcher also noted, however, that he questions whether the voices of hospitals will have as much power as those of shareholders under the new paradigm.
So which current investors stand to gain the most from the IPO deal? According to the prospectus, there are now 14 stockholders11 individuals and three private-equity companiesholding shares in MedAssets. Board members affiliated with the private equity firms invested in MedAssets own a big chunk. Bruce Wesson, a managing director of Galen Partners, Stamford, Conn., and John Rutherford, managing partner of Parthenon Capital, Boston, owned 23.8% and 18.6% of the company respectively.
Other shareholders include MedAssets founder and Chairman John Bardis, (8.5%) who also serves as president and chief executive officer; Executive Vice President and Chief Operating Officer Rand Ballard (1.8%); and CFO L. Neil Hunn (less than 1%). Grotech Capital Group in Vienna, Va., is another venture capital investor in the company.