In recent years, it has also established quality initiatives and invested in the development of data and analytics tools used by hospitals to manage supply costs, improve quality and safety, and promote better population health management. The latter is becoming increasingly important and a hotbed of competition as hospitals—Premier's customers—move toward risk-based reimbursement.
Though the amount of capital it will raise from the IPO is still undecided—the prospectus filed last week with the Securities and Exchange Commission included a $100 million placeholder price tag—the new cash should help Premier continue its move away from traditional purchasing activities. The company hopes to become a major player in helping hospital customers meet the demands of a cost-fixated environment.
“We believe the future for healthcare providers in the United States will require transformational change, due to intense cost pressures, a shifting competitive landscape, a changing regulatory environment, the evolving use of data and analytics and the transition to a fundamentally different payment model,” Premier said in the IPO filed Aug. 26.
These same pressures are also bearing down on the GPO market, which is highly consolidated and facing its own internal and external competition. During the past two years, at least two health systems and one insurer have formed GPOs, and about a dozen large health systems are participating in two joint ventures that are working to improve the cost-quality equation for pricey medical devices.
“Providers will be turning to their GPOs and other opportunities to look at how they can reduce their costs,” said Thomas Hughes, executive director of the Strategic Marketplace Initiative, an advisory group of suppliers and healthcare providers focused on supply-chain issues. “That's what I think is going to stir up the marketplace.”
An increasingly savvy set of hospital supply-chain executives are pushing to lower supply costs and some are reducing their reliance on GPOs or even forgoing the use of a GPO. And, as pricing has become somewhat comparable between the big GPOs, hospitals sometimes base their decisions when choosing a GPO on distinguishing services, such as revenue-cycle management or supply-chain analytics.
These decisions are driven by the pressure hospitals face on the reimbursement front and the anticipation that slack patient volumes will continue during the next few years.
“The one fundamental truth that everybody understands (is) that it will change and belts will need to get tighter,” said Ed Hissock, president of Optime Supply Chain, a supply-chain technology and consulting firm. “Hospitals are beginning to engage in various experiments to try and put forward better supply chain wherewithal.”
Premier, along with Novation, based in Irving, Texas, and MedAssets, based in Alpharetta, Ga., and the only other publicly traded GPO, are the three largest purchasing organizations in healthcare.