VHA and UHC, which already jointly own a group purchasing organization, are merging to gain capital as tight hospital budgets and demands for new data and analytics tools upend the traditional healthcare purchasing model.
With the merger, the national healthcare purchasing networks are considering debt financing as well as other options such as increased cash flow to back broader efforts to acquire other companies and invest in data and analytics offerings, said VHA CEO Curt Nonomaque, who will serve as president and CEO of the new company.
“In terms of this deal, there is no intention of going public,” Nonomaque said. “We didn't believe the public market is the right course for VHA and UHC when we were independent. When we bring the new board together, I think this will be our answer as well.”
The deal is the latest in a healthcare purchasing market that is undergoing significant change largely driven by two factors. The hospital and non-acute-care provider markets are consolidating. At the same time healthcare administrators are seeking out sophisticated data and analytics tools, such as those sold by GPOs and other firms, that can help them improve quality and reduce costs.
Premier, another of the nation's largest GPOs, went public for similar reasons in 2013, making it one of two publicly traded GPOs. It has made five acquisitions since June 2013, spending $208 million.
VHA is acquiring the assets and liability of UHC, a smaller network made up of academic medical centers. UHC's member hospitals will receive cash and stock. The combined company will operate Novation, the GPO the networks formed in 1998, as a wholly owned subsidiary. VHA will have 12 of the 19 positions on the board. Further financial terms of the deal were not disclosed.
VHA's unaudited revenue in fiscal 2014 was $438 million, up 12% from $390 million in fiscal 2013.
For many years a handful of GPOs handled most medical supply purchasing for U.S. hospitals. But as hospitals face declining reimbursement and lower patient volume they are looking for new ways to cut spending on medical supplies as well as nonclinical products and services.
This has squeezed margins for GPOs and manufacturers and created a much more competitive market for purchasing services and tools. In addition, clinical data is increasingly of value to hospital purchasing leaders.
A number of hospital systems have said they will lessen their reliance on GPOs and are directly contracting with manufacturers or have formed their own GPOs. Others have joined SharedClarity, a joint venture formed by systems with UnitedHealthcare that is conducting its own clinical studies on costly medical implants. SharedClarity is then using that data to negotiate better contracts with device companies.
“The GPO model has to evolve,” said Sean Wieland, an analyst for Piper Jaffray. “It certainly sounds like a platform that would allow them to do that.”
The transaction may also pose a threat to GPOs that don't have a member-owned model, such as Alpharetta, Ga.-based MedAssets, Wieland noted, as hospitals begin to see proceeds from their stakes in Premier and now UHC.
The combined company, which will be based in Irving, Texas, will have about 2,000 employees, including 400 UHC employees. There are no planned layoffs.
Nonomaque said that capital will be deployed in three areas—acquisitions, partnerships and internal development. “There are some data assets on the marketplace that we will want to bring into this organization,” he said.
The deal is expected to close in March.
(Correction: This story incorrectly described the type of financing that the networks are considering. It is debt financing.)
Follow Jaimy Lee on Twitter: @MHjlee
