The VHA-UHC Alliance's planned acquisition of MedAssets' group purchasing organizations and consulting business will make health systems reconsider their GPO allegiances and open up the market to disruptive models, experts and industry insiders say.
Consultants, as well as former and current GPO executives, say the deal could push providers toward smaller, regional GPOs that focus on local sourcing and niches. The mega-GPO created from the merger could lose members who are uncomfortable with the GPO's size and changes that may come after integrating the two companies.
MedAssets announced Monday that it had been acquired by Pamplona Capital Management for $2.7 billion, which would immediately sell its spend and clinical resource management segment to VHA-UHC for an undisclosed price. Pamplona said it would integrate MedAssets' remaining revenue-cycle management business with Precyse, its own revenue-cycle software.
Several consultants expressed concern that VHA-UHC could become disorganized as it works to integrate yet another major acquisition. The company has said it would announce a new name in the coming weeks, as it continues to integrate the operations of VHA, a major not-for-profit hospital GPO, and UHC, an alliance of most of the nation's academic medical centers. The merger between the two closed in April.
To make matters more confusing, MedAssets hasn't quite integrated the culture of Broadlane Group after acquiring its former rival in 2010 for $850 million, said former Broadlane CEO David Ricker, who is now CEO of BroadJump, a developer of software that helps hospitals manage their costs and see what others are paying for supplies. Some former Broadlane members liked the GPO's stricter, more-committed model instead of MedAssets' more flexible models that let hospitals use other vendors, he said.
“You've got former Broadlane clients still with MedAssets who were still pushing very hard to get to that Broadlane model,” Ricker said, adding that those hospitals may not wait to see what VHA-UHC decides to do next.
Dallas-based Tenet Healthcare Corp., a former member and majority owner of Broadlane, announced earlier this year that it wouldn't renew its MedAssets contract. It chose to sign a five-year contract with HealthTrust, a committed-model owned by HCA. Experts said Tenet officials wanted a higher-commitment model in hopes of it leading to better prices.
Former Broadlane executive Brian Pellegrini, now managing director of spend performance consulting at the Advisory Board Company, said he expects HealthTrust executives to go after MedAsset members, especially the legacy Broadlane customers. Those members “are probably going to be the ones with the hardest time seeing a path that makes sense for them to remain with this new organization,” Pellegrini said.
Ricker and Pellegrini said they expect emerging regional GPOs, often developed by health systems, will be winners in this deal. Smaller, regional GPOs tend to pick a niche, such as physician preference items or purchased services, and focus on delivering strong contracts mainly in that space that can supplement a provider's national GPO.
“Hospitals are going to be a lot smarter about how much their supply cost goes up every year, and savings touted by some of these organizations just aren't real,” Ricker said. “The only way to get your physician-preference item spend under control is to source locally and regionally, and that's not what a massive org with (VHA-UHC) and MedAssets is going to accomplish.”
These smaller firms now have a chance to show hospitals executives why it pays to have more than one GPO, said Daniel May, a managing director at Huron Healthcare. He pointed to the Plano-based Texas Purchasing Coalition and Atlanta-based Partners Cooperative that have been successful honing in on certain supply segments, with TPC showing strength in physician-preference items and Partners focusing on commodities.
Ricker, Pellegrini and May all mentioned that provider-led GPOs such as Amerinet, which is owned by Salt Lake City-based Intermountain Healthcare, and HealthTrust could also benefit from the MedAssets fallout. Amerinet CEO Brent Johnson is betting on that too, as he transforms his organization from a traditional GPO to a professional supply-chain organization.
“These people do this to make money,” Johnson said. “Intermountain didn't. We did it because we trusted that you were going to be a model to the industry, teach us best practices … and we'll go from there. If down the road people just aren't willing to get off the administrative fee and the traditional GPO, then maybe our model is wrong, but I don't think so.”
Johnson fully acknowledged that national GPOs have a hard time adopting the committed model that tends to get the best prices from vendors. He sees customers doing increasingly more on their own and within their respective regions to get more efficient contracts, which is why Amerinet–which will get a new name in 2016–is rolling out consulting solutions and outsourcing services over the next year to help customers manage their supply spend beyond their contracts with the GPO.
“We see ourselves as a very unique alternative rather than being connected to a huge GPO that's out of touch with service,” Johnson said. “People will understand the importance of total non-labor spend. That isn't done through a traditional GPO.”
These services will be offered at a lower cost than Amerinet's competitors and the GPO will charge fewer administrative fees, Johnson said.
As more and more customers look into creating their own regional GPOs, the new Amerinet could help them plan out their administrative fees structure and other complex systems needed to manage it, Johnson said. And if they don't have the talent or resources to handle some of those processes, they can outsource them to Amerinet.
“We welcome the change (at MedAssets) because we think it adds flux and a lot of confusion in the market that allows us time to build our solution, and I think it builds a lot of uncertainty for a lot of their customers, which allows us to go to people who didn't want to talk to us before,” Johnson said.
A lot of health systems were already considering their options for switching GPOs before this announcement, said Dr. Mitch Morris, U.S. leader of Deloitte's providers industry practice. Many of his clients have been stepping back and evaluating what they're getting from their current GPO relationships.
The new GPO entity created following the merger will have to put together a story of how it will perform even better and drive even greater value, Morris said.
"If I were them, I'd be talking to my customers and reassure them that not only are things not going to get worse, they're going to get better,” Morris said. The impact as far as lost customers will probably not be felt for years, he added. The scale of the company will be hard to beat in its ability to negotiate better prices because of its volume, “but clients won't feel very special when they're a part of something so big,” he said.
MedAssets was successful because it offered an alternative model from some of its competitors, said Doug Pedersen, a managing director at Accenture Strategy who focuses on healthcare.
For example, while VHA-UHC's Novation GPO and Premier have private drug label brands and lean toward contracts with just one vendor, MedAssets officials have said that they're against private labeling and that their customers prefer multi-source contracts. VHA-UHC executives have similarly pointed out that MedAssets hasn't engaged in guaranteed-volume contracts that some believe can prevent drug shortages, a known strategy for Novation.
“It's up to the purchaser to bring in the value of what you're buying without breaking it,” Pedersen said. “It wouldn't be wise to just take their members. They want to have the ability to demonstrate to all of those customers that they have a really good product.”
