MedAssets deal could pave way for regional, provider-led GPOs

The VHA-UHC Alliance's planned acquisition of MedAssets' group purchasing organization and consulting business could open the market to disruptive models, experts and industry insiders say.

The deal could push providers toward smaller, regional GPOs that focus on local sourcing and niches, they say. The mega-GPO created from the merger, subject to customary approvals, could lose members that are uncomfortable with the GPO's size and the changes that may come after integrating the two companies.

MedAssets announced last week that it had been acquired by Pamplona Capital Management for $2.7 billion, which would 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 were concerned that VHA-UHC is still combining operations after its own merger. VHA, a major not-for-profit hospital GPO, and UHC, an alliance of most of the nation's academic medical centers, closed their deal in April.

To make matters more confusing, MedAssets is still adopting the culture of its former rival, Broadlane Group, which it acquired 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 does next.

Dallas-based Tenet Healthcare Corp., both a former member and majority owner of Broadlane, earlier this year dropped MedAssets and signed a five-year contract with HealthTrust, a more- committed model owned by HCA. Experts said Tenet officials were looking for better prices.

Former Broadlane executive Brian Pellegrini, now managing director of spend performance consulting at the Advisory Board Co., expects HealthTrust 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 that 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 that 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 organization (such as VHA-UHC and MedAssets) is going to accomplish.”

These smaller firms now have a chance to show hospital 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, which have both successfully honed 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 (our members) 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 increasingly being more independent and looking locally to get better deals. That's why Amerinet is rolling out consulting solutions and outsourcing services to help customers manage their supply spend beyond their contracts with the GPO.

“People will understand the importance of total non-labor spend,” Johnson said. “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 have fewer administrative fees, Johnson said.

The new Amerinet could help the growing regional GPO market set up an administrative fee structure and other complex systems 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 the announcement, said Dr. Mitch Morris, U.S. leader of Deloitte's providers industry practice. The new GPO entity created following the MedAssets/VHA-UHC merger will need to convince customers that it will drive even greater value, Morris said.

The impact as far as lost customers will probably not be felt for years, he added. The scale of the merged GPO might attract better prices from vendors, “but clients won't feel very special when they're a part of something so big,” he said.