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MedAssets Deal Could Pave Way for Regional and Provider-Led GPOs

The merger could lose members who are uncomfortable with the GPO’s size and changes

The VHA-UHC Alliance's planned acquisition of MedAssets' group purchasing organization (GPO) and consulting business will make health systems reconsider their GPO allegiances and open up the market to disruptive models, experts and industry insiders say.

According to Modern Healthcare, 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 November 2 that it had been acquired for $2.7 billion by Pamplona Capital Management, 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 soon as it integrates 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 rather than MedAssets' more flexible models that let hospitals use other vendors, he said.

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 has agreed to a five-year contract with HealthTrust, a committed model owned by HCA. Experts said Tenet officials wanted a higher-commitment model that it hopes will lead 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 said 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 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 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, he 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.

 Source: Modern Healthcare, November 5, 2015.

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