There’s More to the MedAssets Deal for Healthcare Procurement Than You Think

locum tenens

Like a saint cut apart into various relics, spread across the land to bring hope to those praying for more cost efficient and effective healthcare, the assets of MedAssets are getting hacked into strategic pieces.

As my colleague Tom Finn reports on our sister site, Healthcare Matters, Pamplona, a private equity firm, is buying part of the assets of MedAssets and planning to combine its “revenue cycle management business with its Precyse business, and to sell the MedAssets spend and clinical resource management business to VHA-UHC Alliance, a network largely composed of not-for-profit hospitals.”

A New Dynamic for GPOs in Healthcare

One of the backdrops for this transaction is that the healthcare group purchasing organization (GPO) market is in the midst of transition from making money solely from administration fees charged to suppliers to more hybrid, individually negotiated payment models. Under varying terms and conditions, they’re now providing systems and capability for integrated delivery networks (IDNs) and smaller regional and local providers to manage supply chains and procurement themselves. The stated goal is to provide greater alignment and to balance outcomes with cost — and of course demonstrate greater accountability to payers, including the government.

The GPOs are not just changing with the times, but it can be argued that they’re essential contributors to the transformation. Overall, MedAssets believed it could do it by becoming a business process outsourcing (BPO)-type provider, keeping a GPO-like approach and making it available “as a service.” But over a period of time, like the others, it was forced to focus more aggressively on the enabling technologies — and along with some outstanding people-led clinical consulting services, these are the pieces going to VHA-UHC Alliance, soon to be renamed and to include both Novation and MedAssets. By contrast, the GPO buyer(s) in this case were making such changes quite a bit earlier, in a more radical shift to become an IT services and solutions company.

Prioritizing Software Commercialization

In carving up MedAssets, Precyse (Pamplona) is taking the revenue cycle management component. The remaining assets are going to the VHA-UHC Alliance, putting tools in the hands of a company that actually wants to prioritize their sale over services. This last point is a critical element of the deal to understand. As for MedAssets, it’s a rather curious end to an integrated business, but one that is clearly going to end up in better commercial hands from a solutions perspective.

It’s no secret that the VHA-UHC Alliance is known within the healthcare market as having a top notch supply chain analytics competence. The combination of great data, tools and supply chain and procurement know-how come together under this umbrella in providing competitive advantage relative to other former (and current) GPOs attempting to make a similar journey. The transition to higher value-added, tech-enabled services won’t just satisfy but should help drive the shift from the equivalent of “cost plus” to a value based approach that, let’s face it, must result in both supply cost savings and better supply utilization standards. The acquisition of MedAssets and the strength of its clinical data analytics capability should help to accelerate the operationalization of these objectives.

But more than this, one of the more curious features of this deal is that MedAssets had an exchange solution (a competitor to GHX) that is now going to become part of this new organization. This raises a number of fascinating points and scenarios. Might the exchange business opportunity for these members/customers of this emerging group of GPOs (let’s call it VUNM for now), many of which are currently GHX customers, be up for grabs? Is a significant “defection” from GHX in the cards?

Will Market Competition Hurt GHX?

Under this latter (and plausible scenario), the exchange offering could become a loss leader for VUNM which, based on its heft, could have the power to bundle it, subsidize cost and more. This would put GHX on the defensive. Under this scenario, and now with true competition, brought by the scale of VUNM, for exchange services in healthcare, might it possible that this could be the one time that such consolidation actually causes prices to come down?

Yes, it could. This would be ironic, of course, because typically, when there's a consolidation in healthcare — providers, payers, suppliers — the prices go up. However things could be different here. There’s also a longer-term scenario where VUNM could work to get GHX out of its customer/member base and then potentially raise prices or augment its core price sheet with additional solutions to offset new-term cost reductions down the line.

Regardless of pricing trends, one thing is clear: One of the “relics” of MedAssets is about to make life very interesting for a broader set of IDNs and hospitals — as well as a competitor that has enjoyed dominant exchange pricing power. More competition, after all, should benefit everyone. Well, almost everyone.

First Voice

  1. Joshua Vandamm:

    Jason, I was not aware that you are working with healthcare industries.
    As a medical R&D professional, I would not pretend to have any real understanding of the business/operations side of things. However, software/database management and network integration of such tools is indeed a major area for opportunity in the industry and government now as well.

    Tangential, no doubt you’ve seen the Times article, “Bitter Pill…” (http://time.com/198/bitter-pill-why-medical-bills-are-killing-us/). The problems discussed suggest a need for this kind of software integration, networking and accountability between buyers/end-users…As you’ve certainly observed, where there’s a problem, there opportunity.

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