An inside look: Premier Inc. acquires Medpricer, a purchased services procurement solution

Let’s take a closer look at the Premier Inc. acquisition of Medpricer announced recently. For this Spend Matters PRO brief, we talked with leaders of both firms to get further insight into the acquisition and what it means. We also offer some reasons why this development is significant for procurement practitioners.

Premier Inc., a $1.2 billion diversified healthcare improvement company, has acquired Medpricer, an innovative solution provider focused on the management of the enormous and largely unmanaged “purchased services” category of spend within hospitals and healthcare systems.

Premier bought Medpricer for $35 million and expects the acquisition to be modestly accretive in 2020. The company has stated that Medpricer will continue to operate as an independent unit and brand, and will remain GPO neutral, while augmenting Premier’s own technology and analytics capabilities. Medpricer’s CEO will continue to lead the business as part of Premier’s Supply Chain Services segment.

Headquartered in Charlotte, North Carolina, Premier describes itself as “a leading healthcare improvement company, uniting an alliance of more than 4,000 U.S. hospitals and health systems and approximately 175,000 other providers and organizations to transform healthcare.” The company leverages integrated data and analytics, collaboratives, supply chain solutions, and consulting and other services to promote “better care and outcomes at a lower cost.” It also collaborates with members “to co-develop long-term innovations that reinvent and improve the way care is delivered to patients nationwide.”

“Medpricer’s spend management platform,” the company has noted, “uses artificial intelligence to validate, compare and onboard purchased services suppliers; track and measure spend by category, supplier and facility; benchmark contracts terms to ensure competitive rates; set and manage specific savings targets; and manage contract compliance.” It was also noted that purchased services — which “often fall outside the scope of national group purchasing contracts” — are estimated to “account for up to 30% of a typical healthcare provider’s non-labor expenses, and represent a total addressable acute care market of approximately $160 billion.”

Premier told Spend Matters that “Medpricer is an important component of its evolving cost management strategy and is an integral next step in our continuing expansion toward a fully integrated purchased services platform.” Premier also noted that it has the “ability to fund and materially accelerate the development of Medpricer’s offerings.”

Spend Matters recently posed some questions to Premier. We received written answers and also had an opportunity to talk with Premier’s Senior Vice President of Supply Chain, David Hargraves, and Medpricer’s President and CEO, Chris Gormley.

What Drove the Premier-Medpricer Acquisition?

Premier believes that understanding trends in purchased services is crucial to hospital operations, and gaining transparency into this area of spend is a central pillar within a total cost management approach to improving margins. But, for hospitals, accessing industry data on pricing trends is limited without assistance from an external technology partner analyzing the market. As the industry pushes providers to take on more risk and incentivize quality outcomes, Premier’s role as a quality improvement company is to fill the gap and provide hospitals with the solutions, data analytics and insights they need to operate in the most cost-effective manner.

David Hargraves commented: “It is not supply expense only or drug expense only. It’s all total non-labor. But purchased services is a very large category of spend, which is much harder to get at. We believe that Medpricer is going to really help us with our mission and help us more quickly implement this vision of an integrated cost management platform.”

Purchased services is obviously not a new focus area for Premier. Hargraves noted, “where Premier goes to market, we have our group purchasing services, but we also have our separate technology solutions. We have all sorts of supply chain technologies that are part of our end-to-end solutions for this total cost management.”

But what Premier needed was fit-for-purpose technology that was uniquely targeted to purchased services, proven with established customers and aligned with the company’s broader vision. And the company saw that Medpricer would extend its capabilities outside of its traditional supply chain services as a scalable, data-driven technology platform uniquely designed to help healthcare systems gain control over purchased services spend — regardless of GPO affiliation.

Medpricer, founded in 2004 as a cost management service provider that used some technology, shifted gears toward more technology under Chris Gormley, who became Medpricer CEO in 2015. According to Gormley, “the first thing that we did was to pivot the company away from just a provider of services by adding a suite of software focused exclusively on services spend, because services was an unexploited area of savings. We made that pivot starting in 2016.” By 2018, Gormley continued, the mSource technology solution was introduced in 2017, and in 2018, Medpricer had “created the only full lifecycle purchased services platform in the industry.”

At that point, Gormley said, it felt like Medpricer needed to accelerate and start amassing a lot more data, because Medpricer believes data is the key to this space. So in 2019, it embarked on “a growth strategic fundraising exercise. We were not just looking for money, but for the organizations that brought expertise in the space, as well as distribution, as well as an aligned vision. And that led us to Premier, and instead of minority investment, we decided to combine efforts because of the common vision and because of the distribution reach and other strengths that Premier offers.”

In addition to its distribution network, Premier could expand the resources available to Medpricer’s team and accelerate product development timelines. Premier’s cleansed, categorized and benchmarked purchased services data could be fused with Medpricer’s existing platform, and Premier’s members could help Medpricer guide its product roadmap.

What Sets Medpricer’s Solution Apart?

Premier was looking to build upon and extend what it considered to be its own technology leadership position, and it recognized that:

• Medpricer is the only lifecycle management purchased services solution in the market that connects the supply chain with suppliers, contracts and marketplace intelligence by way of integrated automation software, benchmark reports and world-class sourcing expertise.
• Medpricer’s technology platform and AI-driven classification software were designed to use customer data to generate ROI predictions across spend categories, giving health systems data transparency and market intelligence as to which sourcing opportunities take priority — ultimately improving contract terms, shortening negotiation cycles and reaching significant cost savings.
• Medpricer’s anonymized bids and transactions database stores data points from customized, local contracts across the United States. While GPO contracts in purchased services tend to be broad in scope and geographic coverage (with limited local and regional contract options), Medpricer manages purchased services contracts that tend to be local and can be customized.
• Medpricer built its solutions on its sourcing expertise, centered around customer success by offering unparalleled insights into service costs and utilization for local/regional service contracts. It works alongside members of all national GPOs. The depth of Medpricer’s sourcing expertise positions their customers to standardize purchased services best practices in the form of a scalable program — as opposed to one-off sourcing projects.

Chris Gormley noted that “Medpricer had done sourcing RFP technology from day one, and that helped us inform the front end on the analytics. And I think that’s what makes us really different today. Among other things, we have an action-first way of looking at the world because the analytics themselves are there to lead to a conclusion and a savings result itself. We’ve architected our analytics to lead to savings, where other vendors might just be classifying and categorizing data and then leaving it for everybody else to figure out what to do with it.”

What Does the Future of Medpricer + Premier Look Like?

According to Premier, Medpricer will operate as an independent unit. This alignment ensures that Medpricer will continue to be GPO-neutral as it has always been. Medpricer will also continue to honor all prices and offerings made or agreed upon prior to the acquisition.

Speaking to integration with Premier and GPO-neutrality, Gormley said: “It’s important that we remain an independent unit that works with the appropriate parties within Premier where it benefits its members and where we have synergy, but still has that GPO agnostic point of view, because that’s what the marketplace needs. When you think about data — say benchmarking, for example — would you want to know the best price of a car that was just a Chevy. Would you want to know the best price of a car if it’s just a Ford? You want to know the best price of cars. You want to know how they compare with everyone. So if you’re thinking about just being a GPO-centric organization, then you’re really not going to service the members primarily because the members want to know what the marketplace looks like. Not just what their GPO looks like.”

The organizations are devising ways to cross-leverage data (while maintaining critical firewalls) and other intangible assets. Hargraves noted: “The Medpricer technology platform has an artificial intelligence-driven classification software that is more advanced than the one Premier currently has in place, so Premier will move to adopt that way of doing that data classification. This is an example of where, when one of the two organizations has a best-of-breed solution, we together go ahead and migrate to that.”

Gormley noted that, for Medpricer, there are several technologies that Premier has that could be integrated and “we weren’t working on or what we thought were somewhat adjunct and therefore we can take advantage of those capabilities. There’s certain data that Premier has. For example, they have a database of accounts payable data they’ve amassed over several years. I think that, where the appropriate permissions are in place, it could strategically advantage Medpricer to have that kind of breadth of detail that comes from Premier’s extensive network of suppliers and buyers throughout the country.”

The organizations are also looking at ways to support and accelerate their product development timelines. Gormley said “we have a roadmap, and it’s very similar to many areas that Premier is already working on. And one of the areas that we’ll get is additional funding, which is one of the core elements of our strategic funding raise. So, we will accelerate the planned areas that Medpricer had already on its roadmap.”

Hargraves stated: “Having Medpricer technology, as part of our end-to-end total cost management suite of technology is absolutely important. No question about it. It’s scalable tech. It’s data-driven. It very much fits within what we already produce.”

Hargraves told us that “the Medpricer acquisition helps on both sides. It helps fill in some of the technology gaps to get to the total cost management. It also accelerates our ability to launch additional service solutions.” With its existing end-to-end supply chain of $125 billion in categorized purchased services spend data and sophisticated performance improvement technology suite, Premier expects the Medpricer acquisition will uniquely position it to become the one-stop-shop for health system margin management.

Spend Matters’ Perspective

From Spend Matter’s perspective, the Premier Inc. acquisition of Medpricer is significant in a number of respects:

• First, it is a relevant event for healthcare executives fighting the cost-management battle in their hospitals and healthcare systems or through their GPOs. For those unaware of Medpricer and its capabilities (particularly given that Medpricer has kind of burst onto the scene over just the past couple of months), it is an opportunity to examine Medpricer and what its potential impact in the enormous purchased services spend category. According to Modern Healthcare, “Medpricer customers regularly see 24% savings on their purchased services.” For those that may had some passing knowledge of Medpricer, it is a prompt to take deeper look (particularly now that the solution has gotten significant validation by being acquired by Premier Inc.).
• Second, this is a development which hospitals/healthcare systems that rely on healthcare improvement and GPO organizations should take note of as they assess the extent of their own providers’ technological and analytical capabilities and their ability to produce new areas of cost savings. Hospitals/healthcare systems will be able to leverage Medpricer independent of the GPO choices they make. That notwithstanding, its acquisition of Medpricer may also say something about Premier’s own technology and analytics sophistication and how it envisions the future of healthcare cost and performance management.
• Finally, Medpricer and its “program/action-oriented” technology and analytical capabilities, based on big data and AI, may be of interest to any CPO or services procurement practitioner in any industry, not just healthcare. Spend Matters began covering Medpricer a year ago, not just because it seemed like an extraordinary solution for services sourcing and spend management in healthcare (specifically, hospital purchased services), but because it struck us as a potential harbinger of a solution for complex services sourcing, contract and spend management across any number of industries. As it turns out, this was indeed a part of Medpricer’s strategic thinking before we had contact with the company. Today, Medpricer is already serving a customer that is completely outside of healthcare, and it does not intend to stop there (a plan that is supported by Premier, which also serves some number of customers outside of the healthcare industry).

Spend Matters intends to continue its coverage of Premier and Medpricer with another Spend Matters PRO research brief that takes a deeper look at Medpricer as a provider and, more importantly, as a solution for complex services sourcing, contract and spend management.