MedAssets strives to help its clients cut costs and enhance revenues
From its inception in June 1999, MedAssets Inc. never intended to be your typical GPO. Not only did the Alpharetta, Ga.-based company strive to adopt a creative approach to supply chain cost reduction, but it also took measures to help its clients enhance their revenues.
The company began as a provider of refurbished imaging equipment as well as mobile MRI services. Soon after, however, it purchased InSource, a Chatsworth, Calif.-based GPO. Then, 11 months later, it bought a second GPO, Axis Point Health Services in Murietta, Calif.
But its largest acquisition in the group purchasing sphere was that of Health Services Corporation of America in May 2001, the Cape Girardeau, Mo.-based GPO founded in 1969 by Earl Norman. Six months later, MedAssets successfully completed the merger of InSource and HSCA, and created MedAssetsHSCA, based in St. Louis, with sales and contracting offices in Chatsworth and Cape Girardeau, Mo. (The company is in the process of changing the name of its supply chain business to MedAssets Supply Chain and Business Services Group.)
Since then, MedAssets has recruited a number of large IDNs and non-hospital companies including, most recently, Inova Health System of Falls Church, Va., and the Rush System for Health in Chicago. In addition, the company has sold its refurbishment business and is currently winding down its mobile diagnostics business, with plans to be out of the mobile diagnostics market by the end of 2004.
The Journal of Healthcare Contracting (JHC) recently spoke with John Bardis (opposite page, seated), chairman, president and CEO of MedAssets; Rand Ballard (opposite page, standing), executive vice president of MedAssets and president of the Supply Chain and Business Services Group; and Gary Johnson, vice president of marketing and marketing services.
John Bardis has been chairman, president and CEO since the company’s founding. His healthcare career began in 1978 with American Hospital Supply and Baxter International, for whom he held various senior management positions, including vice president of the Baxter Operating Room division and general manager of the Eastern Zone. Bardis left Baxter in 1987 to join Kinetic Concepts, a provider of specialty bed and medical equipment rentals. From 1992 to 1997, Bardis was president and CEO of TheraTx Inc., a provider of rehabilitation services and operator of skilled nursing facilities.
Rand Ballard is responsible for the supply chain business and has overall sales and customer growth accountability for the MedAssets enterprise. Immediately prior to joining the company, he served as vice president, health systems supplier economics and distribution for Allegiance Healthcare (now the Medical Products and Services Group of Cardinal Health), where he was accountable for implementing contracts with subsequent annual sales of $1.6 billion.
Gary Johnson joined MedAssets in April 2002. Prior to doing so, he served as general manager, global trade marketing for Kimberly Clark’s Health Care division, where he was responsible for driving GPO contract penetration and building a value proposition to integrated delivery networks.
JHC: What was your original mission or charter when MedAssets was formed in 1999?
Bardis: We were interested in finding a more efficient way to deliver procurement services, starting with imaging technology. That’s why our first transaction was the acquisition of Comdisco’s equipment refurbishing business. We intended to use the Internet to create a worldwide market for previously owned medical technology. We still believe there’s an opportunity to re-deploy these assets, but we found it was not a great business opportunity for us. So today, we work with Carelift International in Bala Cynwyd, Pa., to donate used equipment for women and children’s healthcare centers around the world. But we always realized that without a group purchasing organization, we would have limited ability to write contracts or create a more efficient procurement model. That’s why we aggressively pursued group purchasing.
JHC: When you acquired InSource and HSCA, what did you believe you could bring to group purchasing? Wasn’t the market already mature?
Bardis: That maturity represented our opportunity. We saw tremendous potential for a group purchasing organization that would reflect how the customer wanted to do business.
Ballard: Interestingly, I wouldn’t even classify us as a GPO today. We have a passion for providing cash improvement solutions to providers. And if you step back and look at that as your business goal, you change your behavior.
JHC: Does your emphasis on providing cash for providers represent a philosophical difference with GPOs of the past?
Bardis: It’s not a philosophical difference, but rather, a difference in methodology. We believe GPOs became enterprises unto themselves, even though their customers owned them. They missed opportunities to serve their customers’ needs and create savings for them. I think that history has proven to the marketplace that there’s a need for a new model that continues to do what GPOs have historically done, but that does it more efficiently and reflective of how their customers do business.
Johnson: The customers have changed as well. Ten years ago, providers saw the GPO relationship as a transactional one. It was solely an issue of, “Help me buy products at lower prices.” But today, most IDNs and hospitals recognize that the supply chain is a major financial driver. That has led them to identify strategic supply chain partners. So the customer is looking for an entirely different relationship with his or her GPO.
JHC: Has this new attitude affected the administrative suite as well as purchasing?
Bardis: There’s no question that supply chain efficiency has captured the attention of the “C” suite. We see something else as well: Not only is supply management relative to cost a major issue, but equally powerful is supply management relative to revenue management. Supplies play a far greater role in reimbursement than the 20 percent of the gross budget they represent. Our acquisition [in July 2003] of OSI Systems enables us to put a state-of-the-art chargemaster in hospitals to link patient billing and reimbursement with product utilization. [Editor’s Note: Since the interview with JHC, MedAssets announced it had formed a strategic marketing relationship with Atlanta-based Chamberlin Edmonds to jointly bring solutions to providers that are losing money on un-reimbursed self-pay patient cases.]
JHC: Recently, MedAssets announced a strategic partnership with the Healthcare Financial Management Association. Does this relationship reflect your interest in linking the supply chain with revenue enhancement?
Bardis: The management of the supply chain is not only an important clinical issue, but a financial one as well. Supply chain expenses have grown faster than revenue, largely because of pharmaceuticals and implantables, such as orthopedic implants. We’ve come up with programs to address both of these areas, but we’ve adopted a flexible approach to doing so – offering services to help our members on a local level, because these problems are local in nature.
Ballard: Two examples would be our relationship with Aspen Healthcare Metrics on physician-preference items and our electronic catalog, which ensures that our clients are paying the prices they’re entitled to (either through MedAssets national agreements or through agreements they’ve signed locally). Our relationship with Aspen helps our members focus on physician-preference items, such as spines, hips, pacemakers, implantable defibrillators – all incredibly expensive products. We’ve concluded that MedAssets cannot provide any value by contracting for these items on a national level, because physicians are making these buying decisions at the local level. In its last 40 engagements, Aspen has helped its hospital clients save $76 million over two years. They do so by reviewing with each surgeon in the hospital his or her clinical outcomes, types of patients, procedure costs, reimbursement and so on. Physicians are scientists. You have to communicate with them in the language they’re used to. This transparency of data allows local contracting to occur.
JHC: How can MedAssets help its members ensure they’re paying the correct price for the items they purchase?
Bardis: We have state-of-the-art systems for contract price verification, and then for integrating that pricing into the members’ databases.
Ballard: We’re working with our hospitals to put everything they procure under contract – either a MedAssets contract or a local one, distributed products or direct-ship ones. We embed everything for which they write a check into their materials management systems, and then we do an automated audit to make sure they’re paying the correct prices. We had 20,000 log-ins by members to our Internet electronic catalog, in just the fourth quarter of 2003, and about 80,000 online searches were conducted in the same quarter.
JHC: How do you differentiate yourself from other group purchasing programs? It appears that you’ve been able to do so successfully, considering the number of large IDNs that have joined MedAssets in the last couple of years.
Bardis: We do this by doing the things we’ve talked about – identifying cost-reduction opportunities, tackling physician-preference items and branded pharmaceuticals, and being responsive to our members’ need for local contracts. And now, through OSI, we are linking product utilization with the charging process, to maximize our members’ revenues. We’re selling to the customer the way the customer has told us they want to buy.
JHC: Utilization is a topic of growing importance. Can you help your members address this?
Ballard: If we were to save 1 percent on a product that costs $100, we could pat ourselves on the back and say we’ve done a good job. But there are greater savings to be realized through proper utilization of products – that is, not using a product when you don’t need to. We work with our members on utilization of pharmaceuticals, helping them make sure that a drug is prescribed only when it’s truly needed. For example, we conduct clinical intervention studies that document the cost avoidance associated with better medication utilization. We then share these results with the clinical pharmacists in our customers’ facilities. The important part of these studies is demonstrating how appropriate medication utilization improves patient care and decreases total cost of care.
JHC: GPOs have been accused of locking out small, innovative manufacturers from the market. What are the challenges in contracting with manufacturers of new medical devices?
Bardis: We’ve been in the business of signing agreements with small manufacturers for years. We had the first national agreement with RTI [Retractable Technologies Inc., of Little Elm, Texas, whose founder, Tom Shaw, has been a vocal critic of GPOs and big manufacturers since the late 1990s.] We don’t earn business unless we provide contracts for products that our clients want. If we lose sight of that, they can elect to leave us, as they would any normal business relationship between customer and service provider. That’s why we have to stay alert to changes in the marketplace. Our contracts contain language that says that if a truly leapfrog technology arises, we reserve the right to contract with that supplier. What’s more, any vendor can go to our Web site and fill out an RFP. Every November, we invite these companies to St. Louis to make presentations to our member committees. If they convince those committees that they represent a viable option for our members, we’ll write a contract with them. In the first year that we did this, we signed five contracts, which we otherwise would not have.
Johnson: We’ve learned that some small companies fail because they don’t know how to present their stories. They don’t know how to show members how they can help providers reduce their total costs or improve their quality of care. So, last November, we sent them some coaching documents to help them do this. And it worked extremely well.
JHC: In August 2002, you launched the SELECT freestanding outpatient surgery center program for surgery centers. And in November of that year, you acquired Radiology Partners Inc., a non-acute care GPO with an emphasis on imaging and radiology. What’s your strategy for serving the non-hospital market?
Ballard: SELECT has been an unbridled success. Our SELECT surgery center commitment program has enabled us to build total surgery centers membership to over 1,470. Through a contract with HealthSouth Corp., which we signed in October 2003, 100 freestanding surgery centers have joined our program. We have doubled our outpatient imaging center business since acquiring Radiology Partners, with over 2,000 members in this category. And we’ve grown our business in the long-term care closed-pharmacy market through our relationship with Excel GSO in Chicago, which has aggregated the supply spending for several long-term care pharmacy providers. We just launched the Food and Nutrition SELECT program, which will help long-term care and nursing homes reduce their food expense – a significant operational cost. We’ve chosen not to market directly to physicians’ offices. However, we do have four affiliate relationships that get us into this market. The first is E-surg, an Internet-based solution. Another is ILS, which assigns a sales rep for every thousand committed doctors, contracting for cell phones, etc. The third, Medigroup, which has approximately 1,800 current physicians, focuses on specialty physician distributors. And the fourth, HPR in Seattle, is involved in completely outfitting (not building) physician clinics and physician surgery centers. Healthcare Partners Resource is slated this year for approximately 25 of these physician groups. MedAssets will be picking up all disposable and pharmaceutical contracts.
JHC: What does a supplier have to do to successfully contract with MedAssets?
Ballard: Its contract pricing must be competitive, of course. But at the same time, our clients are looking to total value created, meaning the total impact of products and services on the cost and quality of care. They want to see a quantifiable impact and reporting improvements. Add a certain degree of flexibility to work with providers of different shapes and sizes to round out the successful offering.
JHC: What are some of the “best practices” for suppliers to use to drive compliance of MedAssets contracts at the IDN and facility level?
Ballard: The first best practice is technology. Our customers use our information technology – specifically our CDQuick e-catalog and Strategic Information. They can search by item or supplier to select a contract, then implement it in their purchasing systems. We provide electronic letters of commitment and other document forms to speed up the process. Our new Alerts work task manager and executive dashboard reporting pushes summarized information to the customer’s desktop, with the format designed by each customer. These technologies help drive contract usage and compliance. Suppliers can view and search customized versions of the contract catalog not only to see their contracts, but to view which members are using their contracts and which ones are not. Another “best practice” is helping us build and execute a go-to-market campaign around a contract. This includes developing a focused selling effort against qualified targets; providing electronic materials for our field sales team’s use, which support the supplier’s total quality/cost value proposition; and helping develop well-defined targets for joint field work.