The mid-September announcement from Atlanta-based MedAssets that it was acquiring The Broadlane Group for $850 million had the healthcare industry buzzing for several reasons:
- It came as a surprise despite rumblings that it was in the works;
- It's a major acquisition, shaking up a two-year malaise in healthcare M&A financing;
- It establishes MedAssets as a serious player in the group purchasing realm; and
- It underscores the efforts of GPOs to expand their membership bases and diversify their operations.
Executives at both MedAssets and Dallas-based Broadlane have heralded the "synergy" between both groups that will serve their members well going forward. Industry analysts such as Pam Poshefko at Chadds Ford, Pa.-based IMA Consulting certainly see the compatibility and potential impact on the group purchasing segment.
"This is very big," said Poshefko, IMA's consulting manager. "It now produces an entity that has a full-range solution. It makes them a major player in the market, putting them on the same footing with the other big players."
In looking at its potential impact, Poshefko says the new entity will "benefit the clients of both because they are strong in different areas. Together they make a much more broad and viable alternative to other GPOs."
Broadlane serves more than 1,100 acute care hospitals and 50,000 non-acute care facilities across the United States, and MedAssets has more than 3,300 hospitals and 40,000 non-acute healthcare providers. Together, MedAssets and Broadlane would reportedly have a combined net revenue of $508.9 million.
MedAssets has focused on custom contracting, supply chain consulting and revenue cycle management while Broadlane has a strong e-commerce component and functions as a transaction management company.
"Combined they can get high compliance with a technology solution that will help members manage their transactions to ensure they get the correct pricing for all their contracts," Poshefko said. "It's a nice blend that makes them much stronger than they are separately."
Compatibility factor
In describing the impact of the Broadlane acquisition, MedAssets COO Rand Ballard said the key to the united organization's synergies is cost-reduction capabilities to help members and suppliers save money while boosting revenues in the process.
"To customers and potential customers, we know that healthcare reform will put increased pressure on costs like never before," he said. "The status quo won't work in the future, so we can show the cost reduction opportunities in our portfolio."
One aspect of the newly merged organization which is causing excitement in both camps is the ability to apply Broadlane's technological acumen to MedAssets' linkage system called Crosswalk, which bridges providers' supply chain functions and revenue cycle management.
"In a climate of declining reimbursement, this is a unique technology proposition," Ballard said. "Broadlane gives us different ways to approach this issue. MedAssets is excited to embrace the e-commerce technology, combined with service and unique analytics, to measure to the granular level and drive clinical formulary compliance."
When comparing the operations of both MedAssets and Broadlane, Ballard said it became obvious that the parties businesses "were more complementary than competitive."
Financially, MedAssets made the bold move despite a capital shortage in healthcare that started with the Wall Street crisis in 2008. The deal was attractive for lenders and the timing was right for the acquisition, Ballard said, because "both organizations are extremely solid and growing. … We have a very strong balance sheet and are financially stable."
Diversifying memberships
By joining forces, MedAssets and Broadlane can pool their membership rosters to reach the highest number of provider organizations possible. This includes 90,000 combined non-acute care providers between them – an audience that GPOs are pursuing with greater zeal.
For instance, Joan Ralph, vice president of continuum of care services for Charlotte, N.C.-based Premier, says healthcare market conditions are now at a point where GPOs are seeking new members from the long-term care and physician clinic communities – and those providers are recognizing the value of group purchasing.
"With the state of the current economy and cuts to reimbursement, long-term care facilities and clinics face similar cost pressures as hospitals," she said. "Some long-term care organizations are now realizing the need to manage their supply chain in a more effective manner."
Historically, Irving, Texas-based VHA hasn't focused on recruiting new long-term care members, but that has changed dramatically with the addition of Tidewater, a niche GPO, said Richard Peters, senior director of VHA's non-acute operations.
"As a result of VHA's interest in serving the rapidly growing long-term care market, we recently created a relationship with Tidewater to accelerate our growth in this market," he said. "The strength of our combined purchasing power will help bring lower prices on more things long-term care providers use."
Group purchasing for non-acute providers goes back to the early 1990s, when both MedAssets and New York-based Innovatix started serving alternate site organizations. Innovatix, a joint venture between the Greater New York Hospital Association and a subsidiary of Premier, started out as a GPO for home infusion companies, long-term care pharmacies and independent medical oncologists. It has since expanded purchasing options for all segments of healthcare, said Innovatix president and CEO John Sganga.
"What has happened is that as the marketplace goes beyond acute care and other care options, we're seeing an explosion of facilities that need GPOs to become more cost effective," he said.
While Innovatix's purchasing volume is around $4 billion, Sganga expects that total to double over the next four years.
Beyond contracts
To help their members stay viable and profitable, GPOs are taking on responsibilities beyond purchasing, such as consulting, education and technology expertise. The massive influx of baby boomers into the healthcare system over the next decade will require provider organizations to expand their facilities in order to accommodate this huge new patient base, Peters said.
"It is creating a need for architecture and building services beyond conventional medical supplies, pharmaceuticals and food," he said. "VHA's capital asset management program can help providers along this expansion, from budgeting, planning and design through construction and into operation."