GHX is on a Roll
Edition: February 2003 - Vol 11 Number 02
All the commotion that surrounded e-commerce several years ago is but a memory. Today, the landscape is much more serene and less complicated. That’s because the industry shakeout, which pundits had predicted years ago, took a big step forward in December, with the acquisition of Medibuy by Global Healthcare Exchange.
GHX and Medibuy announced that they would combine their respective Internet-based trading exchanges to create the largest single exchange in healthcare, to be called Global Healthcare Exchange LLC. At the time of the transaction, more than 1,400 hospitals and other healthcare facilities and 100 suppliers had selected GHX or Medibuy as their preferred solution for purchasing healthcare products and supplies.
Medibuy had relationships with Premier Inc., HealthTrust Purchasing Group and HCA. More than 200 HCA hospitals and a number of Premier sites used the exchange to transact business electronically with key suppliers.
GHX’s acquisition of Medibuy follows by six months its agreement to establish an electronic connection with BroadLink (Broadlane’s e-commerce exchange); by 18 months its agreement to establish a similar connection with Neoforma’s Marketplace@Novation; and by approximately two years its acquisition of HealthNexis, the e-commerce provider founded in April 2000 as the New Health Exchange by four of the country’s biggest distributors and wholesalers.
The equity owners of GHX include Johnson & Johnson; GE Medical Systems; Baxter International Inc.; Abbott Laboratories; Medtronic Inc.; AmerisourceBergen Corp.; B. Braun Medical Inc., Becton, Dickinson & Co.; Boston Scientific Corp.; Cardinal Health Inc.; C.R. Bard Inc.; Fisher Scientific International Inc.; Guidant Corp.; McKesson Corp.; Siemens Medical Solutions and Tyco International Ltd.
Good or Bad?
“We see [GHX’s acquisition of Medibuy] as a very good, emerging type of event that will only move healthcare forward,” says Michael Davis, vice president of Gartner Inc., an information technology research and consulting firm headquartered in Stamford, Conn. “You don’t have all these different marketplaces, which we didn’t think could survive,” he says. “And instead of different companies writing different interfaces, we have one company writing all of them. They can process distributor transactions much more efficiently than if several were trying to write these interfaces.
The acquisition of Medibuy will eliminate some competition, but that might be a good thing for the industry, says Davis. “We always said that GHX was a model that could work. It’s non-profit and totally controlled by its members – manufacturers, suppliers and many providers. So you have a board of people who will make sure that all the issues, all the business problems, will be looked at from several different perspectives.”
Needless to say, GHX executives couldn’t agree more.
“Market consolidation needed to take place in order to drive adoption [to e-commerce] among both hospitals and suppliers,” says GHX CEO Mike Mahoney. “GHX has provided one place for suppliers, manufacturers and distributors to connect, load their catalogs and have one source of connection to hospitals. That’s been beneficial to hospitals for cost reasons, and it has allowed them to connect with the suppliers they want to.”
The Best Route
Although Medibuy and GHX had considered forming an alliance, ala those of GHX with Neoforma and Broadlane, executives from both companies decided that the acquisition was the best route, says Mahoney. “You eliminate the cost of running two exchanges,” he says. Plus, he expects a snowball effect to occur. “You have more hospitals participating, which brings in more suppliers.”
In addition, the acquisition allows GHX to “combine best-of-breed products from both Medibuy and GHX,” he continues. Examples include GHX’s AllSource electronic catalog and Medibuy’s Reqs product.
Reqs is an Internet-based requisition tool, which allows hospital departments to place requisitions, which are then transmitted electronically to the provider’s materials management information system and then to the electronic exchange. It has been deployed by HCA facilities and other IDNs, including St. Louis-based BJC, says Mahoney.
“GHX has provided one place for suppliers, manufacturers and distributors to connect, load their catalogs, and have one source of connection to hospitals,” says Mahoney. “That’s been beneficial to hospitals for cost reasons, and it has allowed them to connect with the suppliers they want to. It’s inevitable that consolidation would take place.”
Observers believe the continuing consolidation of e-commerce exchanges will speed up the standardization of product nomenclature and supply chain transactions. (See related article.)
“GHX will now become a formidable power pushing standards,” says Davis. Even though many trading partners have settled on standard transaction formats, such as those of ASC X12H for electronic data interchange, the fact is, they continue to modify them. And that leads to havoc. “But over the next 24 months, we’ll see much more standardization of processes,” says Davis.
According to Mahoney, “GHX can’t play a role in how quickly [manufacturers] adopt industry standards, such as [the universal product number] or bar coding. That’s up to the individual companies. But we can help support industry standards and push for them.”
Mechanics of Merger
The acquisition should be transparent to Medibuy users, at least in the near future, says Mahoney. The plan is for GHX to connect Medibuy and GHX, as it has done already with Neoforma and BroadLink. “That’ll provide immediate benefit to hospitals – the ability to connect to more trading partners through our AllSource catalog,” says Mahoney. “Then, over the course of next six months, we’ll consolidate the two exchanges into one.”
Mahoney believes that one of GHX’s strongest drawing cards is its electronic catalog, called AllSource. (Medibuy did not develop an electronic catalog.) In AllSource, each supplier is responsible for updating its products. “The suppliers own the data and update it, and they’re motivated to keep it as accurate as possible,” he says. “That’s helpful to hospitals, because they can generate accurate data for purchasing activities, and keep their item masters in sync with Content Intelligence.”
GHX Content Intelligence automatically reviews purchase orders sent through GHX for incorrect product numbers, units of measure and supplier divisions. Using a set of pre-established rules and, if necessary, direct supplier input, the product data is corrected and validated against the AllSource catalog, then sent on for processing.
Says Davis, “GHX created a catalog which members keep up to date, where [the other exchanges] had to have a crew to keep it up to date. With this acquisition, we’ll see more efficiency.
“I’m not saying this will solve all pricing discrepancies,” he says. “But it will give people a much better status of pricing and catalog information. And it will be much more timely.”
A Failed Experiment?
Medibuy’s quiet exit from the e-commerce scene could hardly have been imaginable just a few years ago.
Indeed, given that the dollars and influence of Premier were firmly behind it, Medibuy looked like a sure bet to be a long-term player in the e-commerce world. The exchange had committed to developing supply chain solutions for Premier, and was to be the exclusive provider of e-commerce services for Premier’s 1,800 member hospitals.
In addition, it was to be the exclusive provider of such services to HCA, the for-profit hospital company, comprising approximately 200 hospitals and other healthcare facilities in 24 states, as well as its buying group, HealthTrust Purchasing Group.
And Medibuy was well funded. Its investors included Ridgewood Capital; Kleiner, Perkins, Caufield & Byers; Sequoia Capital; Oak Investment Partners; Meritech Capital Partners; Allianz Capital Partners; and e-partners of London and Silicon Valley, who together invested more than $120 million in Medibuy.
But its auspicious beginning – as the pampered child of a huge purchasing organization – may have portended its final fate.
By pursuing their own e-commerce strategies, some of the big purchasing groups may have made “tremendous errors in judgment,” says Michael Davis. “When e-commerce first emerged, they saw themselves at risk,” he says. Setting up captive exchanges looked like a way to stay in the game. “But transactions are not their core competencies,” he says.
Neoforma and Broadlane hope to prove him wrong. Since April 2001, BroadLink has processed more than $1.3 billion in customer orders, and $2 billion in purchase order volume is expected to flow through the exchange in 2003. Forty-four suppliers have signed up to implement BroadLink, and 22 are fully integrated. On the provider side, 311 hospitals have integrated BroadLink, and 281 are processing orders.
Meanwhile, Neoforma has more than 800 hospital customers and 300 supplier customers, according to Steve Wigginton, Neoforma’s executive vice president of marketing, operations and development.
In Search of Standards
If GHX’s acquisition of Medibuy does indeed hasten the adoption of electronic standards for the healthcare supply chain, chances are it will accomplish much of the work through the Coalition of Healthcare standards (www.chestandards.org).
Based in Ann Arbor, Mich., CHeS is comprised of GPOs and e-commerce companies – including GHX and Medibuy. Its purpose is to adopt and promote uniform industry data standards for supply chain transactions over the Internet.
Despite the progress that already has been made to develop and implement standards, much remains to be done, says Kevin Ruffe, vice president of operations for GHX, and a board member of CHeS. Identifying customers and products remain key stumbling blocks.
“Today, not everyone agrees to the same product identifiers,” says Ruffe. In other words, distributors, manufacturers and providers still refer to identical products by different numbers. Nor do trading partners agree on how customers should be identified. In addition, few trading partners agree on who has the most up-to-date roster of a particular GPO’s members.
“These two alone – product and customer identification – have a major impact on trading partners getting the right price on products,” says Ruffe. “If you don’t have the right product identifier or customer identifier, then a lot of time is spent trying to synchronize the two.”
The industry has yet to nail down transaction standards as well, that is, standards for such processes as placing purchase orders, sending invoices and electronically transferring funds, he says.
“The issue is, nobody is willing to go first and conduct business according to standards,” Ruffe says. Hospitals won’t push the issue because manufacturers aren’t, and manufacturers won’t push the issue because their customers aren’t. “Nobody has come together with the critical mass,” he says.
However, with the acquisition of Medibuy and its working relationships with Broadlane and Neoforma, GHX may be in a position to help bring that critical mass together, he says. “We’re in a great position to accelerate the adoption of standards.”
People resist change, says Ruffe. For example, suppliers are reluctant to adopt standards for products and customer classification because they have spent years accommodating the wishes of their customers. They don’t want to change now. “But if this new company can get organizations like Premier and HCA to agree that standards make sense, then suppliers will see the true value in converting as well.”
It won’t happen overnight, says Ruffe. But it will happen.
GHX’s activities over the past 18 months show a corporation focused on growth.
GHX and Neoforma enter into an alliance that will allow hospitals to reach trading partners through a single Internet connection. The alliance will enable Neoforma’s hospital customers to use its Marketplace@Novation system to transact business with GHX’s network of suppliers, and for GHX’s suppliers to sell their products to Neoforma’s current and future hospital customers through one Internet-based exchange.
GHX and HealthNexis, the e-commerce provider founded in April 2000 as the New Health Exchange by four of the country’s biggest distributors and wholesalers – Amerisource Bergen Corp., Cardinal Health, Fisher Scientific International and McKesson Corp. – announce that they will combine their operations into a single Internet-based exchange.
Meanwhile, also in November, GHX and AmeriNet, the St. Louis-based purchasing group, announce that they have formed a “strategic working alliance” to provide an electronic environment for health care e-commerce.
Willis-Knighton, a four-hospital system in Louisiana, becomes the first healthcare provider to conduct transactions through the GHX-Neoforma alliance. Since first purchasing products from Aircast, Inc., a specialty supplier of functional pneumatic support products for orthopedic injuries, the hospital is now conducting transactions with eight of the nine connected corporate suppliers.
Broadlane and GHX establish a relationship allowing hospitals using BroadLink to reach trading partners through a single Internet connection.
The first transactions of the combined BroadLink-GHX connection take place, with Tenet hospitals purchasing goods from Johnson & Johnson Health Care Systems, B. Braun and Guidant.
Global Healthcare Exchange and Medibuy sign a definitive agreement to merge their two companies. GHX and Medibuy will combine their respective Internet-based trading exchanges to create the largest single exchange in healthcare.
That same month, GHX signs a five-year agreement with Perot Systems Corp (Plano, Texas) calling for Perot to handle the infrastructure of Global Healthcare Exchange LLC’s electronic trading exchange for healthcare e-procurement, including the integration of the Medibuy trade exchange with the GHX exchange.