GPO views of 2002

With Jon Glenn, Gary Johnson and Rand Ballard

HPN: Looking back over the past year or so, do you think that the group purchasing industry gained or lost through the protracted controversy over business practices?

Jon Glenn: I think that the criticisms which were leveled at group purchasing have led to gains for the healthcare industry as a whole. Certainly, visibility and accountability in the purchasing processes are good things. At the center of the 
controversy were very specific allegations made about certain practices of Novation and Premier. Whether any of those allegations are true or not, I don’t know. But what is true is that healthcare providers were afforded a view of group 
purchasing organizations that many had not seen before, and it became clear that GPOs do not all operate on the same business model. Our business model, for example, is quite different from that of Premier, Novation, Consorta and AmeriNet. We are not owned by, nor do we own, healthcare providers. We are a supply chain resource for healthcare providers with an individualized, provider-centric approach. The old GPO model, which perhaps became synonymous with our industry, lost ground this year to a new kind of supply chain model that we offer. 

HPN: Do you feel that the industry might have been able to reform itself in the absence of government and media attention?

Rand Ballard: I think that it could have and should have, but I doubt that it would have, absent this attention. Simply put, the incentive for change was lacking for the players scrutinized in this process.

HPN: What were the special challenges that MedAssets in particular and the industry in general faced regarding reform?

Jon Glenn: We at MedAssets did not face any major challenges. Our business practices have remained almost entirely unchanged 
throughout this process, because we have made different choices than some of our competitors. For example, our GPO does not take equity positions in our product vendors, and we would never permit any of our officers or employees to do so. We are committed to a multi-source contracting approach wherever possible. We do not have a private label program. We considered 
one, but after weighing the pros and cons, decided against going forward. And we have always tried to keep our doors open to vendors with new or improved technology. So for us it was largely a matter of articulating business practices that were 
already firmly established and becoming more intentional — more proactive — about our interest in new technologies.

With this in mind, we have strengthened our efforts to assist historically under-utilized businesses in getting to market through a program we call MedAssets HUB. Last November, we held our first New Technology Summit, which we co-hosted with the MDMA (Medical Device Manufacturers Association), and which was a great success. We invited MDMA-member small technology companies to present their products to the members of our Materials Management Advisory Committee, who evaluated their 
products and made recommendations to us. It was a great success and resulted in some contracts being awarded. We plan to make this a bigger and better event.

I think it is true that some members of the GPO industry face challenges in re-thinking how they should do business and changing their practices accordingly, both because some practices of dubious merit appear to be integral to certain business 
models, and because their size and structure make it difficult to effect meaningful change.

HPN: What is the ideal role for GPOs in the supply chain?

Gary Johnson: The ideal role of the GPO is to source and deliver the best products at the best price. GPOs should strive to take unnecessary costs out of the supply chain, of course, since that is their initial function and one they do well. But 
GPOs also need to assist their members in identifying and sourcing the best products, services and technologies. This means working with both the provider and the supplier community to achieve a “win-win-win” relationship. 

HPN: How prevalent has abuse of good business practices been in the GPO industry and can it ever be weeded out successfully and completely?

Jon Glenn: I only know what I read in the newspapers and the government reports. If what has been said is true, then I agree 
that some organizations have made bad decisions. That’s why the increased visibility into — and dialogue concerning — GPO 
practices is a good thing. Over time, the provider community will vote with its feet to choose with whom they want to be business partners. Competition can be a very effective agent for change 

HPN: How resistant to change has the GPO industry been?

Rand Ballard: Organizations as well as individuals tend to resist change, especially if they are not convinced that the status quo is not acceptable or see little value in changing. I haven’t yet heard anyone in this industry admit that their organization made a bad decision or condoned a bad practice. So, again assuming that the allegations which have been made concerning some GPOs are true, I would conclude that, yes, some members of our industry continue to resist change. Time will tell, and I don’t think it will take very long.

HPN: Some have blamed the media, specifically reports about GPOs in The New York Times, for bringing to light the troubles of the GPO system. Do you subscribe to that belief and why?

Jon Glenn: Actually, I think that The New York Times has done a good job of bringing some important issues to light, and in doing so has rendered a service to the healthcare industry. Providers are taking a close look at their relationships with their group purchasing solution and are asking some hard questions. And that is a healthy practice.

HPN: Which practices are most harmful to the industry and, specifically, to the nation’s hospitals?

Jon Glenn: I think that when a GPO is in a position to dictate to its members what products they will and won’t use — when it acts as the gatekeeper for access to providers — then the possibility exists that, either intentionally or inadvertently, 
healthcare providers may be effectively denied access to useful products. It is incumbent on the GPO to make sure that this does not happen. When a GPO in such a position also benefits from the success of a particular vendor, because it has an ownership interest in that vendor or allows its officers to have one, then a conflict of interest exists which should be 
obvious.

HPN: How will healthcare be improved by loosening what has alleged to have been tight reign over medical device contracting by GPOs and large manufacturers?

Gary Johnson: Opening the marketplace to increased competition will benefit healthcare. We should see increased accessibility 
to new technologies which will improve patient care. We should also see new companies with emerging technologies companies learn more about what is required to successfully bring a product to market, such as providing clinicians with in-servicing, product education and other service requirements. 

HPN: How has MedAssets been successful in attracting IDNs to become members? 

Rand Ballard: There are four reasons that we see. First, America’s healthcare systems continue to be under great financial stress. They view supply chain and revenue cycle management as key strategic areas in which to improve their financial health and are pursuing solutions very aggressively. We focus on the supply chain and revenue cycle financial drivers. Second, the 
reality is that each large system or IDN is unique in its structure, business strategies, goals and needs. We don’t believe that a “one-size-fits-all” approach is an effective supply chain solution, and so we have adopted a flexible approach to deliver a customized package that addresses the unique needs. Third, a new generation of healthcare system leaders is coming 
into its own, with new views and skills, and the desire and ability to challenge the status quo and look for the business solution that delivers the greatest value for their organization. 

Finally, we think that healthcare providers are seeing MedAssets as a credible, preferable alternative to the older cooperative-model organizations. We think we combine the best of both worlds: a national supply contract portfolio and local 
customization, with practical information technology tools, and customizing capability because it is a one-to-one customer-MedAssets relationship. The market place is voting with its feet as recently shown by our most recent member, the Charleston Area Medical Center in West Virginia, selecting MedAssets as its GPO, while continuing as a VHA member. 

Rand Ballard is executive vice president of MedAssets and president of MedAssets HSCA. His responsibilities include developing leadership, training, and accountability for all the various sales functions for MedAssets businesses. Prior to joining MedAssets, Ballard’s served as vice president, health systems supplier economics and distribution, for Allegiance Healthcare, where he was accountable for implementing contracts with annual sales of $1.6 billion.

Jonathan H. Glenn has served as executive vice president and chief legal officer of MedAssets since March 2000. From 1998 until joining MedAssets, Glenn was a principal of The Vine Group, LLC, a business consulting firm concentrating on healthcare and information technology. From 1994 until March 1997, he served as vice president and general counsel of TheraTx Inc. Glenn received his law degree from the University Of Virginia School Of Law. 

Gary A. Johnson, who is vice president, marketing and marketing services for MedAssets, joined the company in April 2002. Prior to that, Johnson 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 unique value proposition to integrated delivery networks.

HPN

April