Even a decade later GHX CEO looks both ways before crossing the Street

The trick was to differentiate its brand, Global Healthcare Exchange or GHX, from being just another also-ran in a crowded field making a lot of noise with little revenue and customer participation to show for it.

Ten years later, barely a third of those early players remain and much of heated and overhyped interest has dissipated. When much of the smoke cleared, and after a series of strategic acquisitions, software developments and market-savvy moves, GHX emerged with regular connections to the vast majority of domestic hospitals, representing more than 82 percent of licensed beds, as well as solid links to the suppliers who provide more than 90 percent of those facilities’ medical/surgical purchasing volume.

Bruce Johnson

Looking back to the year 2000, Healthcare Purchasing News Senior Editor Rick Dana Barlow asked Bruce Johnson, the company’s president and CEO, for his insights about the company’s progress.

Johnson, more reserved but no less passionate about GHX than his kinetic predecessor, has occupied the top office for the last three years, and is the company’s second chief executive during its decade-long running-to-date. He previously served as GHX’s first vice president of marketing, expanding his role to sales and product management before being promoted to COO. In fact, Johnson was instrumental in catapulting GHX to the top of healthcare-focused electronic trading exchanges by helping to negotiate and manage the company’s acquisition in 2006 of Neoforma, one of the market-leading exchanges at the time, as well as driving GHX’s expansion into Europe.

Like his predecessor, before joining GHX Johnson spent 12 years at GE Healthcare in a variety of marketing and sales management roles.

In a wide-ranging interview that spanned GHX’s past, present and potential future, Johnson reflected on how far GHX has come and grown and where he hopes to lead the company in the years ahead.

JOHNSON: Absolutely. The five founding companies would not have invested millions of dollars to create the infrastructure to support a global trading exchange if they had not believed the idea would work. They, like the founders of other similar initiatives at the time, recognized the need. More importantly, they believed they had created a business model and guiding principles that would help ensure long-term viability. They knew that to attract other suppliers, many of whom were competitors, and their customers, they would have to have an impartial model in which everyone could participate and benefit. They drafted a strict data privacy policy to protect the interests of participants, and a business model that would take costs out of the supply chain.

Yes. There are a lot of areas where an exchange like GHX can deliver value, but the most fundamental is the creation of a single place where suppliers and providers can connect to those organizations with which they do the majority of their business. These acquisitions not only helped create a critical mass of participants, they also brought GHX new products and services that we were able to take to a larger combined customer base. Another advantage of market consolidation is market adoption. When there were several exchanges, many in the market decided to wait it out, to see which exchange would eventually succeed, before committing to an e-commerce platform. This ‘wait and see’ attitude, had it continued, would have negatively impacted the industry’s opportunity to start reducing supply chain costs. Perhaps more importantly, by merging with Medibuy, and later Neoforma, we were able to broaden our ownership to include providers and group purchasing organizations, together with the manufacturers and distributors that by then were owners of GHX. In turn, this helped us create greater trust across these groups, by bringing all parties ‘to the table’ to work together to conduct business through GHX.

Our original mission – to make healthcare more efficient – is still very relevant. We, or I should say, our members, have certainly made great strides in this area, but we still have a lot of opportunity ahead of us. By integrating providers and suppliers, we have enabled them to streamline and improve order-related processes. Now we are working on other aspects of the demand-to-pay process, from management of physician preference items to invoice automation. We have also built a tool that enables all authorized parties to a contract to share information in real time to ensure everyone has access to the same information at the same time. At first we were primarily about automation, now we are about creating visibility to information. Visibility to accurate information in real time takes a lot of the guesswork out of the healthcare supply chain, which not only reduces errors and improves efficiencies, but also builds trust. But in the end, it all contributes to a more efficient healthcare system.

We are truly proud of the technology platform we have built…one that currently supports more than $30 billion in purchase-order transaction volume annually, with 99.9 percent uptime. But an even greater achievement, in my opinion, is the community that has come together around GHX. Certainly the technology connects that community, but it is more than just organizations using the same technology. The real value, the real game changer, is the fact that trading partners, which have historically not had a high degree of trust, are starting to align goals and talk about issues other than just product and price. They are beginning to talk about what they have in common, as opposed to where they disagree. Providers and suppliers are working together to take costs out of the system.

While I am proud of how far GHX and its supplier and provider members have come over the past 10 years, we have made some mistakes along the way – mistakes that I hope have helped us become better in the long run. Here are a few:

At our initial news conference, our founding companies announced that we would be live in less than six months, by Sept. 30, 2000. I think we underestimated the degree of difficulty in building the technology platform, although we did process our first order before the end of the year.

We also thought we could expand much more rapidly. We opened our European headquarters in 2001, but it was really not until 2007 that we were able to devote the time and resources we needed to start making a real impact in Europe.

If I had to pick one, though, it would be in regard to GHXML. XML is a communication protocol, like EDI. Where we really missed the mark was creating our own XML standard…GHXML. Catchy name, but it went completely against what one of our guiding principles said…that we support the use of industry standards. While we have always supported the use of industry standards for product and location identification, we created our own proprietary standard. But believe me, the industry set us straight pretty quickly on that. We do have folks transacting on XML vs. EDI, but it is using an industry XML standard…not GHXML.

A few things: First, we had a business model that was unique and sustainable. We didn’t put the interests of any one group over another – our teams worked hard to develop services that supported both buying and selling organizations. Also, as a private company that was not in the midst of an IPO, we could focus on building the exchange and related services – not on the needs of Wall Street. Second, the industry had to get to the place where it had a single exchange that everyone could participate in. It had to come down to one organization to achieve the kind of market adoption necessary to drive value.

The landscape was changing so much in those days, I am not sure we knew exactly what GHX would eventually look like, but we always knew what we wanted it to accomplish. We wanted to create something that would address the problems in the healthcare supply chain that were outlined in the 1996 Efficient Healthcare Consumer Response study and the vision of a collaborative healthcare supply chain outlined in the 2001 Andersen study on the Value of e-Commerce in the Healthcare Supply Chain. Both of those studies identified billions of dollars in waste that could be addressed in part by increased use of e-commerce. A recent study by HIMSS Analytics shows we have come a long way toward achieving those goals. Today, on average, 95 percent of acute-care hospitals over 150 beds are handling at least some of their purchasing electronically. On average, 60 percent of their medical-surgical purchase orders are sent via e-commerce and, we are proud to say, 70 percent report using an exchange. GHX has also calculated that its members have saved more than $1 billion over the past four years from labor savings due to automation and reduced connectivity costs. So, in that sense, we are on our way to achieving our original vision.

In 2001, GHX processed $25 million in purchase order volume. In December 2009, we processed more than $3 billion, which translates to an annual run rate of $36 billion in North America.

I think you are correct, that resistance to change remains a competitor. There are still provider and supplier organizations placing and confirming orders via phone or fax, or who have chosen to establish their own one-to-one connections with trading partners in order to do business electronically. But the number of provider organizations doing so is decreasing, especially as they recognize the value of some of the other tools that we offer – for example, providers ordering through GHX can see their discrepancies in real time, and can address them before they become more costly to fix later in the process. With real-time discrepancy reporting, an order sent via GHX is often 55 to 70 percent less expensive than an electronic order sent directly to a supplier via EDI. Supplier organizations, meanwhile, recognize the value of not having to support their own EDI infrastructure, and are consolidating their electronic traffic through GHX. Some suppliers now use GHX to handle all of their orders. This includes orders from Web applications, faxes and from providers that send their orders via direct EDI. There are also a number of traditional competitors that are providing solutions aimed at improving the requisitioning through invoice processes.

Manufacturers want what providers want – technology that enables them to automate and standardize their business processes, reduce the number of discrepancies that add costs to the supply chain, and provide more timely visibility to accurate and pertinent supply chain data that they can use to make more informed decisions. For example, with better and faster insights into demand, both providers and suppliers can plan accordingly to ensure adequate supplies are available to meet patient need, while reducing the costs currently incurred in the healthcare system by producing and storing more inventory than is necessary.

While we have achieved significant market adoption of GHX, I am not sure most executives at either supplier or provider organizations fully appreciate the value that an open and neutral trading exchange can provide. Many still see GHX as simply a transactional engine, while a growing but still small subset of the market recognizes the value that working with their trading partners on the same platform, with the same data, can provide. By giving trading partners greater visibility into how they are conducting business with one another, we can help suppliers and providers elevate the level of their conversations and change the nature of their relationships. For example, recently a supplier and provider working with GHX on our annual Supply Chain Summit program started talking about ordering patterns. The supplier, using data accessible through GHX, noticed that the provider was ordering essentially the same amount of the same product 20 times a month. The supplier suggested that if the hospital were to consolidate some of those orders, both parties could save time and money. Since that initial conversation, the two organizations have held several high-level discussions to begin to map out the supply chain processes shared by their two organizations to identify where they can make changes to reduce costs. This is an example of the kind of strategic relationship GHX can foster.

GHX is perfectly suited to the needs of an organization in a tight economy. More and more, organizations are recognizing the value of what is now commonly referred to as ‘cloud computing’ – the use of hosted applications and data in a secure environment that does not have to be supported by the end user. We like to say we were in the cloud before the cloud was cool. With GHX, providers and suppliers can significantly reduce the resources needed to support trading partner connectivity. Because we are open and neutral and can work with any of their trading and business partners, hospitals can rely on us to help them maintain the integrity of the various kinds of data, from product features to contract pricing, that change on a daily basis. We can help eliminate distractions that keep them from focusing on their core competency: providing and using products that deliver quality patient care.

Disintermediation was certainly one of the concerns expressed by some parties when GHX and the other Internet trading exchanges were created, but I believe the past 10 years have reduced those fears. Adoption of e-commerce and GHX has grown more than 1,700 percent in the past 10 years, and yet all of those organizations that exist between manufacturers and providers continue to exist and play a role. I believe there will always be room for organizations that deliver value to the supply chain. In a sense, we level the playing field so all of the players can compete on what really matters, whether it’s creating new technology, managing inventory and logistics, negotiating pricing, and/or providing quality patient care.

In some cases, our goals and objectives for the next year are exactly what they have been for the past 10: To provide a reliable and secure infrastructure through which both providers and suppliers can transact business safely, accurately and more efficiently. While we now have 3,900 hospitals – not to mention thousands of ancillary care facilities such as oncology and surgi-centers – and 2,000-plus supplier organizations already working with GHX in North America, we will continue to work to get the remaining organizations to join us. And for those already working with GHX, we will focus our efforts on increasing their utilization of the exchange, since our basic service does not cost more if you add integrated trading partners or send or receive more transactions. Globally, we will continue to focus on market consolidation in Europe, to achieve similar benefits to what has occurred in the U.S.

A major initiative for GHX and many of its participating hospitals and suppliers going forward is the development of a more demand-driven supply chain, one that not only improves efficiencies but also focuses on the one thing we all have in common – the desire to provide quality patient care at optimal cost. GHX is working on solutions to capture demand at the point of use, which in turn can optimize inventory levels, revenue and process flow across the supply chain. More importantly, we can understand how the decisions we make in the supply chain can translate to better patient outcomes.

We are also looking now at how the healthcare industry can best leverage both the technology and community that makes up GHX. The community of organizations working with GHX is just as important as the technology we provide. After all, if we built it and no one came, you probably would not be writing this article. An example of an area where technology and community can be leveraged is traceability. We are currently looking at how GHX can provide an open and neutral platform to help the pharmaceutical industry meet requirements related to pedigree and track and trace. We have proven that a single solution can save money over proprietary solutions in the supply chain. We believe we can do the same for traceability.

Finally, our customers continue to ask us for tools that will enable the use of standards and accelerate their ability to synchronize data. These, we believe, will also help healthcare create greater integration between clinical, supply chain and financial systems.