SM: After completing two acquisitions, where were you in terms of revenue and profitability?
JB: At that point we were $40 million in revenue and profitability was in the $13 million range. We had to determine, since we competed with extremely large national competitors, how we changed the value proposition in order to become relevant.We did not have as much volume and as a result could not get as much pricing as they got.
SM: How many other players were there in the industry at the time, and what was your rank in the competitive landscape?
JB: There were six or seven major players, and we were probably sixth or seventh. We had $4 billion in gross volume that we processed compared to the $24 billion we process today. The two largest competitors were in the mid $20 billions. We were substantially smaller.
SM: You definitely did not have the negotiating leverage with suppliers.
JB: Not using methodologies that existed at the time.
SM: How did you change the rules of the game?
JB: We did two things. First, we began developing technology that allowed buyers to understand real price and real time. In many cases people were buying from group purchasing contracts wherein the group purchasing organization was not accountable to price because they were being paid by vendors rather than hospitals. Whether the group purchasing organization got the price right was not relevant to their getting paid. We built technology that enabled those prices to be tracked.
Second, we built a custom contracting process whereby we would drive prices locally. We would then use customer consulting services to interface with physicians and hospitals in dealing with their highest cost products, which were typically medical devices.
We were originally introduced to a relationship with Aspen Healthcare, which is the nation’s leading clinical consulting service for the management of clinical OR cases and cost reduction. We ultimately acquired Aspen, and to this day they have the secret sauce for interfacing with physicians to bring them together with hospitals to negotiate better prices for the most expensive medical supplies, devices.
SM: Were you helping physicians gain access to better pricing by pairing them with local hospitals?
JB: Yes, because if they come together locally as key negotiating partners to drive down pricing, then case profitability improves. That was the ultimate secret. We then built actual guarantees because we understood the data better than anyone else. We provided a pathway to success. We can drive specific results with identified savings. We will guarantee those savings. In order for us to guarantee those savings, it is essential that the physicians and hospitals follow our pathway, but if they do we will put all of our fees at risk to ensure that they sign off and validate that the savings have indeed been achieved.
To date, we have moved $14 billion of market share from competitors by producing these guarantees and using the information technology systems to measure that data on a daily basis. We took enormous market share from very powerful, existing competitors.
SM: What is your rank in the ecosystem today?
JB: We are number three. The leader is Novation, which is a co-op owned by a group of hospitals. The second largest is Premier, which has a similar structure.
SM: How much larger are they?
JB: They claim that they are in the $30 billion gross throughput range and we are in the low $20 billions.