Global Healthcare Exchange

Case Analysis

Global Healthcare Exchange

MIST - PGSEM Q1 10-11

Instructor
Professor Rajendra K Bandi

Submitted by: Group - 03

Name Roll No.

Amit Tyagi 2008074

Alok Chorghade 2008073

Pradeep K Panicker 2008093

Srinvasa Thunga 2008109

Vallish Ramu 2008115

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Table of Contents

1 How important is GHX to the healthcare industry? What are the potential benefits of providing a
common platform for sharing information and streamlining business transactions across industry
boundaries? ...............................................................................................................................................3
2 Evaluate the GHX business model—the company’s strategy, the capabilities and resources
available to execute the strategy, and the value delivered to all stakeholders. What are the
strengths and weaknesses of the business model in 2003? ......................................................................4
3 Who are the key stakeholders of GHX in 2003? What are the expectations of each stakeholder (or
stakeholder group)? How well are these expectations being met? What benefits does GHX deliver
to each stakeholder? What problems or threats does it create? ..............................................................7
4 What are the key issues facing Mike Mahoney and the GHX management team in early 2003? As
an independent member of the board of directors, what advice would you give to Mahoney and
the management team? ..........................................................................................................................10
5 Appendix ..................................................................................................................................................11

5.1 Mergers, Acquisitions & Alliance by GHX ................................................................................. 11

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 Global Healthcare Exchange

1 How important is GHX to the healthcare industry? What are the potential
benefits of providing a common platform for sharing information and
streamlining business transactions across industry boundaries?

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 Global Healthcare Exchange

2 Evaluate the GHX business model—the company’s strategy, the

capabilities and resources available to execute the strategy, and the value
delivered to all stakeholders. What are the strengths and weaknesses of
the business model in 2003?

Strategy

The case states that GHX’s goals is to create a – “World wide online open and independent
electronic trading exchange to facilitate the real time transfer of information, money good,
and or service in the worldwide medical equipment, products and services industry.”
Essentially, GHX’s business model is structured around becoming an “integrator” in the
health care marketplace. Specifically it is aimed at becoming an online “exchange” for
health care supply chain entities without bias to any of the participating entities..

As per GHX’s founding principles in 2003, it is explicitly stated that as a neutral exchange,
GHX will not try to do any form of demand aggregation for the providers. Hence, GHX’s
business model does not call for interference with the prices within the healthcare market.
However, it does involve demand-supply matching by trying to provide an online
marketplace for healthcare providers, suppliers, GPOs, IDNs etc. GHX’s main value
proposition the overall reduction of transaction costs involved in the highly fragmented
health care supply chain.

Based on the above, it can be concluded that GHX’s value proposition to its participants is
primarily from the following

1. Transaction efficiency (reduce transaction costs)

a. Connecting buyers and sellers online by expanding the visible portfolio of

goods/services
b. Drive up transaction volume and hence reduce aggregate transaction costs
c. Transparent exchange of goods/services

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2. Value added services

a. Integration of purchasing systems

b. Information aggregation and interchange

c. Manage information asymmetry

Evaluation of business model

Strengths:

The main strength of GHX’s model lies in the significant support it enjoys from key industry
participants. Being the first healthcare exchange to have significant equity involvement
from most major representatives in the health care supply chain, GHX enjoys the unique
advantage of having its owners driving up enough critical mass to make it a viable online
marketplace. Also, since GHX aims to provide value across the value chain (as opposed to a
single group of stakeholders), it’s ability to rapidly scale up and achieve critical mass in
terms of transaction volumes is unparalleled.

Additionally, since the key equity holders are also participants in the same supply chain,
GHX is able to adjust its strategy and implementation to be in tune with the best interests
of the health care supply chain. The key drivers of strategy come from the customers and is
not encumbered by the financial expectations of the shareholders.

Also, since GHX is an open system (as specified in the founding principles), the cost of entry
for a potential participant is relatively low. The participant does not have to invest
significantly in an expansive IT system. Instead, it can interface its existing IT
implementation into GHX. Further, smaller participants can directly connect to GHX and
derive benefits even if they do not currently own IT systems. These factors ensure that
there is virtually no entry barrier to participate in GHX therefore driving up participation
across the industry.

Weakness:

GHX’s weakness primarily lies in the pricing model that it had initially adopted. While the
pricing model is consistent with its early goal of being a online catalog services, the model is
no longer consistent with the final business model that has evolved. This is especially

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relevant in the context of the Medibuy acquisition as the pricing models of GHX and
Medibuy are in direct conflict with one another.

Another weakness lies in the fact that for GHX to grow it needs to continually affiliate with
several buying and non-buying organizations. However, if such affiliates become reluctant
to share sensitive data like pricing etc, and hence opt to remain out of the GHX network,
GHX’s growth could be hampered.

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3 Who are the key stakeholders of GHX in 2003? What are the expectations
of each stakeholder (or stakeholder group)? How well are these
expectations being met? What benefits does GHX deliver to each
stakeholder? What problems or threats does it create?
The key stakeholders of GHX in 2003 are:

1. Investors (& their % stake in 2003)

a. GHX was the first marketplace to be owned by hospitals, suppliers, distributors &
GPO’s
b. Original five founding investors - J&J (9.90%), GE Medical Systems (.23%), Abbot
(9.973%), Baxter Healthcare (9.90%) & Medtronic (9.23%)
c. Two weeks after formation C. R. Bard (1.36%), Becton Dickinson (1.41%), Boston
Scientific (0.15%), Guidant (1.39%) and Tyco (1.36%)joined as investors
d. Siemens joined as an equity investor in 2001 (9.23%)
e. Post merger with Medibuy, all the strategic investors of Medibuy also retain
ownership in the merged entity. Notable ones were Premier Inc (16.83%),
Healthnexis, LLC (12.85%) & HCA (7.21%)
2. Users of GHX Services
a. Suppliers of medical equipment, pharmaceutical companies (some of which were
investors also
b. Distributors like AmeriSourceBergen, Cardinal Health Inc., Fisher Scientific
International & McKesson Corporation
c. Health care providers on the buyer’s side (acquired after alliance with BroadLane
Broad Link)

Expectations of the various stakeholders

1. Members expected GHX to provide value added services by becoming a “customer-

centric” organization from a “product-centric” organization. This involved building
offerings & capabilities to deliver value to members
a. Strong Customer Satisfaction
i. Reliability/Value-added
ii. Supplier benchmarking
b. Value-added services
i. Content services
ii. Requisition Processing Services
iii. Reporting
iv. Contracting Services

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c. Reduce cycle time for member integration

2. Investors expected the company to achieve cash flow break even by end of 2003 by
hitting its financial targets
3. Smooth integration of GHX’s & Medibuy’s operations and culture
4. Gain critical mass - transaction volume to reach $ 2 billion end of 2003 & $ 4 billion by
end of2004 by taking following steps
a. Become the recognized Industry Utility
b. Win strategic IDN’s
c. Enhance Technology Partner Relationships
d. 2,000 providers and 115 suppliers connected by end of 2003

In 2003 GHX was the only privately held Internet based healthcare marketplace that had
equity ownership by key participant s representing health care providers, distributors,
manufacturers, distributors and GPOS’s. It had expanded to Europe & Canada. With the
merger of Medibuy, the combined entity was providing significant cost-reduction benefits to
all stakeholders (50% reduction in fee for Premier members to utilize GHX, 30% to 50%
reduction in 3-year fees paid by all the other owners). The combined technology platform
and service offerings combined the best from GHX & Medibuy. Its platform integration plan
was well on track. Along with Medibuy, GHX had worked with other industry players to form
CHes (Coaltion of Healthcare Standards), whose purpose was to adopt and promote uniform
health care industry data standards for supply chain standards over the Internet. GHX also
formed a Product Council, composed of representatives from the supplier, distributor, GPO
and provider communities with the idea of provide inputs on the design of the GHX products.
GHX’s guiding principles were appreciated by all the stakeholders and they were assured that
GHX would consistently help them reduce prices (on the buyer side) as well stick to the Data
Ownership Statement so as to not have breach members confidentiality. GHX did not become
a dot-com (Internet Company) and instead focused on achieving solid financial discipline. It’s
Guiding Principles provided that it would only implement pricing and business models
designed to generate revenues sufficient to cover its operating expenses & capital needs. It’s
alliances and the mergers & acquisitions it had done since inception in 2000 had helped it
expand its service offerings across the board. Health care providers had confirmed that using
GHX had reduced their cost and improved the quality of supply chain processes for all
members of the health care value chain. Members reported ROI benefits of upto 30%.

While GHX has strictly followed it’s “Data Ownership Statement”

1. Parties to each transaction own the data relating to that transaction

2. Not disclose transaction specific-data to anyone without the consent of the
buyer or seller

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3. Sell aggregated data subject to not disclosing participants and include data
for buyers/sellers who provide their consent

It still has the ability the share confidential data, aggregate and sells it to competitors. This
creates a significant threat for all participating members and they need to ensure that they
work closely with GHX to ensure any data privacy threats.

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4 What are the key issues facing Mike Mahoney and the GHX management
team in early 2003? As an independent member of the board of directors,
what advice would you give to Mahoney and the management team?

Current State:

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5 Appendix
5.1 Mergers, Acquisitions & Alliance by GHX
 Acquired CentriMed in Sept’2000
 Alliance with Neforma in Aug’2000
 Alliance with AmeriNet in Nov’2001
 Merger with HealthNexi in Nov’2001
 Alliance with Broadlane in June’2002
 Merger with Medibuy in Dec’2002
o After merger with Medibuy, the merged company would provide 1400
buyers to transact business with over 100 suppliers

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