Global Healthcare Exchange Canada

Trade Exchange Adoption

Supply Chain System Innovation

Team 8: Brigitte Allaire, Tamara Burnham, Yilan Zhang, Jackie Derhak

Outline

Organization Organization Strategy and Business Model Organizational Problem Information Aspect of Problem IT/IS impacts GHXC’s approach Recommendations Messages for Modern Leader Where is the GHXC today?

Organization Founded in 2000, GHXC operates as a subsidiary of Global

Healthcare Exchange, LLC

GHX Founded and owned by health-care manufacturers

Internet-based trading exchange - hospitals can purchase medical and non-medical products

Provides single-source ordering and tracking for medical and non-medical products

Provides B2B procurement solutions for the healthcare industry

Offers supply chain solutions, market intelligence, and pharma solutions

Organization (cont’d)

Connected hospitals, suppliers, distributors, GPOs in order to improve accuracy, speed and effectiveness of the purchasing process.

“Open” exchange, GHXC encouraged participation from any buyer/seller in the health industry and as “neutral” exchange it contrasted other companies that facilitated competitive bidding environment.

As of June 2002, GHXC had secured a solid foundation of participants

The GHXC’s Strategy

“Automating and improving supply chain operations”

“An E-commerce facilitator”

“A technology company” providing a customized solution for improved management information

The GHXC’s Strategy (cont’d)

Customized solution Provided range of connectivity options to integrate

into back-end systems: Browser-based solutions Existing EDI channels Software to facilitate direct connectivity to exchange system

Standard catalogue Reliable, secure and scalable platform Reporting tools Professional services

GHXC’s Business Model

Establish widespread adoption of its solution by hospital and suppliers

Charge subscription fee to each trading partner in an exchange. Suppliers paid 0.125% of their annual revenues in the hospital

supplies sector

Attract hospital to e-commerce -> free trial period as incentive to join

Survey showed that hospital were willing to pay fees if there was value in the solution

GHXC’s Business Model (cont’d)

Improving relationship between health-care providers and suppliers, resulting in reduced costs and better patient care

Goal of hospital supplies purchase market at 50% by 2004, 80% by 2006

Intended to break even in 2004

Once membership target reached, sales and marketing costs could be reduced

GHXC’s Business Model (cont’d)

Hospital with ERP and MMIS, with EDO and connectivity software to be internet-enabled would not incur cash cost to connect

Older IT system needing upgrades ranged from $1,000 to $20,000

Other costs were time and resource management

Organizational Problem

Operations

Organizational ProblemOperations

Adoption & Communication Value Convincing stakeholders that GHXC would bring value to the

supply chain operations

Persuading industry decision-makers to change their behaviours and adopt GHXC’s solution

Overcoming cultural barriers within the hospital purchasing functions

Need Quicker Cost Recovery

Organizational problem (cont’d) Operations

Adoption Existing strong purchasing relationship

Long term contracts Price protection Afraid of commoditization of products

Achieving critical mass of buyers/suppliers -> fine balancing act

Existing EDI vs New Exchange Solution Point-to-point with hundreds of dedicated lines vs Hub-like

connectivity platform

EDI architectureOne-to-one communication between computers

Exchange architectureMultiple computers within an organization connecting to many different suppliers

Organizational problem (cont’d) Operations

Cost Recovery Unlike most companies, GHXC focussed on cost

recovery instead of profit maximization

Sustainability: Considerable R&D costs Important sales & marketing efforts Bills had to be paid

Free buyer participation to build critical mass Couldn’t indefinitely rely on supplier’s membership fees

Information Aspect of Problem Establish connections

Understand the marketplace Health-care industry in Canada

Understand the supply chain process

Identify clients Purchasers Suppliers Distributors

The Marketplace Health-care industry in Canada

Of the total $90 billion health-care expenditure in 2001, $28.6 billion was attributable to hospital spending, of which 15% was for supplies that could go through the GHXC system.

Canadian health-care was coping with rising costs, struggling to modernize hospital organization and administration

Industry had underinvested in information technology

Poorly integrated ERP and MMIS legacy systems -> “siloed” information pockets and poor data management practices

Supplier reach through existing EDI capabilities limited to ~15%

The Marketplace (Cont’d)Health-care industry in Canada

Legacy culture (Faxes, telephone calls)

Lack of managerial operating information among participants

Variability in price and service

High purchasing search, transaction, and workflow costs

Multi-levels and jurisdictions of Canadian health-care system obstacle

Canada fragmented, geographically dispersed market

Identify ClientsGHXC Targeted Buyers

Primary focus: hospitals due to concentrated supplies spending

Hospitals also tiered and fragmented

75% of medical supply-spending came from ~150 hospitals (out of 1,000)

Hospital operations departmentally driven, poor cross-department co-ordination

Largely manual purchasing process with limited standard

80% government funded -> behaviour towards budget preservation

Identify Clients The buyers - what’s in it for them?

Connectivity -> major driver in purchasing process efficiency

GHXC allowed multiple transactions with more than 100 suppliers through one connection

Customized technology solution and industry catalogue could provide standards

Automatic feedback on price, availability and shipping status

Continuous real-time updates

Identify Clients GHXC Targeted Suppliers

Manufacturers and distributors

Operating efficiencies a key priority

Just-in-time delivery and supply chain management services

Also tiered and fragmented with few supply chains among them

Range from multibillion-dollar corporation to small privately owned operations -> different levels of system sophistication

Identify Clients The suppliers - what’s in it for them?

Better access to purchasing behaviour and improved customer service

Easy to provide product updates

Moved to a demand-based model

For the Distributors:

Benefited from updated pricing and payment information

Reduced delays in payments; reduced errors

Better inventory management

IT/IS Impact

Technology obstacles inhibiting adoption

3 different IT options available Browser based solution Utilization of existing EDI to connect to ERP systems Direct connectivity software between exchange and ERP

system

Browser Based Solution Software application for retrieving, presenting and

traversing information on the web Pros:

Used to access information and display resources Easily accessible Inexpensive for users Control remains with consumer

Cons: Security of information

Existing EDI

Transfer of data, automatic order process Pros:

Efficient for maintaining inventory Reduction of order error Customers able to acknowledge, modify, track orders

Cons: Expense Customers require necessary technology Perceived loss of control in ordering process

ERP Aims to integrate corporate systems by providing a single set of

applications within a single database Pros:

Manages and coordinates all functions and data If successful, improves internal operations

Cons: Complete system/process change Expensive Change in culture Complicated / risky

Organizational Problem

Operations

Marketing

Financial

Market place

Client needs

Supply chain

Web Browser

EDI

ERP

GHXC on the right track Some understanding of clients, processes and marketplace

Marketing individual sales representatives Message had to be strong & clear

Improve care-giving capabilities Reduce operating costs Sales included technology & organizational processes

Flexibility in IT/IS implementation

Additional thoughts?

Our Recommendations Adoption strategy: Capturing connections

Communication is personal, not mass market Customer contact is interactive, not broadcast The customer service time frame is theirs, not yours The culture is bottom-up, not top-down

Faster cost recovery directly linked to clients realizing Value of GHXC services

Messages for Modern Leader Moving Forward is about people Understanding users

“Technology camel”

Messages for Modern Leader

The importance of Change Management should not be underestimated

Increasing executives’ understanding of IT => Champion

Where is GHXC today?

As a subsidiary of GHX, limited information available In 2006, GHXC:

296 Providers 57 suppliers

Compared to a strong Canadian competitor

In 2009, CareNET: ~ 500 providers ~ 100 suppliers

Where is GHX today? More oriented towards to US and Europe markets:

Over the past five years, GHX saved the healthcare industry over $1.3 billion in labor costs alone

Over 3,800 hospitals are connected to the GHX exchange in North America

In Europe, over 1,000 healthcare providers and 200 suppliers are trading electronically through GHX

Enables over 7,200 healthcare providers and 2,400 suppliers in North

America to conduct business electronically

Transaction volume on the GHX exchange has increased 1,500% since 2001, approaching $24 billion in 2008

Now has 20 equity owners

Sources:

www.carenet.ca

www.ghx.com

McNurlin, Sprague, & Bui (2009)

QUESTIONS ?

GHX grew from 15 to 20 owners since 2002

Equity owners of GHX include:

Abbott Exchange, Inc. AmerisourceBergen Corp. Baxter Healthcare Corp. B. Braun Medical Inc. Becton, Dickinson & Company. Boston Scientific Corp. Cardinal Health, Inc. Covidien C.R. Bard, Inc. Fisher Scientific,.

Inc.GE Healthcare HCA Inc. Johnson & Johnson Health Care Systems Inc. McKesson Corp. Medtronic USA, Inc. Owens & Minor, Inc. Premier, Inc. Siemens Medical Solutions, USA, Inc. University HealthSystem Consortium VHA Inc