A Successful Corporate Innovation Effort in HealthcareIT: Bruce Johnson, CEO of GHX (Part 4)

Sramana: You mentioned earlier that your goal is to remove $5 billion from healthcare overrun costs and that you have already delivered on $3 billion. Can you elaborate on that? How do you quantify on that, and how does GHX make money?

Bruce Johnson: We are setup with a subscription fee model. When we were setting up GHX, part of the reason for the funding was based on the need for acquisitions to consolidate the market. One of the key areas of learning for us was that in order to create value in the supply chain, we had to create incentives that would drive utilization and participation. That is where the subscription feed model created that incentive. The more the community leverages the GHX platform the more benefits they receive and the greater the value to the other participants because we have more data and synchronization of data.

The cost savings that we have achieved come in several categories. First, we have saved money on the personnel required to do order fulfillment and to process orders and invoices. There is also a category that we are looking at; this is IT-related costs. That includes headcount costs at both the buyer and supplier. You would also have operational costs from both the buy side and sell side that would be reduced based on this automation as well as accuracy since they do not have to re-accomplish orders. We calculate this based on a third-party validation based on studies we did with our buyers and suppliers to determine the cost of creating a manual process from purchase order through invoice. Those calculations are based on surveys with several hundred different customers.

Sramana: How many buyers and sellers are on the exchange now?

Bruce Johnson: On the buy side the number is about 4,000 hospitals that represent 80% of the acute care beds. There are an additional 30,000 sub-acute facilities such as doctors’ offices and imaging centers on the buy side.

They are connected to suppliers that represent 80% to 90% of their total spend. There are several hundred of those who are deeply integrated into their ERP systems. There are thousands of suppliers who use a web connection or other low cost integration method to do that.

Sramana: How were the channels of the original five investors leveraged to allow deep penetration into the healthcare industry?

Bruce Johnson: In the first year we leveraged it quite a bit where the original companies had sales personnel who would help open doors and get meetings set up. We leveraged those relationships for about 9 to 12 months. After that we relied on our own sales force that we had built up.

Sramana: In the 9 to 12 months during which you leveraged the sales teams of the original five companies, what was the incentive structure?

Bruce Johnson: Some of the sales forces had incentives and others did not. The various companies had their own approaches for dealing with those situations. Some of the organizations were structured where they had a group of sales people who were focused on the large IDNs, and those were the sales teams who had some incentive to help us in that first year.

This segment is part 4 in the series : A Successful Corporate Innovation Effort in HealthcareIT: Bruce Johnson, CEO of GHX
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