Health Care Giants Form Online Exchange to Cut Costs

Five of the nation's largest health care companies, which account for about 70% of the equipment, drugs, and supplies bought by hospitals, plan to form an online exchange to streamline orders and reduce costs. The exchange, which will not involve price negotiations, will be owned equally by the five companies - Johnson & Johnson, Baxter International Inc., Abbott Laboratories, Medtronic Inc., and GE Medical Systems - and will invite all other medical suppliers to join. The online platform aims to facilitate the drudge work of processing orders, check on the status of orders, arrange delivery, and provide product information.

Key Takeaways:

• The online exchange will be owned equally by five major health care companies, including Johnson & Johnson, Baxter International Inc., Abbott Laboratories, Medtronic Inc., and GE Medical Systems.
• The exchange will be a free service to customers, financed by fees from participating suppliers.
• The primary goal of the exchange is to cut hundreds of millions of dollars out of costs by streamlining orders and reducing processing time.
• Participating suppliers will not be able to see each other's prices, ensuring a firewall on price negotiations.
• The exchange is expected to launch in the United States this summer and expand globally the following year.
• Small hospitals may particularly benefit from the exchange's automation, which can help them streamline orders and reduce manual processing.
• The online exchange may increase the negotiating power of hospital groups if they put their own consortium on the Web.

Statistics:

• The five health care companies account for approximately 70% of the equipment, drugs, and supplies bought by hospitals.
• The online exchange is expected to generate hundreds of millions of dollars in cost savings for participating suppliers.
• The exchange will be based in Chicago and will invite all other medical suppliers to join.
• The platform will have a CEO who will be evaluated based on efficiency and customer satisfaction.

Sources:

• "Five Big Health Care Companies to Form On-Line Exchange" by The New York Times (no date provided)
• Miles White, Chief Executive of Abbott Laboratories
• Jeffrey Immelt, Chief Executive of GE Medical Systems
• Arthur D. Collins Jr., President of Medtronic Inc.
• Michael Weinstein, Medical Products Analyst at J. P. Morgan
• Mike Krensavage, Analyst with Brown Brothers Harriman
• Matthew Lekstutis, Senior Vice President of EDS CoNext
• Lyn Moore, Director of Health Information Management for the Covenant Health System