Global Health Care Exchange

A Case Study

Introduction

1. Summary of Business Model and Service Offering

GHE was initially formed by industry suppliers such as GE Medical System, Johnson & Johnson as an electronic marketplace to facilitate the real time transfer of information, money, goods and services for all the participants of the health care industry which includes equipment suppliers, service providers and hospitals. Even though GHE started out as supplier exchange, it articulated its founding strategy as being a global leader in business-to-business supply chain management services for the health care industry. It clarified its mission, which formed the basis of its business model, to be transform the health care industry by dramatically improving the efficiency of the supply chain, reduce costs and facilitate continuous improvement between all stakeholders. It went about achieving it by borrowing resources (seed capital & employees) from its founding member firms and then using acquisitions and alliances to make its presence felt in the marketplace. After the initial buildup was completed, GHX stood on its own as a going concern with no help from its founding partners. This helped attract the right resources to the company to fuel its future growth. During its initial buildup phase, GHX was more concerned with providing connectivity between members of the health care industry to gain credibility in the crowded marketplace. It started by providing product lookups from different suppliers to health care buyers (GPO) and used its acquisition of CentriMed to provide a product (now called the GHX MemberSourceTM Exchange Platform) that could run online global supply chain markets. This offering became part of a broad product suite which is now called the Transaction Engine. The following tools, grouped as Connectivity Options, allowed the market players to determine the best way to connect with the GHX Exchange platform: GHX Connect: Lets providers to use their existing ERP functionality to place orders.

GHX Advantage: Linking independent ERP and MMIS vendors to create integrated connectivity for hospitals, IDNs and MCOs. GHX Axiom: Health Care providers can connect to GHX using stand alone browser interface and provide features compatible with an ERP system.

GHX also provides value added service to all the members of the exchange. These include: GHX AllSource Catalog: Online standards based catalog maintained by suppliers. Report Source: Real time data relating to purchase transactions. GHX Content Intelligence: Automatic error correction facility. Capital Management and Contract Management: Helps assists members acquiring capital assests and manage purchasing contracts. Medibuy Access and Reqs: Systems that are part of GHX due to its acquisition of Medibuy. 2. GHEs evolving business model GHE continued its rapid expansion. In 2005, by adding the AllSource repository with information on more than 2.3 million products, representing 85 percent of the medical and surgical products regularly purchased by hospitals GHE became more open to nonmembers. Under this imitative, any company can add to the AllSource repository, regardless of their participation in GHX's electronic trading exchange. This created a central instance of all the product data that a company may want to use and made GHEs model more open and flexible. GHE also has dramatically reduced the number of real competitors to only 3. These include Annual Sales Employees Market Cap ($ mil.) Maxus 6.2 14 Private Moore Medical 229.1 452 Private Omnicell 121.5 514 487.9

In February 2003, CHE bought its alliance partner Neoforma entered into a definitive merger agreement for GHX to acquire Neoforma. They paid a 20% premium and $10 per share to get rid of this competitor and grow the business.

In 2003, GHE, which is a private company without revenue publication, was recorded in McKesson 10K filing as having resulted in massive losses to its owner. The only benefit was that iHealth Nexis completed its merger and therefore diluted McKessons part of the loss. In 2004, the company merged its operation in the UK (TecSol Inc) and its German exchange into a single company and therefore created more benefits of scale and a true global simplified marketplace. They also implemented Universal Product Numbers (UPN) and gained Kimberly-Clark as their major new member for the year. A major coup was in 2005, when Bayer joined the network. This was one of the largest players that had not yet made a commitment to the exchange. In April 2006, the company started engaging in software solutions for contract management, and field sales by buying the private company privately held company NoInk LLC. In August 2006, the company also took more charge of its distribution network, by buying the European operations with the purchase of shares previously held by D.Logistics AG. By this time, according to the company they had almost 600 suppliers and 670 hospitals and other healthcare providers utilize GHX services in the United Kingdom and on the European continent, while more than 250 suppliers, 3460 hospitals and 800 non-acute care facilities using GHX in the United States and Canada. In 2006, GHE also bought Ideal systems Inc. for prescription level rebates software.