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Making Affordable Care Act Patients Profitable

Lindsey Bell:

Now the other part of your business, which you kind of mentioned before, is the spend and clinical resource management where you group together everybody's orders for supplies and save them money by doing so since they can't talk to each other. How has that evolved and how do you see it evolving in the future?

John Bardis, CEO, MedAssets:

Well you raise a great question. This industry right now is going to remain under substantial cost pressure for the foreseeable future and I think for the foreseeable decade with the baby boomers, the pressure on cost that we see. And making certain that hospitals operate under the most cost efficient environment is going to be a preeminent front page issue for them.

Having said that, each hospital, because of the way costs have been established, operates differently. And that is not going to be a fair way to operate in the future. It's not going to create success. We help those hospitals get to a much narrower bandwidth of operating costs while we continue to drop the down.

The last point is that with the Affordable Care Act and some 20 million people entering the insurance roles, we do believe that the majority of them who come in will have payments coming back to the hospital, which are substantially less than what current Medicare rates are, certainly what current private pay rates are. That being the case, if you've got 20 million people coming into the system who historically then become high utilizers of the system, certainly more than what they are today, but with payments that are substantially below par, as what par is today, we're going to see revenue per unit go way down, we're going to see unit utilization go way up. And the only way to address that in an effective way or survivable way is to reduce cost.

Lindsey Bell:

And that's where you guys come in.

John Bardis, CEO, MedAssets:

Yes.

Lindsey Bell:

Now looking at the stock price of MedAssets, it has had a nice run this year. It's trading though at a relatively cheap valuation. Do you think analysts are putting too much of a weight on the slower growing supply side of the business?

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