Making Affordable Care Act Patients Profitable

NEW YORK ( TheStreet) - Lindsey Bell: John, the healthcare environment has been tough especially with reimbursement rules that are ever-changing and cost pressures. What are you seeing right now as it relates to those issues, and who is being impacted the most?

John Bardis, CEO, MedAssets:

Well Lindsey, I think we're seeing the beginning of what will be the largest shift of risk in the history of this industry. The federal government now is putting more risk onto U.S. hospitals -- Starting this month readmissions for 3 particular categories of disease: heart failure, pneumonia, and congestive heart failure. Going forward, for any patients who come back to a hospital after having been treated for any one of those disease states under Medicare coverage, the hospital will now not be reimbursed, where historically they have been, and there will be penalties involved.

Lindsey Bell:

And the hospitals already have very small margins as it is. So how is your company helping hospitals and other facilities manage their profitability?

John Bardis, CEO, MedAssets:

We are the predominant cost and clinical management firm for U.S. hospitals, so we do that in a number of different ways. One is that we amalgamate and aggregate procurement for anything and everything that a hospital can buy, and we manage those prices through contracts with major healthcare vendors throughout the world.

We then also measure and manage how product and process is managed within the institutions to deliver case outcomes. And because there are 5,000 different hospitals who can't talk to each other, due to antitrust rules regarding cost and outcome, we take that intellectual property and we share that and spread that across the country in ways that create meaningful cost reductions and meaningful improvements in clinical process.

Lindsey Bell:

One way you also work with hospitals is through your revenue cycle management segment, which is basically your IT business, to dumb it down. That's been growing at a very nice pace. What's driving that? Is it just this move to electronic health records?

John Bardis, CEO, MedAssets:

Well you ask a great question. In fact the answer to that is similar to what we began with, which is the reimbursement and payment environment is changing and has been changing dramatically for some period of time. So as payment is in a state of flux, so is the business process to get the payment right. We assist hospitals using our IT and software solutions to get that payment correct, right? In a way that makes it compliant with what rules of that payer contract are and which at the same time makes it efficient to collect that income.

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?

John Bardis, CEO, MedAssets:

I think the supply side of the business has grown pretty well, we are actually up approximately 10 percent over the prior year on the top line. But because of our leverage and the way our infrastructure functions, it creates substantial mid-teens EBITDA (earnings before interest, tax, depreciation and amortization) growth rates for us. So I think that it's a remarkable performer, but I think at this time, given that where we were a year ago, we continue to be under the microscope, Lindsey, in terms of performance. In other words, as we continue to show consistency in our performance, I think analysts on The Street will get more confidence in our ability to deliver, and quite frankly, that's what they should be focused on, challenging our ability to deliver. I think we do that, we continue to deliver better shareholder returns.

Lindsey Bell:

Okay. Great. Thank you so much for your time today.

John Bardis, CEO, MedAssets:

You too, Lindsey.

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