In announcing its plan for a $100 million initial public offering, the healthcare alliance and group purchasing organization may be actually setting its sights on a larger payday, says one healthcare economist.
The $100 million Premier Inc. plans to raise through an initial public offering is termed "a pittance" by one industry observer and is likely "a placeholder" valuation.
In an e-mail exchange, Adam Powell, a healthcare economist and president of Payer+Provider Syndicate in Boston, noted that Premier had $869 million in total net revenue and $632 million in gross profit in fiscal year 2013. "The $100 million that Premier hopes to raise through the offering is a pittance."
That could mean Premier is actually setting its sights on a larger payday. Premier officials declined to comment citing the "quiet period" when Premier is subject to an SEC ban on talking about its stock.
The Charlotte-based healthcare alliance and group purchasing organization filed on Monday with the SEC a registration statement on Form S-1 regarding a proposed IPO of its Class A common stock. The number of shares to be offered and the price range for the offering have not yet been determined.
'A Push Toward Diversification'
The IPO, which had been rumored for months, comes as national GPOs face increased pressure from regional competitors as well as hospitals. As hospitals become more integrated, for example, they are taking on "increased aspects of the purchasing process," says Gene Schneller, PhD, a professor of supply chain management at Arizona State University.
Schneller notes that in recent years there has been a push toward diversification as the major GPOs, including MedAssets, Premier, and Novation have expanded their businesses beyond traditional supply chain services to include analytics, recruiting, and consulting services.
Although no details are available regarding how the proceeds of an IPO would be invested, both Schneller and Powell see the potential infusion of cash as an opportunity for Premier.
Investing in Supply Chain
Schneller says this is the time to for Premier to invest in supply chain management. GPO members, especially smaller hospitals, are challenged by the Patient Protection and Affordable Care Act to reduce costs. "The supply chain has visibility that it's never had before. Developing services and products that will bring better performance to the supply chain will be the key to success."
Powell says the cash raised will enable Premier to spend more heavily on building its analytics and consulting businesses. "Post-IPO, Premier has the potential to have an even stronger and more diversified business."
Premier is owned by 181 hospitals, health systems, and other healthcare organizations, including Adventist Health, Catholic Health Partners, Geisinger HealthSystem, and the University of Texas MD Anderson Cancer Center. The owners will be issued Class B shares and retain voting control.
Premier also provides purchasing contracts for 2,900 hospitals, 100,000 alternate sites, and 400,000 physicians.
The IPO will include a reorganization of Premier into two divisions, one will focus on traditional supply chain activities (Premier Supply Chain Improvement) and the other on consulting and performance (Premier Healthcare Solutions).
Allegations of Kickbacks
In going public, Premier joins MedAssets as the only other major GPO that is shareholder-owned. There is bad blood between the two competitors. MedAssets has accused Premier of encouraging hospitals to join in order to participate in the IPO, which is a violation of federal anti-kickback regulations.
Premier states in the IPO prospectus that its discussions "with current and prospective member owners regarding the possibility that we would undertake an initial public offering were conducted in compliance" with the anti-kickback statutes. It concedes, however, that "no assurance can be given that enforcement authorities will agree with our assessment."
Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
