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Published on January 9, 2009

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The Value of eCommerce in the Healthcare Supply Chain : Friday, January 09, 2009 The Value of eCommerce in the Healthcare Supply Chain Slide 2: 2 TRYING TO PREDICT WHERE THE INTERNET AND E-BUSINESS WILL TAKE US … IS LIKE ASKING THE WRIGHT BROTHERS WHAT THEY THOUGHT ABOUT THE FREQUENT FLIER PROGRAMS! Content of Discussion : 3 Content of Discussion Market Overview eBusiness Expectations Australian Landscape Strategic Issues Supply Chain Reform GHX Overview Asia-Pacific Market : 4 Asia-Pacific Market The Asia-Pacific market for Medical Equipment and Med/Surg Consumables is estimated at US$24 billion – 21% of the global market Pharmaceuticals 80% (US $94 bn) Med Eqpt & Med/Surg Consumables 20% (US$24 bn) Asia Pacific Human Healthcare Products Market US$118 billion* * Substantial disagreement exists on the market definition Source : Medistat; Dash Report; PwC Analysis Medical Equipment and Med/Surg Consumables account for approximately 20% of the US$118 billion Asia-Pacific Human Healthcare Products Market Global Medical Device Market US$113 billion* Japan US $16 bn (14%) Other Asia-Pacific US $8 bn (7%) Australian Market : 5 Australian Market Global Healthcare Exchange Confidential Information MDD Market = US$1.1B Pharma Market = US$3.0B $0.85B $0.25B $0.75B $2.25B GHX Equity members alone hold sizable market share : 6 GHX Equity members alone hold sizable market share Medical Equipment & Med/Surg Consumables Markets Total US$24 bn Source : Medistat; PwC Analysis 11 GHX equity members c. US$8.4 bn Other suppliers (>10,000) c. US$15.6 bn 65% 35% GHX equity members have approximately 55% share of the Medical Equipment & Med/Surg Consumables market in Australia/New Zealand Total APAC US$24bn 55% 45% AUS US$1.1bn 11 GHX equity members c. US$0.60 bn Other suppliers c. US$0.50 bn Market readiness criteria focus on issues impacting potential speed of launch and rollout : 7 Market readiness criteria focus on issues impacting potential speed of launch and rollout % Internet usage % public sector & presence of private chains Exports & production of medical equipment % using major ERP systems Direct distribution & delivery times Infrastructure support & investment incentives Ease of use of US platform GHX Proposed Strategy & Timing in Asia Pacific is Based on Market Readiness : 8 GHX Proposed Strategy & Timing in Asia Pacific is Based on Market Readiness Low High High Low Ready to Go Respond Reactively Market readiness * Market Impact Rollout Proactively Indonesia Philippines Singapore Malaysia Hong Kong Thailand Taiwan Korea India China Australia Japan Market readiness defined as both buyer and GHX readiness PWC Market Readiness Matrix Voice of the Customer -- Australia : 9 Voice of the Customer -- Australia The urgency of demand for eCommerce services is strong in both private and public hospitals with Federal and State governments underwriting major e-business initiatives Hospitals are looking for Reduction in inventory levels and product waste, expiry and obsolescence More efficient means of order entry and processing, with integrated electronic settlement Supply chain transparency, shipment tracking and improved demand forecasting Volume pricing and discounts Accurate and timely management reporting, especially related to patient/procedure costing Key issues for hospitals in Australia (particularly major ones) Integration of eCommerce provider to existing computer systems to avoid double-input, especially with major systems such as Oracle, SAP and IBA Approval of eCommerce provider by State Health Departments, which usually favor a single preferred platform Correlation of eCommerce provider tracking to government tenders and contracts for both performance and clinical usage monitoring Ability to pay for eCommerce provider without up front capital investment Summary of supply chain (process) costs as a percentage of total delivered cost (B) : 10 (A) Some of the supplier cost may be shifted to the hospital if full freight is charged. This is most common in Australia with smaller specialised companies and non-stock products. (B) Assume: AUD$1.54 billion/year medical-surgical product sales AUD$1.74 billion/year total delivered cost for these same sales (C) Not including facility costs Supplier supply chain costs (C) Hospital supply chain costs(C) Product manufacturing and sales costs (includes related indirects, taxes and profit margin) 13-14% 12-13% 73-75% Product sale price (A) Summary of supply chain (process) costs as a percentage of total delivered cost (B) © DASH Project Team Summary of supplier portion of supply chain (process) costs (Equals approx. AUD$210-225 million/year) : 11 Bad debts (estimated at .005% of total sales) Order receipt/ExpeditingInvoice processingManagement of customer relations and Allowed sales and marketing expenseSystems support/Indirects 4% 18% 34% 39% Technological obsolescence and Waste Holding cost (7% imputed interest rate) Receiving/Shelving of stockOrder picking and packingFreight and fees not charged to customers 5% Summary of supplier portion of supply chain (process) costs (Equals approx. AUD$210-225 million/year) © DASH Project Team Summary of hospital portion of supply chain (process) costs (Equals approx. AUD$225-245 million/year) : 12 (A) Does not include external contract assistance from separate organisation such as HSA, NSW Peak Purchasing Council, Qld Health, Catholic HealthCare Services, etc. Waste (Expiry, Theft, Loss and Damage) Freight and fees Order placement/ExpeditingInvoice payments and creditsManagement of supplier relations (A)Systems support/indirects 4% 9% 20% 40% 21% 6% Technological obsolescence (Unused non-stock product due to changes in clinical practice, physician preference, or technological development) Holding cost of stock and non-stock (7% imputed interest rate) Receiving/Shelving of stockOrder picking and packingDelivery and imprest replenishment Summary of hospital portion of supply chain (process) costs (Equals approx. AUD$225-245 million/year) © DASH Project Team Value Proposition: Major Savings Opportunities : 13 Value Proposition: Major Savings Opportunities Relative Supplier/Hospital Supply Chain Costs (B)(Showing key areas for eProcurement to target) Supplier data based on responses from over 30 (primarily) medical/surgical companies in Australia Source: Diagnostic of the Australian Supply Chain to Hospitals (2000) (“The DASH Report”) Product not expired but never used for intended purpose due to odd sizes, changes in demand or changes in technology and doctor preference 34% 24% 39% 40% 18% 9% 5% 27% 4% 0% Percentage of Each Party’s Total Supply Chain Cost Order, Invoice Processing, Customer Service and Freight Costs Product Receipt,Storage,Distribution Holding Costs of Stock Waste,Theft,Expiry andTechnological Obsolescence (C) Bad Debts Supplier Costs Hospital Costs Key Findings : 14 Key Findings The potential benefits of eCommerce in Healthcare are staggering -$235MM in annual savings The savings are derived from: Improved Process efficiency through standardisation & automation Elimination of off-contract buying through better defined, tightly controlled processes Improved standardisation & rationalisation of products Improved productivity associated with efficient, effective product search processes and improved demand forecasting Reduced product inventories and obsolescence throughout the supply chain The initiatives with the highest priority within the trading community include: Process/Product standardisation Electronic Catalogue eBusiness platform with a National/International Hub Source: Diagnostic of the Australian Supply Chain to Hospitals (2000) (“The DASH Report”) Key strategic issues : 15 Key strategic issues Australian Health is struggling to define which entity will lead e-commerce (ie, States, Private, Wholesalers, Industry, etc.) Australia will probably have different solutions for payment (Medicare/Private Funds), clinical data and procurement Australia will probably have different solutions for B2C (downstream) and B2B (upstream) procurement Key strategic issues (cont) : 16 Key strategic issues (cont) Supplier A Integration Cost Integration Cost Integration Cost Cost Cost Cost Catalog A Catalog B Catalog C fee based transaction ? fee based transaction ? fee based transaction ? Multiple Portals Multiple Catalogs Multiple Integrations Multiple Fees Key strategic issues (cont) : 17 Key strategic issues (cont) B2C has suffered recently because of company negatives – but this is different than concept negatives B2C in reality has always been very tough to implement - but very rewarding to those who do. Full B2C benefits will require “deep integration” between suppliers/customers in some form Asia Pacific Landscape : 18 Asia Pacific Landscape PACIFIC HEALTHCARE EXCHANGE (AUSTRALIA) Underwent significant capital restructuring Change in management Layoff about 50% of organization Focus on technical consultancy and hardware exchange(core business) HEALTHNET ASIA Operations in Singapore, Thailand and Japan Terminate operations in November 2001. ASIA RX Supported by Zuellig Pharma, the largest pharm distributor in the region Targeting small and medium size retail pharmacies with internet based product. Possible entry into Australia. Global Healthcare Exchange Confidential Information The Challenges for Materials Managers : 19 The Challenges for Materials Managers • Purchasing complexities • Wholesaler, no Wholesaler, on contract, off contract, specialty items • Tracking contracts/purchases/rebates • No price validation at the time of order = $$ manual follow-up • Distribution • Consolidation of hospitals means centralisation of warehousing; distribution to numerous facilities • Information systems • Disparate standalone or manual systems evolving toward integrated, enterprise-wide IT solutions. • Limited use of data warehouse and historical information • Automated connections to external partners non-existent or under utilised • Financial responsibility • Responsible for cost/budget management • Total lifecycle costs vs. product costs • Organisationally, link to clinical effectiveness is not well defined What’s Driving Change to the Supply Chain? : 20 What’s Driving Change to the Supply Chain? • Materials managers are focused on managing costs According to the Australian DASH Report, there are significant industry wide savings Emerging global drive for common standards in e-healthcare Win - Win B2C Exchange Goals : 21 Win - Win B2C Exchange Goals Customer Goals Reduce inventory / waste / obsolescence Improve supply chain efficiency Standardise on (govt./mgt.) tenders Conform to (govt./mgt.) reporting needs Overall – decrease total cost   Supplier Goals Single Industry Catalog Protect market position Improve customer support/service Improve supply chain efficiency Obtain key market/usage data Overall – increase market share Summary: Functions of the Supply Chain : 22 Summary: Functions of the Supply Chain Industry Standards Catalogue Hospital Dept. Order Tracking (on order) report Shipping Docket Credit Memo Hospital Dept. Requisition Invoices Dept. Budget Identify Product Need Source Product Request Product Receive Supplier Acknow-ledgement Receive Product Shipment Inspect and Store Product Manage Official Hospital Inventory Distribute Hospital Inventory Charge Product to Cost Centre Receive Supplier Statement Process Payment Report Overall Performance to Mgt. Evaluate Product Tender Product Forecast Demand Receive Confirm’n (If damaged or incorrect) Exchange/ Refund Imprest Replenish’t Redistrib within Theatres, etc. Charge Product to Patient Verify Invoice with User Update Hospital G/L Hospital KPIs Negotiate Formal Contract Expedite Alternative Process and / or Assemble Manage unofficial Inventory Auctions Claim Private InsurancePayment Reconcile Variances Review Special Settlement Terms Update Cheque Register Supply Chain Process Flow (Traditional) Stock Items Hospital Systems Support | Materials Mgt Customer Service | Internal Audit | Utilisation Review | Infection/Quality Control | Bio-Medical Engineering | Product Education Traditional (internal) Supply Dept. Customers Traditional (external) Documentation Traditional (external) Support / Resources / Processes (Best Practice) Non-Stock Items Value Proposition: Proposed Short-Term GHX Functions : 23 Value Proposition: Proposed Short-Term GHX Functions Industry Standards Catalogue Hospital Dept. Order Credit Memo Invoices Identify Product Need Source Product Request Product Receive Product Shipment Manage Official Hospital Inventory Distribute Hospital Inventory Charge Product to Cost Centre Receive Supplier Statement Process Payment Evaluate Product Tender Product Forecast Demand Receive Confirm’n (If damaged or incorrect) Exchange/ Refund Imprest Replenish’t Charge Product to Patient Verify Invoice with User Update Hospital G/L Hospital KPIs Negotiate Formal Contract Expedite Alternative Manage unofficial Inventory Auctions Reconcile Variances Review Special Settlement Terms Update Cheque Register Supply Chain Process Flow (Traditional) Stock Items Hospital Systems Support | Materials Mgt Customer Service | Internal Audit | Utilisation Review | Infection/Quality Control | Bio-Medical Engineering | Product Education (Best Practice) Non-Stock Items Tracking (on order) report Shipping Docket Hospital Dept. Requisition Dept. Budget Receive Supplier Acknow-ledgement Inspect and Store Product Report Overall Performance to Mgt. Redistrib within Theatres, etc. Process and / or Assemble Traditional (internal) Supply Dept. Customers Traditional (external) Documentation Traditional (external) Support / Resources / Processes GHCX Support Claim Private InsurancePayment Value Proposition: Proposed Long-Term GHX Functions : 24 Value Proposition: Proposed Long-Term GHX Functions Industry Standards Catalogue Hospital Dept. Order Credit Memo Invoices Identify Product Need Source Product Request Product Receive Product Shipment Manage Official Hospital Inventory Distribute Hospital Inventory Charge Product to Cost Centre Receive Supplier Statement Process Payment Evaluate Product Forecast Demand Receive Confirm’n (If damaged or incorrect) Exchange/ Refund Imprest Replenish’t Redistrib within Theatres, etc. Verify Invoice with User Update Hospital G/L Hospital KPIs Negotiate Formal Contract Expedite Alternative Process and / or Assemble Manage unofficial Inventory Auctions Reconcile Variances Review Special Settlement Terms Update Cheque Register Supply Chain Process Flow (Traditional) Stock Items Hospital Systems Support | Materials Mgt Customer Service | Internal Audit | Utilisation Review | Infection/Quality Control | Bio-Medical Engineering | Product Education (Best Practice) Non-Stock Items Tracking (on order) report Shipping Docket Hospital Dept. Requisition Dept. Budget Receive Supplier Acknow-ledgement Inspect and Store Product Report Overall Performance to Mgt. Tender Product Charge Product to Patient Claim Private InsurancePayment Traditional (internal) Supply Dept. Customers Traditional (external) Documentation Traditional (external) Support / Resources / Processes GHCX Support Need to better understand the value proposition in Australia : 25 Need to better understand the value proposition in Australia To succeed in building an efficient and functional B2C in healthcare: Suppliers and Buyers must collaborate to drive overall supply chain costs down on both sides. Understand the 3 key category: MedSurg, Pharm and Non-Medical product groups have unique challenges. Not just focus on the technology, but on adopting open standards and making the process more transparent and efficient. The CATALOG is a significant task to normalise but is the cornerstone of any B2C. Look beyond transactional efficiency -- drive operational efficiencies, eg. Reduce safety stock thus reducing risk of obsolescence and free up working capital Need to speak the same “language”– need for an independent market value analysis so that we can work from the same page. GHX Founding Members : 26 GHX Founding Members • Founded by leading healthcare manufacturers in early 2000 • Focused on customer value, not market value • Independent, open and integrated • Providers and suppliers collaborating to drive inefficiency out of the healthcare supply chain GHX Operating Principles : 27 GHX Operating Principles • No IPO in business plan • Break even by end of 2002 • Subscription fees paid by suppliers • Global presence and leverage • Open to all • Not a distributor nor GPO Introducing GHX : 28 Introducing GHX How Can GHX Help Lead Change? : 29 How Can GHX Help Lead Change? • Shared motivation • All participants share the pain of inefficient processes in healthcare • Business model • No transaction fees to suppliers or providers • Stability • Focused on customer value, not market value • True value proposition for all participants • Adding measurable value across the supply chain • Breadth of suppliers & products • Independent and open to all manufacturers and distributors • Deliver technology excellence • 18 months of focused development in healthcare vertical • End-to-end connectivity • Centralised content management GHX in Asia-Pacific will. . . : 30 GHX in Asia-Pacific will. . . Offer expertise and experience that the individual market needs Lead by providing an industry wide catalog standard, which is the key benefit and foundation of the healthcare B2C. Take a global approach so that standards and connectivity are not country specific, but regional and global—as our companies are. Take a long term approach in Asia – not under the significant pressure of the dotcoms Not try to change the way business is done but leverage the long standing relationships of companies that have been key players in the Asian market for many years. GHX Business Model : 31 GHX Business Model • Common connection point • Open and independent exchange • Focus on supply chain cost reduction • Improve accuracy of information (pricing / status / content / rebating) • Deliver value to all members of the healthcare supply chain IDN Distributors Office Products Suppliers Other Suppliers Hospitals GPO’s Healthcare Products Suppliers Capital Equipment Suppliers Pharmacy Suppliers GHX Business Model : 32 GHX Business Model • No transaction fees to suppliers or providers organisations • No public offering – ROI derived from efficiency gains, not cost increasing transaction fees or Wall Street valuation • Break-even business model Hospital No transaction Fees added Over 100 Suppliers The Difference? GHX will drive true Cost Reductions into the supply chain GHX Strengthens Existing Relationships : 33 GHX Strengthens Existing Relationships The Difference? GHX supports the existing supply chain, allowing relationships between hospitals and their trusted business partners to prosper. GHX brings • Support to relationships between hospitals, suppliers, GPOs and distributors • Opportunities for savings to all members of the supply chain Hospital Supplier Supplier Supplier GPO Distributors Industry Common Pain Points & Shared Motivation : 34 Industry Common Pain Points & Shared Motivation The Difference? GHX is uniquely positioned to connect providers, suppliers and distributors in a real time environment for efficiencies and savings throughout the supply chain. • All participants share the pain of inefficient processes in healthcare • Suppliers spend millions on marketing and communication to providers, physicians and patients • Reaching out to community is a priority for GHX member suppliers GHX Core Focus in Building the Exchange : 35 GHX Core Focus in Building the Exchange ALLSOURCE* Catalog Services • Catalog data is reviewed, maintained and updated by the manufacturers - "normalized, verified and connected" • Ability for ERP vendors to integrate into GHX catalog solution Core Exchange Functionality • Transfer of information is reliable and efficient • Supports workability with existing systems Connectivity Solutions • High quality, deep integration with suppliers and providers • Reproducible process, without GHX resource dependency 2002 Standards Approach : 36 2002 Standards Approach Provide Industry Standard Catalog (UPN, Normalized format, support both EAN & HIBCC) Implement ECRI clinical taxonomy into GHX catalog Provide catalog synchronization services Industry Registry (HIN) Publication of GHXml 2.0 Schema for industry review Standard Bodies + Critical Mass = Adoption GHX Core Competencies : 37 GHX Core Competencies Foundation for Success • Connectivity suppliers and providers • Catalog normalized content • Core transaction service GHX Core Competencies : 38 GHX Core Competencies Services • Data services • Decision support • Contracting/rebates • ASP • Advanced/rich content Strong foundation provides a good base to build on • Connectivity suppliers and providers • Catalog normalized content • Core transaction service GHX Financial Model : 39 GHX Financial Model SUPPLIERS PAY: Equity Partner fund capital to build the exchange All members will pay an annual subscription fees based on the potential sales in the market subject to a worldwide cap. No transaction fees to suppliers and distributors who transact member products on their behalf. Integration expenses HEALTHCARE PROVIDERS PAY: No joining or entry fees No annual subscription fees No transaction fees Integration costs. Provider Integration Solution Portfolio : 40 Provider Integration Solution Portfolio Adapters ASP Go Forward ERP Releases Installed Base Platforms No ERP / MMIS Exists Channel Partner Integration Clinics HBOC/McKesson Oracle Ormed OmniBuyer Lawson 8.x Alternate Care Blood Banks Infinium Strategy Hospital Status Technology Examples Browser Connector SeeBeyond Lawson EPS Channel Integration Analysis of current integration options, and why the Channel Partner Program is an important part of GHX’s market and integration value proposition Connectors Installed Base Platforms GHX-built Adapter HBOC/McKesson Lawson 7.x Meditech Slide 41: 41 … we recommend that the Board do not further invest in the device referred to as the “talking telegraph” as there is no market save for a few major corporations who may have such a need …” WESTERN UNION * * Paraphrase HINDSIGHT 20:20 THANK YOU

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