Premier, Inc. (PINC) Earnings Call Transcript & Summary

Great. Good morning, good afternoon, depending upon where you are. My name is Don Hooker. I'm the analyst here at KeyBanc, who covers Premier as well as the broader health care IT and digital health space. Today, it's my great privilege to host a discussion with representatives from Premier. From Premier, we have CEO, Mike Alkire; CFO, Craig McKasson; and Head of IR, Angie McCabe. And for the investor audience out there, the hope certainly is that this will be interactive. So if you have any questions, you can anonymously submit them through the KeyBanc conference portal, and I can relay them on your behalf to the Premier team. So with that, Mike, Craig, Angie, thank you for attending our conference. We super appreciate your time. I know there's a lot going on for you. I'm looking forward for a nice conversation for the next 30 minutes.

So I guess, Mike, I'll start with you. You're the CEO. So this is a tech conference, and there are going to be a lot of nonhealth care investors here. So because of that, I'd like to start at a high level and have you maybe provide us with a kind of a brief 2- to 3-minute overview of Premier, kind of what you guys do. How you guys compare in terms of your data capabilities? And Mike, now that you've been in the CEO seat for just over 3 months, kind of how -- can you share with us the transition for you, how that's gone so far?

First, let me just say, Don, thanks for having us. We're excited to be here and to talk about our story. So Premier is a performance improvement organization that's focused, obviously, in health care. We unite more than 4,100 hospital health -- hospitals and more than 200,000 alternate sites. And we do that primarily through leveraging technology. And just by way of background, that's my background. I was a computer science guy and then grew up in technology over the years. And one of the things I'm incredibly proud of is technology enabling Premier over the last 15 or 16 years, and I look forward to doing more of that. And so if you think about Premier, we have 2 major segments. One is the Supply Chain. And obviously, the supply chain assets are all about helping our health care systems reduce costs in the supply chain area. And then we have a second segment that's called Performance Services, and Performance Services is truly just that. It's helping our -- it's a group of services, a bundle of services, technology and data that actually help our health care systems drive down cost and help them deliver higher-quality health care in their markets. So those are the 2 big areas. And then my big focus, Don, has really been this whole focus/passion of mine, that technology enable the supply chain. And what do I mean by that? For Premier, it's really -- it's about building out capabilities at the front end of the whole sourcing process, starting with the ordering cycle. And we built out an e-commerce platform over the last couple of years, and that got a lot of traffic during obviously the pandemic. The initial thought of our e-commerce platform really was to be an extension of our health care systems. Meaning, we wanted to extend the contracts that our health care systems were using as well as the pricing of those health care system contracts to their affiliates and to their non-acute organizations that make them up. So we've taken that asset, continue to evolve that, and have put a little bit of a B2C spin on that -- in that. We have been obviously very, very important to the non-acute setting during COVID in terms of helping these long-term care facilities and nursing homes and rehab facilities to get access to important PPE and other medical products. So starting with that e-commerce platform, most recently done, we bought a company called IDS, which really enabled all of our e-invoicing and e-payables process. So now the way we like to think about it is that we've technology-enabled all the way from the ordering, all the way to the payments. And that's very, very unique in health care. Why that's important, at least the e-invoicing and e-payables, is that as you think about our health care system, they're incredibly complex. Many of them have 10, 20, if not more, hospitals. With that number of hospitals, you'll find that they have many non-acute facilities in -- numbering sometimes in the hundreds. And then for those of them that have very strong clinical preferences, they may have hundreds of clinical offices. And it's really important for our health care systems to sort of centralize the whole invoicing function as they're providing that service out to the entire integrated delivery network. And so IDS, or our Remitra offering, that's the way we've rebranded it, is really to help our health care systems centralize and manage invoicing and then taking that all the way through centralizing and then paying the invoices. So that's supply chain technology enablement. The only other thing I'd like to mention on supply chain is that we are in the process of continuing to vertically integrate that supply chain. The reason that, that's so important is we do think we need to play more of a role in creating more resiliency in the supply chain and reduce our dependency on China and other Southeast Asian countries for important PPE and those kinds of things. So we can get into some of that detail later. And then on the Performance Services side, it's really all about that technology. It's the data really to help our health care systems, again, reduce costs, improve their outcomes and then help them as they think about taking on new payment models, global payment and those kinds of things. And then one of the key focus areas of Performance Services is also to continue to diversify revenue stream into taking that data and capability into life sciences for real-world evidence studies and those kinds of things. Our Contigo offering, which is all focused on helping our health care systems go directly to employers, and then finally, helping us to automate prior authorization.

Yes. So there's a lot there and definitely want to hit on a number of those points, Mike. Maybe -- but also before we dive into some of the specific areas, also thought it might be helpful for folks on the line if we just kind of step back and look at sort of health care technology and you just -- automating the supply chain and digitizing the supply chain in the broader context of all the changes in U.S. health care over the past 18 months, obviously, the COVID outbreak, change in presidents, new potential regulations and legislations. So when you kind of look at U.S. hospitals and health systems and physician groups, kind of what are the sort of -- if you had to force rank the top 3 kind of strategic imperatives for these folks as they look into next year and the year after? Can you give us some clarity there?

Yes. The first thing is I think our health care systems are really focused on creating more agility in their cost infrastructure. So their focus really is to rightsize the hospital vis-à-vis the non-acute settings and those kinds of things. So the focus really is, how do I get my fixed cost to a minimum, and then create more variable cost that can be directly correlated to revenue streams? And so our technology is all about helping them do that, right? So looking at how do we create more flexible labor cost? How do we help, again, drive down more supply chain cost? And how do we truly help them as they're sort of transforming the way they're providing care? That's number one. Number two, I think that health systems and physician groups that we work with really are all about increasing their leverage and their footprint and their points of care across their communities. So we think there's going to be a continued focus from an M&A perspective for our health care systems truly to go upstream, which is looking at partnering or acquiring primary care and then -- and those non-acute functions that are so meaningful to care for a population. And the same with the physician groups, they're looking at continuing to try to create that scale and that leverage. The third area really is to help them deliver this high-quality, patient-centered, evidence-based health care. What do I mean by that? It truly means clinical standardization. So that the way that care is being provided in one setting, they want to make sure that it's consistently provided the same way across all the settings within a health care system. And that's a very, very difficult job as you need the technology, you need the data. But just as importantly, you need a lot of change management, of which our advisory services business has a lot of that capability to help physicians and other clinicians standardize the way health care is being provided.

Got you. And then, I guess, we have one question here from the audience already, which is good. Definitely, people, you can submit questions through the portal. Kind of asking about sort of data assets. How do you, I guess, quantify? Or is there a way you can kind of describe your data assets, your data capabilities versus others? What kind of data access do you have versus other companies in health care? I guess is the gist of the question.

Sure. We're -- it's a great question, and we're incredibly unique in our data assets. So if you think about all adult discharges in the U.S., we have data on 46% of all discharges in the U.S. That's an incredible amount of data. So we have that from a clinical standpoint. We have about 1,000 or so hospitals that subscribe to our safety data capability, probably close to that. And our labor data capability, more than 2,400 actually subscribe to our supply chain data capability. And then we've built up this platform that's really driven through AI and machine learning, helping physicians. So we have about 300,000 or more, close to 400,000 physicians that are actually part of that AI/ML platform where we also can periodically pull data. So those are the primary data sets from Premier.

Yes. And I think, Mike -- yes, just to quickly add, Don, I think for someone that may not be as familiar with Premier's business model. We provide SaaS-based, cloud-based and license, in some case, technologies where the health care providers provide their data to us in exchange for our ability to normalize, cleanse, standardize that data and enable them to actually get after all the things Mike talked about in terms of improving their quality of outcomes and reducing their costs. Because they can compare their performance within their systems, across systems, across others like-minded institutions, et cetera. And then we actually have the rights and ability to blind that data and then use that in those adjacent markets that Mike talked about. So that's where the data comes from. We have rights to use it all from the providers. And then we use it to help drive provider performance improvement, but also have the ability to go after those other adjacent markets with life sciences, employers and payers.

Great. And then so I wanted to get -- I guess you guys hit on a few of these, some of my questions here. But I wanted to kind of dive into that Performance Services segment because I think there's a lot of interesting growth opportunities there that are newer to Premier. We talked about e-commerce a little bit at a high level. I recognize you guys have earnings next week, so I don't want to step on any toes here. But are there any kind of numbers in terms of revenues around the Remitra sort of e-commerce offering, sort of the growth opportunity for that? So people can kind of put some numbers to that over the next X number of years. And kind of how does that fit in with the GPO more broadly in terms of contract compliance and whatnot? If you could expand a little bit on that, I think that would be interesting.

Sure. I'll start with providing a little context to the growth opportunity, and then Mike can talk about the strategic implications and direction of the business. Obviously, we do have earnings. Remitra was a small business at acquisition. But what we have actually publicly stated is over the next 3 to 5 years, we think that, that has the opportunity to deliver $50 million to $100 million in revenue contribution. In the Remitra business itself, we also think there are opportunities, which Mike can get into, around actually helping us target and identify additional GPO opportunities that could actually allow us to grow the GPO as well. So Mike, I would hand it over to you from that standpoint.

Yes. But I think the importance part -- the important part of the whole Remitra offering is twofold: One, I talked a little bit about centralizing invoicing and payment. But from a sort of a group purchasing standpoint, it also -- if you think about all invoice data, we're now going to have the ability to look at every cost, nonlabor cost that now enters into the health stream of a health care system. And we can think about then do we put some of those things on national agreements? Do we want to put some of these on regional agreements? Do we want to help health care system put together local agreements to actually manage those costs? So one, it helps us really get after all of the spend. And then second, as it relates to the suppliers, it's very lumpy as suppliers are selling into our health care systems and our non-acute facilities. And we fundamentally believe that creating a network of our health care deliverers as well as suppliers and Premier in the middle, that we can make sure or we can ensure that products are being appropriately priced, that the right units of measure are being appropriately allotted for. We can help suppliers as they think about managing their sales into the various health care systems from a sales force recognition standpoint. So Remitra actually has this portal for suppliers for them to understand what's being purchased by these health care systems. And so I think it's going to create an incredibly interesting ecosystem that's never been created before, where a lot of information is going to be shared around the entire procurement process. So we're incredibly excited about where that whole business is heading.

Okay. And then within that Performance Services segment, so another kind of smaller business, but I think an interesting growth there is the, I guess, the life sciences, the Applied Science as I think you call it. Have you guys sized that roughly kind of what it -- I assume it's not too big. But kind of what is that -- what are sort of the growth rates kind of over the next couple of years? And I always thought of you guys sort of sitting between the device industry and the pharma industry in the hospital. So it seemed like you guys will be a natural sort of player in sort of potential value-based contracting and things like that. Can you elaborate a bit on some of these topics around that business?

Sure. Don, this is Craig. I'll start with sort of the size of the business, and then Mike can talk about the strategic future of where we're looking. We haven't traditionally gone into breaking out all the individual subcomponents of Performance Services, but I do think that as these businesses continue to scale and grow that we are continuing to evaluate the additional kind of insight and color we might give on these parts of the business. Life sciences is a more nascent, smaller business historically. Think in the range of $20 million to $25 million of revenue today, but actually has been growing kind of the fastest of our Performance Services areas in terms of percentage year-over-year growth. So a lot of opportunity to expand that. Then Mike, you can add color in terms of where we're looking to have that come from.

Yes. So the mission of our life sciences or PAS business is really to be this accelerator of health care improvement through research and data and services to help create scalable solutions. And so the whole focus, what that translates then to a life sciences organization is really helping them as they think about real-world evidence. How are these therapies actually being utilized outside of a clinical setting? And we play a role to actually help those life sciences organizations understand that through our data. We also help them with building collaboratives around appropriate utilization of those therapies. And then most recently, we've been kind of moving down this path towards patient identification for trials. And we talk a little bit about this machine learning, AI capability that's sort of the underpinning of our clinical decision support. We can use that same technology at the point of care that when a doctor is working with the patient to talk about what are some potential opportunities to help manage a disease, one of those may pop up to be a trial. And so in real time, we have the ability to take our information and put that into the electronic medical record, be it Epic or Cerner or Athena, and pop that up and say, here's a trial with -- that's ongoing or that's just about to start. And it's looking for folks that have these kinds of -- certain kinds of lab values or screens or other kinds of characteristics that we might find in the electronic medical record. So that whole area of patient identification is a very, very critical area.

Okay. And then you also referenced -- I wanted to dive into that Contigo Health business you referenced earlier, Mike.