NeoForma.Com Drags Paper-Based Hospitals into Cyberspace

Hospitals spend up to 15 percent of their total budgets on furnishings and equipment purchases that are frequently wasteful and over-priced. was founded to help solve that problem.

“This sector is wrought with inefficiencies,” said AlexArrow, analyst at Wedbush Morgan. “Overpayments are the norm and a hospital will frequently buy equipment that is available elsewhere in the building.” This is an expensive, given that the global clinical products market is estimated at $150 billion per year.

Arrow said he thinks Neoforma.Com of Santa Clara, Calif., offers the best chance to date of solving that problem and making a profit in the process.

Founded in 1996 by medical nuclear physicist Jeff Kleck and health care architect Wayne McVicker, NeoForma is a B2B infomediary, putting health care personnel and suppliers in touch online for new and used equipment and supplies that range from 3-cent hypodermics to multi-million-dollar x-ray imaging systems. In addition, they offer virtual tours through state-of-the-art operating, examining and treatment rooms equipped with everything that belongs in that room and placed where it should be.

This allows purchasing agents and designers to order everything they need with a few mouse clicks. The resulting order generates requests for proposals that are then sent to multiple vendors to assure the best price. Also in the works is an online equipment tracking system to help a facility eliminate duplicate purchases.

“They’re a great concept,” said Gartner Group analyst Mike Davis. “But their biggest challenge is to establish share of mind before the big players like Allegiance step in. It remains to be seen if their [Neoforma’s] system can be compelling enough to overcome the loyalty that has existed for years between big suppliers and medical purchasers.”

Neoforma also adds the additional challenge presented by a traditional, paper-bound industry only now lurching toward computerization. To address that, Neoforma has more than 60 employees in India who do nothing but convert paper to Web-friendly formats. That’s in addition to the 80 stateside.

Some pretty big players are placing heavy bets that Neoforma will succeed. In the past 2 years, they’ve raised $17.2 million in three rounds of financing from such heavy hitters like Delphi Ventures, Venrock and Amerindo.

The bets seem to be paying off so: The online database lists more than 300,000 products for sale from 13,000 vendors worldwide. The auction-style marketplace has more than 1,100 advertisements for equipment worth over $20 million and the e-mail exchange between buyers and sellers can hit 20,000 messages per month. Potential buyers can virtually browse more than 1,000 rooms (and associated equipment lists).

The company won’t talk about revenues yet, but the online activity clearly indicates growth. Neoforma hopes to convert that activity into real dollars by taking a 4 to 12 percent cut of transactions, advertising, subscriptions, value-added service charges for the virtual rooms tours and revenue sharing with partners such as Healtheon/WebMD.

While Neoforma.Com can’t do anything about the dreaded “oops!” in the operating room, it does look as if it can help prevent mistakes when outfitting it.

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