Devices & Diagnostics

Is the healthcare industry really buying into the medical mart concept?

Going back to those innocent and optimistic days of 2009 when the three-city medical mart competition was just taking shape, one thing has always been clear: For any of the projects to succeed, the healthcare industry would have to buy into the untested medical mart concept. That is to say, the success of any medical […]

Going back to those innocent and optimistic days of 2009 when the three-city medical mart competition was just taking shape, one thing has always been clear: For any of the projects to succeed, the healthcare industry would have to buy into the untested medical mart concept.

That is to say, the success of any medical mart would clearly be dependent on hospital purchasing managers seeing value in visiting a single location with a wide array of vendors peddling their wares to the hospital industry.

And it’s likely those hospital purchasing managers wouldn’t feel compelled to visit any medical mart unless the building was stacked with tenants that are at the top of the various sectors of the healthcare industry. To use an always-popular sports analogy: LeBron James and Alonzo Gee are both professional basketball players, but which one do you think is motivating America’s sports fans to part with their hard-earned, noncollective-bargained dollars to buy tickets?

The challenge, then,  to the property developers behind the medical mart projects in Cleveland, Nashville and (once upon a time) New York was clear: simply attract high-quality tenants whose products are in high demand, then sit back and watch the hospital buyers roll in. Those products could include anything from electronic medical records systems to exam tables to orthopedic implants to wheelchairs — any of the thousands of items you’d find in a hospital.

So it would stand to reason that if a medical mart could lure tenants at the top of the health industry, success would likely follow. Sure, the health trade shows held at nearby convention centers will drive some traffic to the medical mart tenants, but certainly trade shows alone won’t be enough to provide a large amount of hospital buyers walking through a medical mart’s halls.

In theory, the medical mart concept makes plenty of sense. Why wouldn’t hospital buyers want to save time and money by viewing lots of products in one location on one trip, instead of flying around the country to visit individual vendors in disparate locations? And the medical mart concept has always had a powerful and persuasive proponent — Cleveland Clinic CEO Toby Cosgrove, one of the nation’s foremost physician-executives.

But when viewed together, the track records of the three cities in attracting (or not attracting) the leading companies in the health industry suggest getting that industry buy-in isn’t so easy. And more pointedly, it raises the question of whether the healthcare industry really does place much value on the medical mart concept — and whether the concept of a medical mart was ever that great of an idea in the first place.

Let’s start with New York. The Manhattan-based project started with a bang, becoming the first of the three cities to announce that it had tenants — 11 companies including big names Cardinal Health and orthopedics manufacturer Zimmer. Shortly after that, the New York medical mart fizzled, never to be heard from again. Certainly, the exorbitant cost of Manhattan real estate played a huge role, and one could argue the project was doomed from the beginning. But one could also argue that if enough prospective tenants bought into the vision of what the New York medical mart was selling, it’d still be around today.

On to Nashville, which, quite frankly, has posted an abysmal record in attracting tenants. Despite repeated promises that big deals were in the works, Nashville has thus far signed just four tenants, and none of the big, international variety the project’s backers have said they’re targeting. At least one local media outlet has begun a death watch of sorts, as far back as January, wondering if the city should come up with a Plan B for its old convention center, which was to be part of the medical mart project.

Nashville’s last announcement — that Vanderbilt University “envisions” hosting events at the medical mart — was met with thinly veiled derision from the Nashville Business Journal. Again, if the health industry saw real value in setting up shop in a medical mart, would Nashville be struggling so mightily to sign up even one (one!) large multinational corporation in the health space?

So Nashville may have lured away Northeast Ohio’s greatest contribution to indie rock, the Black Keys, but it isn’t likely to win the medical mart competition over Cleveland, which is nearly certain to open its mart first.

But Northeast Ohio taxpayers who’ll eventually pony up about $840 million to subsidize the project have to wonder exactly what “winning” means, and the word isn’t quite as easy to define in the medical mart context as it is in the Charlie Sheen context.

MMPI, the Chicago-based property developer behind the Cleveland project, deserves credit for signing up 63 tenants. But a detailed look at exactly who those tenants are makes you wonder if they have the name recognition and firepower to bring hospital buyers from around the country to Cleveland.  (Now’s probably a good time to mention that MedCity News’ parent company, MedCity Media, intends to take space in the medical mart.)

For example, 62 percent of the tenants announced in January are either based in or have significant operations in Ohio. Certainly, Ohio has experienced impressive growth in its biomedical sector over the last decade. But can anyone really be so provincial and blinded by civic pride to think that a medical mart could be considered world-class with such a heavy percentage of Ohio tenants?

Further, just three of the 58 charter tenants are traded publicly on the Nasdaq or New York Stock Exchange, so we’re hardly talking about a collection of the titans of industry here. And two of those large public companies — home health equipment maker Invacare and sterilization products firm Steris — call Northeast Ohio home. It’s hard to believe that Invacare and Steris didn’t feel at least a small sense of civic obligation to help out the local project by lending their names. Each company is to be commended for that, but again, it doesn’t exactly build confidence that top healthcare companies see a ton of value in the medical mart concept.

Curiously, there’s one Ohio healthcare company that’s noticeably absent from the medical mart — $100 billion pharmaceuticals distribution firm Cardinal Health, the state’s largest company by sales. And let’s not forget that Cardinal did commit to New York before that project went belly-up.

Cardinal spokesman Troy Kirkpatrick said the company still sees “merit” in the medical mart concept, but Cardinal is “waiting to determine the demand for this concept before we would invest in any new projects.”

The single-most revealing piece of information about the small stature of the medical mart tenants came from Cleveland Magazine. The magazine reported that MMPI had signed just five of the 100 national medical manufacturers the Chicago company named as showroom prospects in a list it shared with sister publication Inside Business in 2009 (and MMPI is likely now regretting having shared that list with the magazine.)

As I asked nearly immediately after MMPI released its list of tenants in January, where are the Philips Medical Systems, the Siemens Medical Solutions, the GE Healthcares of the world?

In short, the medical mart simply has too many MedCity Medias and too few Medtronics to think that it’s going to be a huge draw for hospital purchasing managers — at least with its list of current tenants.

MMPI obviously doesn’t see things that way.

“The Cleveland Medical Mart & Convention Center has resonated strongly within the healthcare industry across multiple disciplines and our current list of 63 tenants reflects the widespread interest in this concept,” company spokesman Dave Johnson said. “Interest in this facility continues to grow within the healthcare community.”

Of course, I’d be remiss to omit the No. 1 factor the Cleveland medical mart has in its favor: time.

MMPI rightly pointed out after the tenant announcement in January that it has more than two years to sign up more tenants before the medical mart’s scheduled opening. (Though that raises the question of whether there’s all that much room available for those tenants given that MMPI President Chris Kennedy told Crain’s in January that MMPI had letters of intent covering 100 percent of the mart’s available space. Yes, a few of the companies probably won’t end up signing leases and others will reduce their space, but will that open up very many slots? )

And in fairness to MMPI, company executive Mark Falanga told Inside Business a couple years ago that “it’s going to take many years for this to ramp up.” Plus, I do seem to recall a little something about a recession plaguing the U.S. economy over the past few years, meaning that MMPI wasn’t exactly operating in an ideal sales environment.

So maybe the problem is simply that there’s not much awareness of the medical mart at a national level, and that awareness could rise as its 2013 opening date draws nearer, helping MMPI bring in some high-profile tenants. “Have a little patience,” MMPI would no doubt say to skeptics.

But the early results from Cleveland, Nashville and New York suggest an industry uncertain of the benefits that the untested medical mart concept could hold. And Northeast Ohioans need to begin thinking about what happens next if you build it, but not very many people come.