By Melanie Evans and Laura Stevens
Amazon.com Inc. is pushing to turn its nascent medical-supplies
business into a major supplier to U.S. hospitals and outpatient
clinics that could compete with incumbent distributors of items
from gauze to hip implants.
Amazon has invited hospital executives to its Seattle
headquarters on several occasions, most recently in late January,
to solicit information about the sector and sound out ideas for
expanding the company's business-to-business marketplace, Amazon
Business, into one where hospitals could shop to stock outpatient
locations, operating suites and emergency rooms, according to
hospital executives who attended the meetings.
Amazon Business already sells a limited selection of medical
supplies -- some sutures, for example, but not more specialized
items like hip implants -- as well as industrial and office
supplies.
Amazon recently dispatched employees to a large Midwestern
hospital system, where hospital officials are testing whether they
can use Amazon Business to order health-care supplies for the
hospital system's roughly 150 outpatient facilities, according to a
hospital official overseeing the efforts.
The pilot is customized for the hospital system's catalog of
supplies, the official said, allowing employees to compare prices
the hospital negotiates with its distributors against those in the
Amazon Business marketplace.
In response to questions about these efforts, Amazon said it is
building technology to serve health-care customers, and seeking to
sell hospitals on a "marketplace concept" that differs from typical
hospital purchasing, which is conducted through contracts with
distributors and manufacturers.
The market for medical supplies is one of a growing number of
businesses the online retail giant has set in its sights, often
with market-moving results.
Chris Holt, leader of global healthcare at Amazon Business, said
Amazon won't look to imitate established models already in the
medical-distribution sector. "Our goal is to be something new," he
said. "We've been actively building out new capabilities and
features," to simplify purchasing, he said.
Echoing sentiments articulated by some in the industry, he said
existing supply-chain options are dated and "not nearly as safe and
secure" as needed. "We're thinking about not how we can go mimic
what's already out there, but rather how we can rethink safety and
security of anything clinical," he said.
Other companies eyeing the health-care supply space include
Walgreens, which The Wall Street Journal reported has approached
distributor AmeriSource Bergen Corp. about buying the portion of
the company that it doesn't already own. AmeriSource is primarily a
pharmaceuticals distributor with a business supplying hospital
systems.
Amazon is making a steady push into health care, a sector the
company rattled last month when it said it was forming a nonprofit
venture with JPMorgan Chase & Co. and Berkshire Hathaway Inc.
aimed at reducing the three firms' health-care costs.
Earlier reports of Amazon's interest in the pharmacy-services
business, meanwhile, helped spur CVS Health Corp.'s $69 billion bid
last year for insurance giant Aetna Inc.
Amazon in recent months obtained approval from several state
pharmaceutical boards to become a wholesale distributor, a step
necessary for selling medical equipment to licensed
professionals.
Amazon's comparison-shopping ethos could shake up the hospital-
and clinic-supply business, where middlemen fees add costs and
proprietary contracts obscure price differences. But Amazon also
faces challenges.
So far, some hospitals have been reluctant to buy supplies from
Amazon Business, for reasons including lack of options and lack of
control over purchases and shipping, which hospitals closely
safeguard to ensure prompt arrival of goods.
"We can't be without supplies," said Phyllis McCready, chief
procurement officer for Northwell Health, one of the hospital
executives who has attended the Seattle meetings with Amazon.
Hospitals typically contract for assurances that products will
be available and delivered securely, she said. "It's a little
different than being out of a size 6 dress. I can't be out of a six
French catheter," said Ms. McCready, who oversees the New Hyde
Park, N.Y.-based hospital system's $3 billion annual budget for
supplies, contract services and pharmaceuticals.
Ensuring continuity of product supply is also crucial, said
Donna Drummond, Northwell's senior vice president of consolidated
business services. When doctors and nurses reach for a familiar
product, they know its specifications. Jumping online to look for
the best deal could disrupt that continuity, she said. Northwell is
"not ready to move from our current model," Ms. Drummond said, but
added: "We are open to a competitive market."
Hospitals today typically sign contracts to buy supplies
directly from manufacturers or from distributors, which include
Owens & Minor Inc., Medline Industries Inc., McKesson Corp. and
Cardinal Health Inc.
Also in the chain are companies known as group-purchasing
organizations that negotiate on behalf of multiple hospital buyers,
seeking to leverage collective demand. Hospitals formed and own a
stake in many such groups.
Fees and administration, marketing and shipping costs account
for an estimated 20% to 30% of health-care supply costs, according
to a November research report by Citigroup Global Markets Inc.
"There's a lot of people with fingers in the pie," said Rob Austin,
an associate director with Navigant Consulting Inc. and former
hospital supply-chain executive. "There is a huge opportunity."
Some companies in the medical-supply market have already
signaled concerns about Amazon Business's initial inroads into the
sector.
Owens & Minor Chief Executive P. Cody Phipps described
Amazon as "a formidable competitor in any distribution business,"
as he discussed the company's earnings in November. Owens &
Minor didn't respond to a request for comment. McKesson and
Cardinal Health declined to comment.
Some companies already selling to hospitals and doctors said
they offer services beyond distribution that give them a
competitive advantage.
Medline is also a manufacturer and employs clinicians to develop
custom products for customers, said Ron Barth, executive vice
president of sales. Henry Schein Inc. provides small business
customers with health-care education and consulting, said the
company's spokeswoman.
Premier Inc., a publicly traded company that acts as a
purchasing group for hospitals, told investors in January that its
pricing compared favorably with Amazon Business and other online
retailers. Premier also contracts with multiple manufacturers and
distributors so its customers can comparison shop on price within
its proprietary contracts, said David Hargraves, senior vice
president of supply chain.
Write to Melanie Evans at Melanie.Evans@wsj.com and Laura
Stevens at laura.stevens@wsj.com
(END) Dow Jones Newswires
February 13, 2018 05:44 ET (10:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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