By Melanie Evans and Laura Stevens
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 14, 2018).
Amazon.com Inc. is pushing to turn its nascent medical-products
business into a major supplier to U.S. hospitals and outpatient
clinics that could compete with distributors of items ranging from
gauze to hip implants.
Amazon has invited hospital executives to its Seattle
headquarters on several occasions, most recently in late January,
to sound out ideas for expanding its 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, as well as industrial and office goods.
The market for medical supplies is one of a growing number of
businesses the online retail giant has set in its sights, from
groceries to clothing, often with market-moving results.
Health-care distributor shares dropped Tuesday, in part from The
Wall Street Journal's report of Amazon's intensified push into the
industry, analysts said.
Amazon recently dispatched employees to a large Midwestern
hospital system, where officials are testing whether they can use
Amazon Business to order health supplies for the 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 system 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.
Chris Holt, leader of global health care at Amazon Business,
said Amazon won't look to imitate established models already used
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 Boots Alliance Inc., which the Journal reported has
approached distributor AmerisourceBergen 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, an industry 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 companies' health-care costs.
Earlier reports of Amazon's interest in the pharmacy-services
business 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 it to sell 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 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 in New Hyde Park, N.Y.,
one of the hospital executives who 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 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 his company's earnings in November. Owens &
Minor didn't respond to a request for comment. McKesson and
Cardinal Health declined to comment.
Some companies that sell to hospitals and doctors said they
offer services beyond distribution that give them a competitive
advantage.
Medline, also a manufacturer, 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 14, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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