Is Amazon the biggest threat to orthopedic suppliers?
Edward-Elmhurst Health spends on average $250 million a year on medical supplies sourced from more than 300 vendors. About 40 pallets arrive daily, filled with everything from exam gloves to sutures. “The goal for us is to have the lowest costs possible,” says Harold Richards, director of supply chain for the three-hospital system.
Richards works with Premier, a large group purchasing organization based in Charlotte, N.C., that negotiates the best price from vendors for about two-thirds of Edward-Elmhurst’s supply order. Among the system’s main distributors are Medline and Owens & Minor.
But health systems like Edward-Elmhurst should get ready to be wooed. Amazon is looking to use its mighty brand and distribution power to crack the medical supply business. After all, supplies are one of the biggest expenses for hospitals, which are facing a financial pinch for a host of reasons: Soaring drug costs. Patients with pricey deductibles who can’t afford them and then skip out on their medical bills. Medicaid and Medicare reimbursements that don’t cover the full cost of care.
The e-commerce behemoth already has reshaped the way the world shops for the most mundane items, upending booksellers, clothing stores, even the grocery industry—driving down prices in the process.
Still, hospitals could prove a stubborn target for Amazon, which had $136 billion in 2016 sales. For starters, the industry is notoriously resistant to change. Hospitals might not be so easily swayed to drop their suppliers, or their decades-old relationships with organizations that negotiate deals on their behalf. Some health systems even own a stake in the big supply purchasing groups.
Then there’s the patient safety factor. And of course, timing is crucial. What if the wrong type of needle arrives, or a tool needed for surgery that day arrives late?
“The main thing is that (supplies) get to us on time,” says Ron Blaustein, chief financial officer at Lurie Children’s Hospital in Streeterville. “Sometimes we’re ordering things the night before a surgery.”
AMAZON PLAYING COY
Amazon wouldn’t grant any interviews and has been coy so far about its plans for rattling the medical supply business. But the Seattle-based company signaled its intent with the 2016 hire of Chris Holt, a longtime executive in the medical distribution and group purchasing industries who now is Amazon’s global health care leader.