Everyone and their brother seem to be jumping into the online medical supply business. Over the course of just four days last month, two new online supply companies announced their arrival, hospital giants Tenet Healthcare and Columbia/HCA announced they are bankrolling similar ventures, and one existing company, medicalbuyer.com, announced five new major partnerships.
By using online services, physicians, medical groups and hospitals have access to easy shopping and volume discounts often not available to individual providers. Some sites even offer online auctions, where providers post what they are willing to pay for items and vendors can accept or reject the offer.
To date, physicians have been reluctant to embrace online business transactions, but they will eagerly embrace anything that can save them money and hassles, says e-commerce analyst Claudine Singer, from New York-based Jupiter Communications. Now, Internet start-ups and existing brick and mortar companies are rushing to get a piece of the $43 billion medical supply industry.
"There will be an explosion of players, including traditional players who are adopting the models to the Internet space because of cost savings," she says.
"Then there will likely be a consolidation of players, and that will likely be followed by a shakeout. We're still in the very first phase."
Santa Barbara, Calif.-based Tenet Healthcare is diving into e-commerce as majority owner of an independent, as yet unnamed start-up. Tenet, the nation's second-largest for-profit hospital company, will own about 76%, and Mountain View, Calif.-based Chemdex, which specializes in business-to-business e-commerce, will control the other 24%, according to spokesman Harry Anderson.
The new company, set to begin in March, will benefit from the purchasing power of Tenet's existing group purchasing organization, BuyPower, which does $3 billion in annual purchasing.
Nashville, Tenn.-based Columbia/HCA Healthcare, meanwhile, is sinking $40 million into empactHealth.com, an e-commerce company in Nashville. Columbia brings the purchasing power of its more than 200 hospitals. New to the online world is Atlanta-based EquipMD, which already boasts more than 15,000 physicians as customers. Also last month, Minneapolis-based Embion and San Francisco-based ProviderLinks.com announced they merged and raised $10 million in venture capital.
The new companies join the likes of such industry veterans--by Internet standards--as medibuy.com, medicalbuyer.com and Neoforma.com in the increasingly crowded online supply industry.
Last month, Johnson City, Tenn.-based medicalbuyer.com, which focuses on the medical group market and has several thousand customers, announced that five new medical distributors have signed on to sell products via its site. The new distributors bring the number of frequently purchased supplies available up to more than 20,000.
"There will be winners, and there will be losers," says CEO Edward Rollins, M.D. "What will probably happen, at least in the early years, is we'll segment out into different (niches)."
Tenet's Anderson, meanwhile, believes that companies with brick and mortar foundations will have the best opportunity to succeed.
"It's going to be a period of time, probably years, before significant volumes migrate to the Web. So you have to be able to handle that transition and continue to do traditional purchasing, while migrating business to the Internet," he says.