Is the Internet a better way to buy? Wesley Gilliland thinks so. So do Jennie Jacobs and Louis Reznick, M.D. All three manage medical practices and purchase medical supplies online.
In the past few years, dozens of online companies have started up or sprung out of existing supply chain firms in attempts to capture a share of the multibillion-dollar hospital and physician supply market, according to a survey by PricewaterhouseCoopers.
Prices are better with Internet procurement, says Gilliland, administrator of the Fish Pond Surgery Center, a five-theater outpatient center that serves 25 physicians in Waco, Texas.
Order preparation is faster, too. And if Gilliland wants to know how much the center is spending on consumables compared with its budget, all he needs to do is pull up a report on the Internet from his office computer.
About four months ago, Fish Pond switched from a traditional medical supply company to Internet-based Esurg.com of Seattle. Gilliland's group participated in a pilot program in which a dozen groups tested the Esurg service for the Englewood, Colo.-based Medical Group Management Association.
In January, the MGMA reached a three-year marketing agreement with Esurg. The MGMA will receive a slice of revenues from Esurg and stock warrants in the privately held company, says association CEO William Jessee, M.D.
Esurg.com, founded in March 2000, is trying to create a market tier beneath the large group purchasing organizations (GPOs) and established procurement firms supplying hospitals and integrated systems. Jessee says smaller medical groups with less buying power typically are cut off from the discounts larger institutions receive.
The online procurement sector is, like most areas of e-healthcare, new and overcrowded.
"A shakeout is in store for some 50 companies that now market e-procurement services," predicts Sandy Lutz, research director for health practice at PricewaterhouseCoopers and co-author of an August 2000 report on the sector.
After surveying 15 e-procurement firms, "we found their business models still in flux." By May, Lutz says, "half the companies we listed either merged or folded."
Still, Lutz predicts that to reduce supply-chain inefficiencies that cost providers an estimated $11 billion a year, GPOs and the dot-com procurement companies will have merged into one industry within five years.
Jessee says the MGMA wanted to test the Esurg service before granting an endorsement. Gilliland says he and the physicians at Fish Pond were ready to try Esurg as part of the test group because "our previous medical supply company did not have the same type of Internet capabilities."
What used to take hours--talking with a sales representative and preparing an order--now can be done online in 10 minutes, Gilliland says, thanks to a customized ordering system that remembers a group's commonly ordered items.
Gilliland estimates he can purchase from Esurg about 70% of the $600,000 in supplies for the surgery center this year, along with $150,000 in supplies needed by two other physician practices in the building that have joined up to form a small purchasing cooperative.
"I have access to immediate reporting, and they (Esurg) can set it up any way I want it," he says. "Probably across the board we're looking at 5% to 7% savings."
Esurg President David Mayer, M.D., says his company is like an electronic, no-fee GPO. Purchases by smaller groups can be aggregated to create buying power with suppliers and savings can be passed along to customers. Groups of Fish Pond's size typically save 3% to 10% by buying online, Mayer says. Savings are even greater--15% to 20%--for smaller groups and one-physician practices, he says.
Mayer estimates that buyers in the nonhospital procurement market spend about $12 billion a year, but the number should grow as the shift to outpatient procedures continues. About 60% to 70% of those buyers are in groups too small to join GPOs; these are his target customers. "Our sweet spot is the small- to medium-size surgery center and family practices," Mayer says.
Reznick, a solo family practitioner in Glendale, N.Y., says he started using New York City-based Medsite to buy supplies more than a year ago.
"It saves me money," he says. "I get the orders sometimes the next day. They communicate with me with e-mail if there are any problems, if there are back orders."
Medsite, founded in 1997, started supplying medical education software and books online.
It added continuing medical education programs, medical products and supplies, and a drug marketing/physicians' incentive program in 1999, when it acquired the firm Total Health Products.
Unlike Esurg, which routes orders to suppliers who ship the goods directly to the customer, Medsite runs its own warehouse, which is located in Broomfield, N.J.
"We maintain an inventory of most of the goods," says Sanjay Pingle, Medsite co-founder and executive vice president of new business development. "That gives us the ability to ship quicker and maintain an overall quality of service." It also limits the company's market focus to the Northeast, he adds.
Jacobs is clinical director of Anne Arundel Urology, a seven-physician group with offices in Annapolis and Glen Burnie, Md. She says her group switched to Esurg "because the cost of supplies was just out of control--20% to 30% (increases) in a year--and it was inconsistent, too."
Price changes from their three main vendors often remained hidden until orders arrived, she adds.
Esurg reviewed her purchasing patterns, created weekly and monthly standing orders, and trained Jacobs and her assistant to use its Web-based order entry system and the report writing functions.
"These reports are going to be very helpful," Jacobs says. "I can look at weekly usage and monthly usage and at high-price items at one office or the other."
Jacobs says she hasn't thrown all the practice's business to the online provider. It doesn't carry some items, and the prices are not competitive on other items, she says, but "I can work with them." She says that her practice has saved about 20% on $15,500 in purchases in six months and expects to trim supply costs by about $13,000 this year.