Providers expect Amazon to lower medical supply prices

Providers welcome a disruptor like Amazon to shake up the medical supply space, and most think the giant e-tailer will deliver lower prices, according to a new survey.

Some 62% of 152 CEOs, materials managers, operations directors and other executives said they support Amazon's growing presence in the medical supply sector, according to a Reaction Data survey. Nearly the same amount said the company could deliver medical supplies faster and at a lower price than current medical supply companies.

"It's clear that providers would want someone like Amazon who could come in and do things differently," said Mark Wagner, global vice president of Reaction Data.

Amazon has been adding to its Amazon Business platform, which eclipsed more than 85,000 sellers and 1 million customers last year. The 3-year-old service also recently rolled out a Business Prime membership that provides free two-day shipping, similar to its consumer-oriented program.

The platform offers unique pricing and quantity discounts on more than 5 million products ranging from syringes, microscopes, infusion pumps, catheters, IV bags, sutures and forceps to larger items like hospital beds. Large organizations can integrate Amazon Business into their purchasing systems and directly transfer data to streamline processing.

But it remains to be seen whether Amazon will expand beyond commodities and target more specialized medical devices and equipment that physicians prefer. About half of the survey respondents said Amazon should stick to commodity items while 9% said it should focus on surgical, 8% on pharmaceuticals and 8% on IV solutions.

Brandi Greenberg, a managing director with the Advisory Board Co., said Amazon should serve as a wake-up call to suppliers.

"Amazon's efforts here will almost certainly accelerate price pressure on suppliers, while also threatening to 'unbundle' items that historically have been grouped together through GPO or distributor arrangements," Greenberg said.

Amazon has opened the door for other e-commerce platforms like Supply Clinic, where dentists can peruse implants, orthodontics, cements and other products from more than 100 manufacturers.

Certain health systems have said they are fed up with recent rate hikes from group purchasing organizations, which are branching out into consulting, private drug labels and other services.

Larger health systems have reinforced that sentiment by forming their own procurement and distribution hubs and cutting out middlemen.

While Amazon has the edge in brand awareness and its sophisticated IT and distribution network, it would have to overcome long-standing GPO relationships, logistic issues related to fragile, high-margin supplies and immediate delivery demands, and the idiosyncrasies of the healthcare industry, experts said.

Amazon reportedly walked back its rumored plans to enter the pharmacy sector, but that is likely only a temporary delay, Wagner said. Amazon, Berkshire Hathaway and JPMorgan Chase are teaming up to form a healthcare company to serve their U.S. workers.

It will be interesting to see what type of relationship Amazon has with GPOs, whether they will look to partner or go head to head, said Graham Triggs, director of professional services at Reaction Data.

Either way, when four screws used in a foot surgery cost $15,000—as reported by Kaiser Health News—something has to give, he said.

"I think everyone is taking a wait-and-see attitude at this point," Triggs said. "If orders come fast and accurately on commodities, providers will branch out and try something new. Never bet against Amazon."

Still, only 59% of survey respondents were aware of Amazon's business offerings, 29% said they were unfamiliar, and 12% said they were neutral.

Amazon has reportedly met with major hospital executives and rolled out a program with a large hospital system to stock dozens of outpatient facilities with a customized catalog.

"This is a win-win for providers because it gives them leverage," Triggs said.