Amazon, always expanding, 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. “The firm is expanding its business-to-business marketplace, Amazon Business, into one where hospitals could shop to stock outpatient locations, operating suites and ERs,” writes The Wall Street Journal (Feb.14, 2018).
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. Amazon said it seeking to sell hospitals on a “marketplace concept” that differs from typical hospital purchasing, which is conducted through contracts with distributors and manufacturers.
“Our goal is to be something new,” said Amazon’s head of global health care. “We’ve been actively building out new capabilities and features to simplify purchasing.” 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. 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.
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. Hospitals today typically sign contracts to buy supplies directly from manufacturers or from distributors, which include Owens & Minor, Medline Industries, McKesson, and Cardinal Health. 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, as we note in our Video Case Study “Arnold Palmer Hospital’s Supply Chain” in Chapter 11.
Classroom discussion questions:
- Describe the role of the group purchasing organization (GPO) in the hospital supply business.
- Refer to the Arnold Palmer Hospital case study in Ch. 11. How does that organization’s supply chain work?