Amazon Enters Healthcare, Misses Half of Supply Chain Spend

Recent articles in the Wall Street Journal and Modern Healthcare herald the “Amazoning” of healthcare supply chain. Amazon promises vastly reduced costs on goods – e.g. hips, sutures, and gloves.  Amazon’s goal appears to provide supplies and superior delivery through a consumer-friendly catalog that is accessible to end-users, bypassing traditional supply chain players like McKesson, Cardinal and Premier. With Amazon’s announcement to enter the healthcare supplies market, distributor and GPO stocks began to tumble.

Amazon’s ambitions to disrupt the GPO model and sell cost-effective supplies direct to buyers has already taking flight. However, Amazon has yet to address one of the core opportunities for impacting cost savings in healthcare: sourcing cost-effective purchased services.

The purchasing of supplies only accounts for 50-60% of a typical healthcare provider’s non-labor spend. Purchased services, on the other hand, makes up the other 40-50% of operational spend. Purchased services range from valet parking to snow removal to insurance to reference lab services to translation services. Many refer to purchased services as indirect spend since most of these purchases are for services required to “keep the lights on” versus supplies that are directly used for patient care.

Historically, healthcare providers have allowed their facilities, administrative, and IT personnel to manage their own purchased services contracts because they have not adopted a centralized approach to sourcing services with the same rigor that is followed with supplies. Why? Purchased services are not easily tracked via UPC as is the case with many products. Conversely, purchased services are inherently more complex to manage due to regional, service-level, and qualitative factors. However, there are numerous benefits of consolidating purchased service cost management, among them: category-centric analytics, competitive benchmarks, program efficiencies, speed to onboarding suppliers, and mechanisms to eliminate wasteful spend.

As industry news continues to herald Amazon’s savings on already razor-thin margins in supplies, another question to ask your healthcare supply chain is: what untapped savings opportunities are available within purchased services spend? The purchased services domain appears to be outside of Amazon’s reach… for now.

Using a combination of dedicated technology and/or purchased services expertise, Medpricer’s clients have achieved a weighted average of 20% savings on purchased services spending over 615 categories. To learn more, please email info@medpricer.com.