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What will Amazon's impact be on the medical supply business?

Posted on February 16, 2018

It was recently reported that Amazon is getting into the healthcare business via a partnership with JPMorgan and Berkshire Hathaway where they will create a healthcare company for their own employees. 

Now it appears Amazon is also looking to disrupt healthcare from another angle. 

According to The Wall Street Journal, Amazon is looking to expand into the sale of medical supplies to hospitals, taking on companies such as McKesson, Cardinal Health, Owens & Minor and even Johnson & Johnson. The newspaper also reported that an unnamed major hospital in the Midwest is already working with Amazon and numerous hospital executives have been invited to the Amazon headquarters to hear their pitch. 

With U.S. spending on healthcare approaching 20% of GDP, the healthcare system is ripe for disruption and hospitals are begging for a more efficient process. Enter Amazon. 

Chris Holt, in charge of Amazon's global healthcare efforts, told the Journal: “Our goal is to be something new,” he said. “We've been actively building out new capabilities and features” to simplify purchasing, he said.

The revamped service will likely be through its Amazon Business marketplace as they look to expand their role in the sale of medical supplies and healthcare. It's been noted for a while that you can find ethicon sutures on Amazon but a platform like this will work to improve the supply chain process for hospitals. 

Here is a look at a Amazon Healthcare teaser put out by Amazon:

Like 90 million Amazon Prime members, hospital executives and materials managers (hospital purchasing) are likely very comfortable ordering from Amazon as they trust they're getting the best price available.  

Amazon has proved they can succeed in B2B, selling in the office supply space and medical supplies are next. 

How Will This Affect Medical Supply Companies?

Today, most medical supples are on contract with a hospital system or a GPO (Group Purchasing Organization) so there is some transparency with pricing between hospitals and medical supply companies. However, that doesn't mean hospitals are getting the best prices and they still haven't handled the ease of use in which Amazon customers order with. 

Amazon can help handle both.

Materials managers at a hospital currently have a number of options when ordering supplies. They can call their sales rep, call the company directly or order product from one of their many online systems. 

In the new system, it appears Amazon will act as a purchasing organization and directly negotiating pricing with medical supply companies who want to sell to one of their customers (hospitals).

With this new system, Amazon will take the guess work out of the supply chain process for hospitals.

Great for hospitals, not so great for medical supply companies.

There has been talk of getting rid of bloated sales forces for years as they do create significant overhead. SG&A is one of the biggest expenses for medical sales organizations and clearly has an affect on pricing. It has to. 

We've heard about the shifts to repless sales models from companies like Johnson & Johnson and Smith and Nephew's Syncera program. There hasn't been much written about them, or even discussed on earnings calls, but their goal was to get the fat out of their sales organizations and offer hospitals pricing that eliminates a local sales rep, leaving them with the option to call a rep or service in for an added cost. 

If Amazon gets into this business, they very well could negotiate with medical supply companies to obtain the best price and then sell directly to the hospitals, thus eliminating the need for a local sales rep for certain products. The hospital will probably have the option to add a service contract and/or sales rep.

Sales reps are needed and hospitals usually don't understand this until they can't get one on the phone or their local rep is out of town at a sales meeting. With that said, they are an enormous expense. 

This is where it becomes important to understand the levels of importance for sales reps. For a company selling hospital gowns and gloves, a sales rep for each city may not be as necessary. It just so happens, these are the types of products Amazon is targeting. 

On the other hand, does Johnson & Johnson need a sales rep to sell sutures? This will be debated as Amazon appears to be targeting those products too. 

Who is Immune?

While commoditized products like sutures, gowns, etc will work very well with an Amazon program, don't expect higher end medical devices to be involved in a program like this. 

There are products that are more complicated to use in surgery and many of these require sales reps to be there on a daily basis to provide assistance in surgeries or bring product for last minute cases. 

If you are a sales rep reading this, do your best to get a medical sales job where your product is unique and your involvement in the sales process is necessary. If not, you may not have a job in medical sales for long.

One thing is clear, Amazon will single handedly eliminate the traditionally large sales organizations within medical supply companies.