Amazon primed to streamline healthcare supply chain

When supplies are running low, a Summit Pacific Medical Center employee presses an Amazon Web Services Dash Button or tells Alexa to order more.

The critical-access hospital in Elma, Wash., has a Dash Button in a bin large enough to store five computers. It also placed the internet-connected buttons in containers that hold gloves, paper, syringes, IV flushes and other items that aren’t necessarily checked daily. When there are two computers left, Matthew Palcich or one of his peers presses the button that is configured to order three more from a defined set of vendors via Amazon Business.

It shoots off an email to the corresponding manager who approves the purchase, and the shipment arrives two days later.

When supplies are low, a staff member pushes a button to order more product, triggering a confirmation e-mail.

Fully integrating Amazon Business into Summit Pacific’s supply chain operations has taken the hassle and expense out of tedious procurement processes and freed up the center to focus on patient care, said Palcich, Summit Pacific’s manager of business analytics and logistics.

“At the end of the day Amazon lets us save a bunch of money, especially where we typically struggled with one-off marketing requests and custom orders,” he said. “The breadth of offerings is probably bigger than any other distributor that I have seen.”

Summit Pacific predominantly provides primary care in addition to acute-care and emergency services. Amazon Business is capable of supplying 90% of the hospital’s supply-chain needs, Palcich said, adding that it’s a helpful market research tool with customer service that is often more responsive than that of its vendors.

Like Summit Pacific, a growing number of providers are using Amazon Business to streamline their supply chain. While Amazon Business currently may not be suitable for larger systems yet, the industry disruptor is capable of scaling up, supply chain experts said. Also, the healthcare supply chain is just one of many areas where Amazon continues to explore and expand in the sector.

Cutting costs, Amazon style

Automating Summit Pacific’s procurement process through Amazon Business streamlined operations, reduced shipping costs and added visibility to its supply chain, ultimately reducing supply chain-related labor expenses by 80%.

It also trimmed its vendor portfolio and lowered expenses related to delays in lead time and upcharges on shipping thanks to Amazon Business Prime.

This allowed Summit Pacific nurses and clinicians to focus more on patients instead of sifting through supply-chain snafus, Palcich said. “We need to keep costs down to support patient care and not be all things for everyone and negotiate for every item. Negotiations are non-value-added unless the deal is good.” More time could be spent researching a product and placing an order than on what the product costs, Palcich added.

Supply chain accounts for healthcare providers’ second-biggest expense behind labor. It’s also been one of the first areas health system managers look to cut costs.

While the Amazon Business platform isn’t outfitted for more specialized items like imaging equipment or implants yet, its scale and capital coupled with its efficiency and reliability would serve it well, industry observers said.

“In time Amazon can be a tremendous force,” said John Kupice, CEO of H-Source, a private marketplace where hospitals can buy, sell and transfer excess inventory supplies and capital equipment with each other. “In the short term, it would be much more effective in critical-access hospitals that don’t have as much infrastructure as medium or large hospitals. It brings them more sophisticated tools than they are able to acquire or implement.”

How it works

Each supply-chain employee at Summit Pacific is armed with an Amazon login, which is tied to their department with a corresponding approving manager who can peruse product pictures and compare prices. Shipping address and payment methods are pre-loaded.

Amazon packages indicate who they are intended for on the exterior label and Amazon drop-ships to Summit Pacific’s off-site locations. Tracking packages and charges is easier through the Amazon ID number, and Summit Pacific is building a list of items purchased to standardize procurement, Palcich said.

Summit Pacific can set up tolerances to allow for shopping variation. It also can negotiate prices with suppliers through Amazon and use the Dash Button or Alexa to place orders with agreed-upon prices. Hospital employees know they can order something and get it quickly, which cuts down on bulk orders and inventory waste, Palcich said.

Summit Pacific Medical Center employees say the Amazon Business platform allows users to easily compare products.

While fulfillment disputes are rare, Amazon resolves them quickly, he said. Training is also almost nonexistent since most employees are familiar with ordering through Amazon.

Amazon’s strategy is to understand the customer’s needs and work backward, said Chris Holt, Amazon’s leader of global healthcare.

In addition to medical supplies, Amazon has been flirting with pharmaceutical delivery, evidenced by its recent purchase of online pharmacy PillPack. It also aims to revamp employee benefits through its joint venture with 
JPMorgan Chase and Berkshire Hathaway.

“We are just trying to figure out what we learned in other industries and how we have architected our own infrastructure to figure out how we can help healthcare migrate to simpler solutions,” Holt said. “This is not a unique healthcare problem.”

Currently, “tail spend” is where Amazon has had the biggest impact in healthcare, Holt said. Typically, 80% of providers’ spend is with 20% of their suppliers and 20% of their spend is with 80% of their suppliers, the latter being tail spend.

“Amazon freed up a ton of time for us on our tail spend related to IT goods, medical supplies and marketing materials,” Palcich said. “Things are moving more and more to medical supplies. It could be a really good fit for nonstock sterile tools.”

Potential downsides

While Amazon’s medical-surgical supply prices are similar to some of Summit Pacific’s other distributors, and even cheaper if the order is only a few units, verifying vendors can be a challenge, Palcich said. That could change if Amazon develops a mechanism for setting a list of approved vendors tied to a customer account and specific item.

Handling high-margin items that require temperature-controlled storage and other unique conditions could also be a hurdle, experts said.

Still, Amazon has the ability to build the capacity, Palcich said.

“If Amazon is innovating that fast and taking the entire shipping decision out of the supply chain for Summit’s commodities, how do you think they will do with durable medical equipment?” he asked.

Relying on an Amazon-sourced supplier for recalls and alerts could pose problems, said Tim Hagler, director of supply-chain management for the SouthEast Alaska Regional Health Consortium.

“Amazon can be totally disruptive, in a good way, to many areas of the supply chain, until you need to depend on a supplier for recalls and alerts. So medical products are a concern,” he said. “But the healthcare value analysis and supply-chain practitioners will eventually engage with solutions, either through Amazon Business or someone else, that will let us move past that issue with confidence.”

The consortium, which helps source and deliver products for providers in rural Alaska, is preparing for a more formalized engagement with Amazon next year, although it may not include medical products in the first phase, Hagler added.

Broken supply chain

Providers have standardized purchases across their systems, contracted directly with manufacturers or even built their own distribution centers; more than 60 health systems in the U.S. have done so, according to a recent survey by supply-chain consultant Jamie Kowalski.

But supply chain issues still haunt health systems.

Eighty-three percent of 305 surgical staff and hospital supply-chain experts surveyed in November 2017 by distributor Cardinal Health said their organizations are manually counting inventory in some parts of the supply chain while only 15% have implemented radio-frequency identification automation. Inventory mix-ups can result in lost supplies and canceled procedures or jeopardize patient outcomes. Automation reduces costs, according to 39% of respondents, while 1 in 4 said automated systems free up time to focus on patients and produce better outcomes.

“We increased our productivity by setting up certain business areas to request and order through Amazon Business, which allowed our team to focus their efforts on more critical areas of need to ensure we have the right product at the right prices at the right time so we don’t impact patient care,” said James LeRoy, director of strategic sourcing and value analysis at Seattle Children’s Hospital.

Confluence Health, a two-hospital system based in Wenatchee, Wash., also uses Amazon Business, which makes sense given Amazon’s vast presence in the Pacific Northwest.

If Amazon can build on its demand-forecasting, that would go a long way toward improving efficiency, Kowalski said. Suppliers can scale accordingly while locking in a regular revenue stream and providers will only buy what they can use and secure better prices, he said.

“If every hospital could do that, that would be huge as to what we could accomplish as an industry,” Kowalski said.

Palcich said Amazon Business’ technology has made Summit Pacific’s relationship with Vizient—which handles its group purchasing and provides consulting—even better. Rather than rely on Vizient for everyday office supplies, it can focus more on accounts payable solutions and leverage its consulting services, which Vizient and other GPOs continue to expand as providers drill down on care coordination.

Vizient helps providers verify whether vendors can deliver on their GPO pricing, liability protections and ordering practices, and delivery needs before finalizing a deal, the company said.

“Working cross-functionally to build consensus and align supply-chain decisions with clinical operations is central to Vizient’s service model and an essential—and differentiating—part of the value we deliver,” according to a Vizient statement.

GPOs have adapted well and will continue to add value, H-Source’s Kupice said.

Still, Amazon could eventually threaten GPOs, Kowalski said. While it doesn’t currently, Amazon certainly has the scale and capital to broaden its healthcare offerings, he said.

“If GPOs continue to provide more value, they’ll have a place in this supply chain,” Kowalski said. “If they don’t, there are no guarantees.”

Summit Pacific will continue to experiment with Amazon Business as it looks to drive more costs out of the supply chain, Palcich said.

“I think there are some legacy things about stocking levels and liability that have caused healthcare providers to stick with tradition,” he said. “But this shows us how we can bring new tools to the supply chain to make it faster and better. And we’re just getting started.”

http://www.modernhealthcare.com/article/20180929/NEWS/180929919/amazon-primed-to-streamline-healthcare-supply-chain