Save thousands a year on medical supplies

May 8, 2000

In numbers that are expected to explode soon, doctors are using the Internet to purchase everything from tongue blades to ECG machines at deep discounts.

 

Doctors and the Web

Save thousands a year on medical supplies

In numbers that are expected to explode soon, doctors are using the Internet to purchase everything from tongue blades to ECG machines at deep discounts.

By Neil Chesanow, Northeast Editor

You can continue shopping for medical supplies the old-fashioned way—hunting through catalogs, tracking orders from multiple distributors, and paying near list price. But you no longer have to. The Internet is dramatically changing medical purchasing, much the way consumer Web sites are transforming the way people buy books and most other things.

By using the Web, you can get one-stop shopping, ready access to past purchase orders, and often impressive savings. How impressive? The list price for a box of 10 Propper No. 15 disposable scalpels is $11.50. At one site, MedicalSuppliesUSA.com, you pay $8.11 for that same box—a 29 percent savings. (To sweeten the deal, you may not have to pay state sales tax, depending on the firm you order from and the state you live in. Shipping and handling may sometimes be waived, as well.)

Check out these other MedicalSuppliesUSA prices:

  • 100 Ansell Perry latex exam gloves for $5.69 (list price: $9.85).

  • 100 18 x 1 Sherwood needles for $5.67 (list price: $11.90).

  • 200 large cotton balls for $2.62 (list price: $3.40).

  • A Midmark Ritter M9 UltraClave Automatic Sterilizer for $2,595 (list price: $5,570).

So in a few mouse clicks, doctors can save a bundle. They can also enjoy a far greater selection of medical supplies, office supplies, and equipment than even the largest distributor can stock. And, Web site executives claim, there will soon be a host of new features and services that will make Web-shopping for medical supplies and other practice needs more convenient than ever.

The number of doctors who shop online is expected to grow dramatically

Right now, Internet firms selling medical supplies can claim as customers only a small fraction of the doctors out there. But usage is expected to soar this year. When medicalbuyer.com surveyed 300 of its doctor customers in 1999, asking how many had Internet access at the office, only one in five did. "By the end of 2000, we expect half to have Internet connections at work," predicts radiologist Edward S. Rollins, the company's CEO. "By the end of 2001, it could be 80 percent."

Among medicalbuyer.com's customers (most of whom are in two- to five-doctor practices), "initial purchases are small and, surprisingly, ordered mostly by the physicians themselves," Rollins says. "They try us at home to test the concept. They then shift their purchasing to the office, the order size increases, and the practice administrator takes over."

According to the AMA, self-employed FPs and general practitioners spent a median $12,000 on medical supplies in 1996, the latest year for which statistics are available. Their counterparts in general internal medicine spent a median $9,000. (The median expenditure for all physicians was $6,000.) So even a 10 percent discount garnered from Internet purchasing would save a practice hundreds of dollars annually. And some sites claim overall savings of 25 to 30 percent.

How can Internet companies offer such low rates? Because the medical supply industry, although a $35 billion a year business, is in many ways antiquated. Standard business practices and standard contracts don't exist. Bar coding is only just starting to be introduced. And distributors have been slow to adopt new information technologies. As a result, "the industry is plagued by monumental inefficiencies and unnecessary spending on administrative functions," notes Suzanne Lord, chair of The Efficient Health Care Consumer Response, a consortium of health care product suppliers, distributors, and provider organizations. A 1996 study by EHCR found that by eliminating outdated communications methods and supply chain models, manufacturers and distributors could save as much as $11 billion a year.

The Internet has the potential to transform the medical supply industry into a highly efficient market that enables manufacturers, distributors, and customers to operate with significantly lower overhead and realize greater business benefits. By linking buyers and sellers in virtual marketplaces, "trading hubs" like medicalbuyer.com and MedicalSuppliesUSA.com allow both sides to carry out all of their transactions in one fully automated place. The upshot: That $11 billion in waste will decline, benefiting doctors by reducing prices on medical supplies and equipment purchased online.

Competition will drive down costs, as well. A growing number of Internet companies are busily aggregating the wares of a dozen or more distributors and hundreds of manufacturers on a single site that allows doctors to comparison shop. Robert J. Zollars, CEO of Neoforma.com, one of the largest virtual medical shopping malls, describes an increasingly common phenomenon: "We recently had three competing suppliers listing products on our site. The first offered the highest prices. The second came in lower. The third undercut the other two. And then the first two matched the third."

Medical supplies are a low-margin business, however, so the downward pressure on prices can go only so far. Even so, by purchasing online, you may enjoy lower rates than even group purchasing organizations can offer. Most doctors receiving GPO discounts are in hospital-owned practices. The few independent groups with GPO purchasing privileges typically pay a membership fee—say, $200 a month per doctor—to receive volume-based pricing: The more supplies the group orders, the lower the cost per doctor becomes. But only a group with scores if not hundreds of doctors stands to reap significant savings.

Shopping on the Web can level the playing field for soloists and small groups, even though an outfit like medicalbuyer.com charges vendors a small percentage of an item's purchase price to offer products on its site. "When a case of gloves is purchased by a participating practice, the GPO charges the manufacturer 3 to 6 percent, and the distributor another 3 to 6 percent of the sales price," Rollins explains. "Those markups are passed on to customers. Now that manufacturers and distributors can sell directly to doctors online, they're saying, 'If we don't have to pay that much of a markup, we could lower prices and still make an acceptable profit.' "

You can save online in other ways, too. Some Web sites feature—or soon will—classified ads for equipment and supplies, auctions in which you can bid for medical equipment (mainly used items that hospitals are trying to unload and superseded manufacturers' models), and reverse auctions (name your price for the products and quantities you seek, and an Internet firm tries to match you with a seller that can meet your quote).

In addition, Internet firms offer—or will offer—periodic specials on discontinued lines of supplies and equipment, as well as the opportunity to purchase a distributor's excess inventory at deep discounts. Such inventories might become available when, for example, "a GPO decides to change brands, and a distributor is left with three pallets of Johnson & Johnson gloves that it can't otherwise sell," Rollins explains. About 20 percent of distributors' inventory is overstock. medicalbuyer.com plans to introduce discounted overstock items by the second half of this year.

To place an order, follow these steps:

Getting started can be as simple as logging on to a site, filling out a brief registration form, and picking a password. Choose a product category, such as gloves, by clicking on a dropdown list. Or enter "gloves" in the query field of the site's search engine to get the list of gloves available.

Search engines are no small convenience on sites with a plethora of choices. We tried browsing through Neoforma.com's selection one Web page at a time. But even though 10 different gloves were listed per page, after 30 minutes, we'd barely dented the list. The Web site offers more than 2,300 types, styles, and sizes of gloves for clinical use.

"Most physicians don't need such an extensive selection of gloves, of course," grants Neoforma.com CEO Zollars. "They generally have product preferences. By using our search engine, a doctor could enter, say, 'surgical gloves, latex, powder-free, size 7,' and find what he wants right away." A doctor can also browse products by physician specialty. Thanks to the speed of the search engine, it's easy to comparison shop.

Once you've made your selection, pick a quantity, then click a button to add the item to your "shopping cart." When you're done shopping, click the shopping cart icon to be presented with an invoice, payable by credit card.

Although you can shop on most sites gratis, this isn't universally the case. MedicalSuppliesUSA.com taps you for a one-time $120 membership fee. However, the fee was temporarily waived when we registered on the site last February, and the company plans to phase it out eventually.

While EquipMD charges no fee, "the more you buy from us, the more you save," explains CEO Allen M. Capsuto, who adds that "there's no minimum order amount at this time." Eventually, EquipMD wants you to commit to spend 50 to 80 percent of your supply budget with the company. How will the firm know? It compares your current expenditures on the site with past expenditures—either through EquipMD or with your traditional distributors (you're asked to submit copies of purchase orders). Alternatively, the firm will compare what you spend on its site with the latest Medical Group Management Association statistics on what full-time doctors in MGMA member multispecialty groups spend.

According to the MGMA, the average physician spent $74,383 in 1998 on medical and surgical supplies and equipment, information and accounting systems, computer equipment, office supplies and furnishings, liability and other insurance, and other items. Most of these items are or soon will be sold on EquipMD's site. Capsuto claims that doctors who meet the company's commitment can save an average of 30 percent off list prices—or more than $22,000 annually.

Some sites also offer the option to submit a "request for proposal": an invitation to suppliers or manufacturers to bid for your business. Responses generally come within a day or two. Neoforma.com, which formerly targeted hospitals and integrated delivery networks exclusively and is now marketing to physician practices as well, posts prices for about 75 percent of its products and asks you to submit RFPs for the rest. Medibuy.com used to offer no posted prices; to shop there, you had to submit an RFP for everything. But this spring, the company posted prices on its site as well, enabling you to order supplies directly.

Submitting an RFP adds an extra step to the ordering process and mainly benefits high-volume buyers like hospitals and large groups. But it can also present negotiating opportunities for smaller practices. If, for example, you order a lot of a high-margin item, like X-ray film, you may be able to negotiate a discount on other items, like bandages.

The negotiation doesn't involve the firm hosting the Web site; it's between you and a vendor. Whatever prices you agree to, the site host loads into its system. After that, when you log on to the site, you see only the prices you negotiated for the items you want.

Once you've placed your order, how does the equipment get to you? In one scenario, you could order everything you need from a single source, pay a single shipping charge, and have everything delivered at one time. It shouldn't be hard to find a supplier you're interested in buying from, since virtual medical marketplaces often represent an army of sellers. For instance, Medibuy.com boasts 2,100 suppliers; Allegiance Healthcare has contracts with more than 3,000. These include some of the biggest names in the business.

But because the Internet lets you comparison shop efficiently, you may find that you'll spend less if you don't buy everything from a single supplier. So suppose you want to order item A from distributor A and item B from distributor B. Will everything still be delivered at one time?

That depends on the Web site. Allegiance Healthcare, which sells its own products as well as those of other vendors, sends your order in a single shipment from one of its 75 distribution centers. With most Web sites, though, if you order products from 10 distributors, you'll receive 10 separate shipments. That's an inconvenience, although you pay only one shipping and handling charge that's itemized in a single purchase order issued by the Web site host. But expect Internet firms to consolidate shipments in upcoming months in order to remain competitive. This spring, you should be able to purchase products from any of Medibuy.com's distributors and receive everything in a single shipment, much like when you order books from Amazon.com.

How online shopping can simplify inventory management

The benefits of online shopping extend beyond lower prices and one-stop shopping. When you buy on the Web, it's much more convenient to keep track of what you order. Buy something on a given site, and the purchase order remains online, always accessible to you. When it's time to place the next order, instead of starting over, simply change the quantities of your previous order on an electronic form, add or delete items, mouse-click to submit, and you're done. Order confirmation, shipping status, delivery notice—it's all right there.

Ordering online this way is speedier than typing and sending faxes. It eliminates paper records that are a hassle to file and often a trial to locate months later. And it makes a practice's ordering patterns easy to discern.

Another convenience coming up soon: virtual shopping lists. The customizable lists will consist of bread-and-butter items, organized by need or specialty. FPs, internists, ob/gyns, pediatricians, cardiologists, surgeons, and other specialists will each have their own lists of supplies to speed the ordering process. Doctors will also be offered virtual shopping lists for different practice areas—one, say, for exam room items, another to quickly restock an office lab.

In a variation, Allegiance Healthcare has introduced a Web site on which physicians can order medical and laboratory supplies in predesigned kits—such as blood collection kits, rapid-test kits, and IV therapy kits, as well as injectables and vaccines. You negotiate your own prices through RFPs. While you may save money this way, large Internet trading hubs like Allegiance's tend to stress convenience and reduced record-keeping expenses rather than discounts. Notes Anthony K. Kesman, president of Allegiance's Care Continuum Products and Services: "Choosing a predesigned kit lets you readily identify costs and eliminates inventory management. You can also customize a kit any way you wish."

What else is in the offing? Plenty. As Internet companies amass data on physician buying patterns and become more adroit in managing that information, "we'll be able to e-mail a doctor, saying, 'On the 25th of each month, you routinely order 10 dozen bandages. It's now the 23rd. Your purchase order is waiting for you,' " says Allen Capsuto of EquipMD.

"We'll eventually be able to track every transaction that occurs on our site during the previous 1,000 days—which will ultimately total 54 quadrillion pieces of data," Capsuto adds. "That will enable us to tell a physician in southern Florida who just ordered 50 dozen bandages on April 16, 'Doctor, you forgot that the snowbirds are now migrating north for the summer. You really need only 10 dozen bandages at this time of year.' "

Some Internet firms also plan to vastly expand the scope of one-stop shopping for physicians in the near future. For example, Lynn Detlor, the CEO of MedicalSuppliesUSA's parent company, envisions his firm selling not just medical and surgical supplies and capital equipment, but also prescription medications; office billing and practice management software; liability, fire, auto, home, and life insurance; discounted air travel, hotel rooms, and rental cars; and even preferred-rate financing. "All of these services should be available online by this summer," he maintains.

Whether the new wave of Internet companies—and they're popping up like mushrooms after a rain shower—can deliver their sweeping visions on schedule, or even survive in an increasingly crowded marketplace, remains to be seen. But EquipMD's Capsuto, whose firm will become a division of Neoforma.com this month, is bullish about the future.

"Suppose EquipMD has only 10 percent of physicians as customers," Capsuto says. "And assume that only 20 percent of what those doctors spend annually on medical supplies and other office items goes through our site. That still comes to $900 million a year. And that's just domestically. The international market is probably twice as large. So there's plenty of room for competition and growth."

Next month: Online pharmacies.

Where to purchase medical supplies online

Web sites selling medical supplies and other practice items are proliferating like rabbits. But they're not all seeking the same customers or offering the same types of deals.

The largest players—among them Allegiance Healthcare, empactHealth.com, Medibuy.com, and Neoforma.com—have primarily catered to hospitals in the past, but that's rapidly changing. Independent practices are definitely on most of their radar screens. These firms tend to tout their money- and time-saving administrative efficiencies, rather than their discounts on medical supplies. What you pay is based on what you independently negotiate with a given site or supplier, and that will largely depend on the volume of items you order. Reduced record-keeping costs are probably more meaningful to large groups than to small ones.

For instance, Thomas A. Ranseen, vice president of corporate marketing for empactHealth.com, sees his company's major benefit as slashing the cost of ordering and record-keeping through automation, which plagues large bureaucracies. "Right now, a purchase order costs $100 to $150 to process, both for a supplier and for a large health care entity," he says. He figures that online automation can slash that cost to about $20.

Group purchasing organizations are creating Web sites, too, accessible only to fee-paying members, that put the GPO's catalog of products online. The selection and prices offered, however, are generally the same as before. Manufacturers and distributors like Allegiance are establishing an online presence, too, with the same primary benefit: to cut the administrative cost of materials purchasing through automation. One such manufacturer/distributor, Medline, with a catalog of more than 100,000 products, has had a Web site for three years.

But most new Internet firms—among them Esurg.com, Everything 4 MDs.com, medicalbuyer.com, MedicalSuppliesUSA.com, and Medsite—are specifically targeted to physician practices. These companies stress medical supply discounts.

In addition, content-oriented sites like MDchoice.com, which features Medline searches, medical photo libraries, interactive clinical procedure simulators, customized Web pages for physicians, and other goodies, will also sell discounted medical supplies to independent practices. Emergency physician Ash Nashed, CEO of MDchoice.com, says that by this spring, his site will offer some 20,000 discounted supplies at prices he claims will be the lowest available online.

At the same time, a growing number of large Internet trading hubs are aggressively acquiring smaller online competitors, as well as partnering with Internet content providers, to offer products, services, medical news, and clinical information on a single site.

Here's a sampling of medical supply sites worth checking out:

 

www.allegiancecorp.comwww.empacthealth.comwww.equipmd.comwww.esurg.comwww.everything4mds.comwww.mdchoice.com

www.medibuy.comwww.medicalbuyer.comwww.medicalsuppliesusa.comwww.medline.comwww.medsite.comwww.neoforma.com

 

Carol Pincus, ed. . Save thousands a year on medical supplies. Medical Economics 2000;9:55.