Buying medical supplies online: the next big thing?

Web sites promise big savings, but doctors may not abandon the 'feet on the street' supply chain

By Edward Martin

Maurice A. Mufson, ACP-ASIM Member, is comfortable with the idea of shopping on the Web. When he needs software for his handheld computer, for example, he goes directly to the Internet with credit card in hand. And when he wants a CD or a book, he doesn't hesitate to go online.

When it comes to ordering medical supplies for his practice in Huntington, W.Va., however, it's a different story. While Dr. Mufson is what many people would consider "wired," he still orders medical supplies such as gloves, dressings and scissors from traditional suppliers.

"This is a small town," said Dr. Mufson, chair of Marshall University's department of medicine, which includes an academic practice, University Physicians Internal Medicine. "Our doctors all have computers, but we know our local suppliers. They give us one-on-one service, and they're aware that we talk to other suppliers, so they usually come close to giving us our price."

That time-honored way of buying medical supplies is about to be put to the test. Heartened by the growth of retail sales on the Internet, online marketers are preparing to bombard physicians like Dr. Mufson with offers to get medical supplies online. Companies with names like Medicalbuyer, Medibuy and Neoforma are promising to save physicians 30% on supplies, which would equal savings of roughly $3,000 a year per doctor in a typical internal medicine practice. In addition, Web sites promise to give time-strapped physicians and their staff a more convenient way to shop, particularly for hard-to-find medical supplies.

Still, the fledgling industry for online medical supplies must overcome some obvious hurdles. For one, doctors' offices have been reluctant to get wired. Michael Bradley, chief operating officer of Medicalbuyer, said that his company's research shows that only about 22% of physician offices have Internet access, a number echoed by other recent surveys.

Analysts say that getting even technically savvy physicians to shop for medical supplies online may be challenging. Because many of these sites are not even a year old, some critics wonder whether they will be able to deliver on their promises.

A huge market

For now, however, the number of online medical suppliers is booming as companies race to grab a slice of a market worth $36 billion a year. (That figure includes sales through traditional suppliers and Web sites.) ECRI, a medical-technology research firm in Plymouth Meeting, Pa., estimates that 30 Web sites devoted to medical supplies are already in business, and that number grows every day.

Most target small physician practices. Because this market is so fragmented, the largest suppliers have typically chosen to focus on large purchasers like hospitals and giant group practices. Online suppliers are betting that the Internet can break down barriers that have kept large suppliers from working with smaller buyers.

Most online shopping services act as middlemen, taking orders and passing them on to a wide range of traditional suppliers and, in a few cases, manufacturers. "You're still buying from the supplier, and we never take title or possession of the product," explained William Elliott, president and chief executive of Embion Inc. in Minneapolis.

Mr. Bradley from Medicalbuyer added that most online suppliers act as "exchange hubs," putting large suppliers in touch with small practices. "We aggregate orders from all those three-member internal medicine practices that buy $60,000 a year in supplies," he said. "Suddenly, they look like an $8 billion market to the distributor."

Physicians pay no special fees to order online. Instead, suppliers pay an upfront fee to list their products on a Web site, then transaction fees every time the site relays them an order.

Some online suppliers, particularly those that focus on specialized segments of the physician market, stock and deliver products themselves. Promedix.com, a Salt Lake City-based company that sells high-end equipment, diagnostic devices and surgical instruments, acts as a distributor. "Unlike aggregators, we take ownership of the whole process," explained Brad Bond, vice president of marketing and one of the company's founders.

Physicians arrange to pay for the products, usually by credit card, and schedule shipping through Federal Express or UPS, or via a freight carrier for large equipment. Overnight delivery for smaller packages usually costs extra, while four- to two-day delivery is typically provided free of charge.

What's in it for doctors?

Probably the single biggest reason that physicians will consider shopping online is savings. Because physician practices tend to get medical supplies from multiple sources—one vendor estimated that many practices work with more than 20 different suppliers—purchasing all supplies from one Web site can drastically reduce administrative costs. Management experts estimate that physicians spend about $100 to write, process and fill an average purchase order for medical supplies. Streamlining ordering should produce considerable savings.

Physicians also stand to save from purchasing supplies online because suppliers need fewer sales people and local distributors. "Traditionally, doctors are part of a highly fragmented 'feet on the street' supply chain," said Jon Garmon, manager of the business technology group at Owens & Minor in Glen Allen, Va., one of the country's largest medical suppliers. "Joe Bag-of-Doughnuts would show up every Wednesday, chat with the office manager and find out what she needed. He might have the item in his van or order it overnight, but either way, it was an expensive way to do it."

But physicians may find even greater savings from the increased competition that the Web creates. Under the old model, it was hard for physicians to price-shop for supplies from different vendors. Now, with the prices and products of different vendors only a mouse click away, price may be king.

There is already evidence that the efficiencies of the Web are helping drive prices down. Robert Zollars, president and chief executive of Neoforma, said that when Owens & Minor put 1,600 products on his site in the fall, one of its competitors, Medline, dropped the price of its similar products. "Immediately, Owens & Minor matched Medline," he said. "Cost is getting wrung out of the system."

Online suppliers offer other unique features. At Neoforma.com, for example, you can order not only hydrocolloid wound dressing and exam gloves but everything you would need to set up an entire office from scratch. The site allows users to view more than 1,000 different model offices that come equipped with specialized examination tables, desks, otoscopes and sphygmomanometers, as well as consumables like table paper and gloves for specific procedures to be performed in each room.

Physicians can also put a request-for-proposal online and wait for distributors to respond. "You might say, 'I need 10 rolls of table paper, five cases of this and three cases of that within three months. Give me a quote,' " explained Mr. Bradley from Medicalbuyer. And, although they encourage bulk purchases, most sites have not set minimum orders.

Many online suppliers also offer an auction function, in which sellers—typically hospitals and large clinics—list used medical equipment. Some manufacturers also offer discontinued models. Such auction features, however, are controversial.

While reputable exchanges such as Medibuy refurbish and certify used equipment, others merely put it up for sale regardless of condition, cautioned Michael Bomstad, vice president and purchasing director of Child Health Corp. of America in Shawnee Mission, Kan., which manages 28 pediatric hospitals. Defective equipment can find its way back into use, particularly in poorer countries, he warned, and endanger patient welfare.

Slow start

Success so far has been limited. Dennis Murphy, chief executive of Medibuy, estimated that roughly 1% of all medical supply sales are being conducted online, an estimate he characterized as "aggressive." Industry analysts put the figure at closer to $300 million, which is slightly lower than Mr. Murphy's estimate.

Security is one concern that may have some physicians thinking twice about going online. While encrypted sites generally fare well in protecting credit-card transactions, establishing procedures for wholesale distribution of scheduled drugs and controlled items such as needles and syringes has slowed Internet medical sales. Doug Ey, JD, a technology attorney with the law firm of Smith, Helms, Mulliss & Moore in Charlotte, N.C., said that because Internet transactions move quickly and leave little or no paper trail, resolving disputes can be difficult. International dealings can also be risky because some nations have few laws governing Internet transactions.

Most physicians, however, have more basic concerns. Dr. Mufson cited a common worry: "With our local supplier, if there's a problem with a product, they'll go back and forth for us to get replacements."

Internet start-ups are working to address that type of concern with buyer-advocacy programs. Most have toll-free numbers that connect buyers to a live customer service representative. Some, such as Neoforma, get directly involved if a physician and distributor reach an impasse. Sites like Promedix, which act as a distributor, handle disputes about shipping, product quality or other matters directly.

Some cautiousness, however, may be well-founded. If the current bull market peters out and stock prices plummet, Internet start-ups may be hit hard. Online suppliers, particularly those not yet turning a profit, could find themselves without capital and have to close their doors. One analyst said that in such a shakeout, he would expect only about eight of these Web sites to be left standing.

But ultimately, physicians may resist online purchasing for more subtle reasons. "Feet in the street might not have been efficient, but it was personable," said Michael Victoroff, MD, medical informatics chair of the Colorado Medical Society in Englewood. "On the Internet, there's no, 'I'll be back to see you next month.' "

Even some online vendors agree. "There will always be a need for the local distributor who can take an order by 10 o'clock and deliver by 4," said Mr. Bradley. "Not every physician's office is going to order online."

Edward Martin is a freelance writer in Charlotte, N.C.

Seven web sites where you can order medical supplies

Here are some of the more prominent online suppliers of the 30 that are currently in business:

• Medline.com (Mudelein, Ill.) is the direct sales link of Medline Industries Inc., a large manufacturer and distributor of supplies and medical clothing. Its products are also sold on other sites, such as Neoforma.com.

• Medicalbuyer.com (Johnson City, Tenn.) claims it can save 15% to 50% on products for physicians, group practices and other institutions. Its site includes 25 physician-product categories from adhesives to scopes. You can search for specific products or type in the word "syringes," and you get 100 selections. The site also helps you track your order history.

• Medibuy.com (San Diego) markets medical and nonmedical supplies and devices to physicians and consumers. It features a catalog, auctions, specials and a request-for-proposal option.

• Embion.com (Minneapolis) was founded in 1998 and had its first sales in September 1999. The site focuses on nonhospital-based physician practices and markets pharmaceutical, medical supplies and capital equipment. It also provides online purchase orders, a request-for-proposal feature, automated repeat orders and purchasing histories.

• Neoforma.com (Santa Clara, Calif.) showcases supplies from a broad range of distributors. An auction feature permits providers to sell new and used equipment. The site also features equipment and supplies for specific practice rooms. (The section on noninvasive cardiology, for example, provides photos of rooms from Chicago's Center for Advanced Medicine as a guide.)

• Medsite.com (New York) began as a medical bookseller and a source for continuing medical education support items. It now includes equipment and professional wear.

• Promedix.com (Salt Lake City) originally dates back to 1996 but acquired its new name in 1999. The site specializes in middle- to high-technology devices like surgical instruments.

• Jul/Aug 2010
• Jun 2010
• May 2010
• Apr 2010
• Mar 2010

ACP Career Connection

Looking for a new internal medicine or subspecialty position?

ACP Career Connection can help you find your next job in internal medicine. Search internist and subspecialist positions nationwide that suit your criteria and preferences. Jobs are posted about two weeks before print publication of Annals of Internal Medicine, ACP Internist, and ACP Hospitalist. Exclusive “Online Direct” opportunities are updated weekly. Check us out online.

Attend your fall chapter meeting, earn CME credit, and find out what your local ACP Chapter has to offer! See the Chapter calendar or find out more, including the answers to frequently asked questions about ACP Chapters and regions.

This new online game is based on the popular ACP Doctor's Dilemma™ Competition from ACP’s annual Internal Medicine meetings. The game is simple to play but challenging to master. Start now!