The looming possibility of Amazon’s entry into the U.S. healthcare industry

 (Photo: Pexels)

(Photo: Pexels)

The healthcare industry’s supply chain is a network that has stood the test of time, unflinching in its stance towards not subscribing to the finesse that technology and modern logistics techniques bring to the table. The caution is understandable, as the medical supply chain is something like running pell-mell over a minefield - one slip up and the whole system comes to a screeching halt.

Hospitals and pharmacies need to tread carefully and understand the implications of a supply chain ending in chaos, as they cannot afford to be out of stock on essential drugs at any point in time. This is reason enough for medical institutions to stick to traditional contract negotiations with drug suppliers and manufacturers, as distributors are vital in running a frictionless supply chain.

On the other end of the spectrum is the Amazon juggernaut, continually pressing the gas on logistics innovation while looking to tighten supply chains by training personnel, intuitive approach to last-mile delivery, and ushering technology to the warehousing floor. Over the years, Amazon has been the death knell to a lot of distinguished market chains, with Toys R Us being one of the latest victims of the marauding efficiency of the logistics giant.

But strangely enough, a significant portion of the stakeholders in the healthcare landscape find a possible advent of Amazon into the medical supply chain to be a favorable alternative to the existing practices. In a survey conducted by Reaction Data, 62% of healthcare officials believe that Amazon making headway into the industry is a good thing for its supply chain.

Amazon Business, a segment of Amazon that sells items in bulk to its business clientele has been catering medical supplies to hospitals and smaller clinics. Though there are rumors about the company venturing into selling drugs directly to the hospitals, Amazon is hesitant to take a step towards it, as it sees challenges that might overwhelm even its logistics might.

Unlike other business segments, it would be difficult for Amazon to get a critical mass of medical business partners as the healthcare system thrives on traditional purchasing processes and dependable middlemen, and would be hesitant to trust a company with no experience in handling sophisticated supply chain. Healthcare products require a supply chain network that understands temperature sensitivity, delicateness in handling, and the need for attention to intricate details - wherein a little swerve from the usual could cause irrevocable damage on the products.

Nonetheless, Amazon has been proactive in the healthcare sector while partnering with J.P. Morgan Chase and Berkshire Hathaway in forming a company that would provide their employees with high-quality and transparent healthcare facilities at a reasonable cost. The healthcare system in the U.S. is amongst the most expensive in the world. Hospitals spend $3.8 million on average in procuring medical supplies, according to a study done by Medical Care Research in 2013. An Amazon venture like the above, could help alleviate the expenses and reduce the collective healthcare burden the country faces.

Discounting Amazon completely from the healthcare logistics race would not be prudent, as the company already has experience - albeit limited - in running cold supply chains with groceries and perishable food deliveries through Amazon Fresh. The company can afford to take it slow, as a race towards market dominion in the healthcare supply chain is non-existent at the moment.

But more than the infrastructural complexities, the red tape that surrounds the healthcare segment might prove to be a bigger challenge. There are three classes of medical devices, of which Amazon already sells Class I products like glucometers, gloves, and stethoscopes, but has not yet tried wading through the regulatory procedures needed to sell high-risk Class III devices like a pacemaker, which would be implanted into the human body.

Amazon has been convening advisory boards across the industry, looking to find a foothold which has remained elusive to date. Then again, just the looming threat of Amazon had previously sent the stocks of pharma distribution companies on a cascade, though it remains to be seen if Amazon can follow up on its promise and revolutionize the healthcare supply chain.

Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.