Q&A with Amazon's Chris Holt on testing a consumer-first model in healthcare

Saturday, July 21, 2018

Source: Modern Healthcare

Amazon has been tiptoeing around the healthcare industry for years, but the e-commerce giant made a splash this year when it announced plans to form a healthcare company with JPMorgan Chase and Berkshire Hathaway for their 1 million-plus employees. Amazon also said it will buy PillPak, which organizes and delivers pharmaceuticals to consumers.

Long before these announcements, Amazon was slowly growing the portfolio of medical supplies offered through its Amazon Business platform, which eclipsed more than 85,000 sellers and 1 million customers last year. More providers are sourcing commodities like syringes, IV bags and forceps from Amazon. 

Business leaders in all sectors have wondered whether the company would test its logistical prowess in their industries. A $3.4 trillion healthcare industry nearly the size of the German economy makes for an attractive target. Still, analysts and incumbents question how much of a dent Amazon could make in healthcare, given its regulatory, technical and other complexities. Others hope the disruptor leads the way to a more affordable and efficient industry. Modern Healthcare hospital operations reporter Alex Kacik talked with Chris Holt, the company's leader of global healthcare, to understand its endeavors in the medical supply space and beyond. The following is an edited transcript.

MH: What type of healthcare consumer is Amazon attracting?

Holt: We have a somewhat counterintuitive corporate strategy, which is to be all things to all people. We're serving sole-practitioner businesses, and we're serving the largest hospital systems as customers with thousands of users on our site. On the supplier side, we're serving the largest suppliers in most well-known brands all the way down to the mom-and-pop brands.

Instead of trying to focus on one particular area or another, we focus on making the tools super easy and intuitive and making sure the supply chain underneath is super efficient. Our philosophy is, put the tools out there, let the customers and suppliers find their way, and then learn quickly what they're doing and build toward that. 

MH: What obstacles have you encountered navigating the healthcare space?

Holt: When we think about the healthcare space, our overall philosophy of obsessing around the customer has served us really well. So we start with the customer and we work backwards. We say, what kind of experience is this customer having right now? Can we imagine an experience that's better? Where that leads you is a very different framing from the traditional industry framing that might say, this is how you do medical purchasing or office purchasing, or this is how the supply chain works. 

There's all kinds of complexity, but there's also all kinds of space that we serve really well today. We think of our customers as customers, but we also think of our suppliers as customers. This is really important. I think one very important mental construct for your readers is that we're a marketplace. A marketplace is somewhere buyers and sellers come together in an ideally more efficient way. When you think of that as our true business model and value-add, it helps you see how suppliers and customers are both customers for us and how there's a real story for this in suppliers.

Suppliers can now look at our marketplace and say, “I'm going to offer my products in this marketplace and then just see what kinds of customer uptake I get.” What they're finding is that it's dramatically different from the type of buying behavior that their customers exhibit in their traditional channels. So it's been a great learning experience for suppliers to figure out how they reach these underserved customers, or how their pricing strategy can be changed in this e-commerce construct.

MH: Where are you making the most inroads when competing with healthcare vendors? 

Holt: One of the biggest areas has been what we call tail spend. Let me define that. If you look at a customer's purchasing, typically you'll see that 80% of their spend is with 20% of their suppliers and 20% of their spend is with 80% of their suppliers. That 20%, we call that tail spend. What's interesting about that is almost universally across customers that we talk to, it's poorly managed. 

The reason for that is A, it's the last 20% of the spend so it's the last thing the purchasing department gets to. B, it involves thousands of suppliers, so it's very hard to get your arms around all of those suppliers and manage them in a clean way. C, it's not really worth the time to go negotiate contracts, or pricing, or terms and conditions with those suppliers because you don't buy enough from them to have any purchasing power, and whatever value you get from the negotiations is offset by the time and cost it takes you to go have those negotiations. It's even expensive to cut purchase orders to all the suppliers because just setting them up in your systems can be very expensive. 

When you add all that up, we found tremendous success in the tail spend space. You start there and all of a sudden, your users are able to go find a huge selection with great convenience and many of our customers are just letting the end user go buy those products in our marketplace because they're calculating that the cost of controlling the purchasing and typically managing the purchasing of those users is a big waste of the user's time.

From there, customers will tend to move into areas that you would think of as being very high volume, on Amazon anyway, items like office products, IT products, maintenance products, things like that, and increasingly medical products. 

MH: What opportunities does Amazon have to participate in the current disruption of the healthcare industry? 

Holt: We aren't trying to fit into any traditional definition of how things work in healthcare. We're trying to bring our own capabilities to the market. We've seen a tremendous willingness among our customer base to try out new things even though they know that it might not be something that they're used to. That's been very encouraging for us. 

MH: Does Amazon provide technology that fits in with the workflow of healthcare organizations?

Holt: Three years ago when we launched, you had to use a credit card. We couldn't do invoicing, we weren't integrated with anybody's systems. You fast-forward to today, our customers are paying by invoice. They were integrated into most of the major healthcare IT platforms. We work with some of the traditional players in the space for transmission of data back and forth. We have built analytics capabilities that are interfaced back into what the customer is using. 

We've also been trying to take things that were offline processes and bring them online. So a hospital system can say, “Hey, these 100 suppliers, I'm badging them as diversity suppliers or suppliers that are qualified for my organization.”

When the user goes and searches for products in those areas, that badging raises those products to the top of the search results and provides visibility to that end user that say “Hey, this is something that our hospital system is really focused on purchasing. I'll buy that one.”

MH: Data-sharing has been a big problem for healthcare. What have you encountered?

Holt: The typical hospital system is using a manually curated item master to keep track of everything that they can buy. Basically, they can only buy something that's on their item master. How do they populate that item master in advance so they can then go buy something? We've taken that universal marketplace of Amazon offerings and created the ability for the customer to shop unfettered by the item master and find what it is that they need and then drop those orders into their traditional technology where the invoice might get processed or the general ledger might get updated. They're no longer constrained by the item master. 

There are a number of other issues with data-sharing across the healthcare supply chain that nobody benefits from because they create inefficiency for manufacturers, distributors, PPOs, marketplaces and customers. So everybody would benefit from greater adoption of those standards. 

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 bring that to healthcare and help healthcare migrate to simpler solutions. This is not a unique healthcare problem. 

MH: Baylor Scott & White is setting up a distribution center for its hospitals. They said they'd be willing to partner with you. Are you open to that?

Holt: Yes. We work with customers large and small. If you have a self-distribution warehouse, many customers are going to use us to bring deliveries in and bypass that warehouse where you don't really want to touch that product because it's going to a smaller delivery location. Those self-distribution warehouses are more set up to feed the larger care facilities. 

If you don't have a self-distribution warehouse, you might figure out different ways to use us. We're making the tools available to everybody, and then we learn from how our customers adopt it.

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