MEDICAL SUPPLIES: Five Major Cos. Form Online Exchange
Five major health care companies announced yesterday they are banding together to form an online exchange that will "provide information about products and enable customers to place and track orders," as well as "cut hundreds of millions of dollars out of the costs that they and their customers incur while handling the drudge work of processing orders," the New York Times reports (Deutsch, 3/30). Johnson & Johnson, Baxter International Inc., Abbot Laboratories, Medtronic Inc., and GE Medical Systems, which together account for roughly 70% of all equipment, drugs and other supplies purchased by the nation's hospitals, estimate that "inefficiencies in every step in the supply chain -- from placing orders to tracking delivery" add about $11 billion in "unnecessary expenses" to the total purchasing costs. The online collaboration, they say, will help streamline the process. But the companies warn that the exchange "is not intended to be an auction site," where hospitals can negotiate prices. Cost decisions will have to be made beforehand in "standard fashion" (Winslow, Wall Street Journal, 3/30). Also, executives stress they are not uniting in an attempt to control prices, noting that all other medical suppliers have been invited to join the exchange and that the site will have firewalls to protect each company's transactions. The impact the exchange will have on prices "remains uncertain," however. J.P. Morgan medical products analyst Michael Weinstein said, "If this exchange can help the hospitals lower their transaction costs, it could alleviate the pricing pressures the suppliers are under." Small hospitals may especially benefit, as many still process orders by hand. "We're certainly not as automated as we could be, so putting all this stuff on the Web can be really useful," Lyn Moore, director of health information management for the Texas-based Covenant Health System, said. Officials say the exchange, which will be based in Chicago, should go online in the United States this summer and expand globally next year. The service will be free to customers, and the companies have no plans to take the venture public (New York Times, 3/30).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.