Amazon has decided to scrap plans to sell pharmaceuticals to hospitals, and experts say that's at least, in part, because hospitals are very set in their ways when it comes to supply chain management.
Amazon was unable to get big hospitals on board with the plan, despite convening an advisory board for the project that includes hospital executives, CNBC reported.
"The hospital and healthcare systems have entangling alliances with their existing purchasing and supply chain partners," Tom Cassels, head of strategy and business development at Leidos Health, told the news outlet.
Optimizing and streamlining the supply chain has been a crucial cost-cutting step for many hospitals, particularly as medical supply costs are a key source of wasteful spending. The healthcare system wastes $765 billion each year, according to estimates.
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Just in the operating room alone, a recent study found that nearly $1,000 in supplies can go to waste for each procedure.
Hospitals with the most efficient supply chains spent $23 billion less than their peers, according to another study, saving 17.8% in costs. Research shows streamlined purchasing also improves care quality and patient safety.
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Another barrier that could hinder Amazon's entry into the hospital supply chain is that many providers have a stake in the group purchasing organizations (GPOs) that negotiate supply costs on their behalf, which boosts their leverage, according to CNBC.
GPOs also argue that they can drive innovation and diversity in the marketplace, while bringing costs down. Group purchasing can also make the markets more sustainable.
For now, Amazon is focusing on selling medical supplies to a "sweet spot" group of dentists, free-standing ambulatory surgery centers and smaller physician practices, according to the article.
Amazon announced that it would enter the healthcare sphere in partnership with JPMorgan Chase and Berkshire Hathaway earlier this year, and details have been scarce on what exactly these companies are planning for the healthcare venture.
The trio said the healthcare initiative would be technology-driven, and JPMorgan CEO Jamie Dimon told shareholders the venture is seeking to drive down costs, improve outcomes and focus on wellness for chronic diseases. Industry experts panned Dimon's comments.