E-Commerce Could Save Billions Across Healthcare Supply Chain

An Andersen study on the future value of e-commerce in the healthcare industry found that, in a fully mature environment, e-commerce could bring 2 to 10 percent total benefit, or up to $6 billion in value, to participants across the supply chain.

The study, conducted by Andersen’s pharmaceutical, biomedical and health services (PBH) supply chain practice, measured both the tangible and intangible values of e-commerce in the healthcare supply chain of the future. Among the areas studies were product procurement, order management, operational efficiency, invoice processing, systems integration and contract management. The potential 2 to 10 percent total benefit is reached by combining a potential 1 to 2 percent benefit for providers, and a 1 percent to 8 percent benefit for suppliers.

The biggest potential benefit of e-commerce for providers involves eliminating overpayments and reducing rework and manual processes. The benefit for suppliers lies in freeing sales representatives from administrative tasks, enabling them more time to sell, providing access to real-time sales information, allowing for better management of fill-rates and operational processes and reducing the level of effort for labor-intensive administrative processes including contracts, rebates and eligibility.

Other findings of the study include:

• In medical and surgical supplies, providers overpay suppliers from 2 percent to 7 percent based on the available contract price 
• Different facilities on the same health system pay a different price 40 percent of the time, while price differentials are, on average, in the 1 percent to 2 percent range 
• Of the eligible provider transactions that are or could be conducted through e-commerce, 31 percent are actually conducted through e-commerce 
• For manufacturers, sales representatives spend an estimated 25 percent to 49 percent of their time on administrative issues that detract from actual selling efforts. Only 14 percent of medical surgical distributors’ sales representative time is spent selling products or educating customers 
• Among hospitals, an estimated 40 percent of a purchaser’s time and 68 percent of an accounts payable worker’s time is spent on manual processing and re-work. And, 52 percent of all re-work could be eliminated through e-commerce 
• Real-time visibility of sales transactions would allow suppliers to better fill orders and manage operations.

“This study quantifies the future state of the healthcare industry through the use of e-commerce,” said Ramona Lacy, partner with Andersen’s PBH supply chain practice. “It will be a roadmap for all parties involved in the supply chain.”

The study combined an activity-based costing method and interview process to estimate future benefit potential. On-site analyses were conducted at multiple supply chain sites, including providers, direct and indirect manufacturers, distributors and pharmacy wholesalers. The study, which began in November 2000, was sponsored by Novation, LLC and Neoforma.com, Inc.