Henry Schein and Cardinal

Agreement reflects unique supply chain needs of non-acute vs. acute-care providers

The recent acquisition by Henry Schein, Inc. of Cardinal Health’s physician office business demonstrates that the needs of the physician office differ from those of the acute-care hospital, and that healthcare leaders recognize as much, according to those involved.

The two companies announced in late November that the physician-office-focused business of Cardinal Health’s Medical segment would be consolidated into Henry Schein’s Medical Group.

As a result of the agreement, Henry Schein Medical gains service to more than 25,000 physician office customer locations, adds $300 million in annual sales, and brings on approximately 200 sales professionals.

“We have been servicing almost 25,000 physician offices and strengthening our presence for a long time,” said Steve Inacker, president, Hospital Sales and Services, Cardinal Health. “But serving the physician office requires a unique platform and service capability, some of which we had and some of which we recognized we had to build.

“We had the ability to service the physician office space, but clearly, our strength was in what we would call large-pallet distribution and ValueLink®, our low-unit-of-measure offering,” continued Inacker. “The physician office fell somewhere in between those. We had some capabilities, but we recognized that [to continue to fully serve] the office-based practitioner, we needed to build more. Our alliance with Henry Schein has allowed us to build those capabilities. We can grow them with the alliance much more quickly, and we can deploy capital more efficiently. We didn’t have to invest in infrastructure to do that.

“Henry Schein’s outstanding service capability offered a more comprehensive and efficient solution for our [IDN] customers than either company could offer individually,” continued Inacker. “We will offer a wider breadth of product and world class service and value. In this case, one plus one equals three.”

“Our whole focus has been the non-acute-care space,” said Henry Schein Medical President Dave McKinley. The company’s programs, sales tools, order entry systems, and infrastructure are designed specifically for the non-acute-care space, he added.

“It was a matter of looking in the mirror and asking, ‘What are we good at, and how can we best support our customers going forward?’ We know that the continuity across points of care is important. This is a good way to address it.”

Focus on the IDN customer
“The whole intent is to better serve the customer,” said McKinley. “Cardinal Health and Henry Schein will seamlessly collaborate to serve IDNs. And that’s our intent – to provide a greater level of service across points of care.”

Henry Schein and Cardinal Health will each fulfill their areas of expertise when it comes to working with IDNs, added Inacker. “Henry Schein will be responsible for servicing the physician office environment, and Cardinal Health will be responsible for the non-physician-office-based component. We see it as very symbiotic. The materials executives we have spoken to are very positive about it.”

“We are following our customer,” McKinley said. “Our customer is consolidated. With the Affordable Care Act, they are looking at how they can coordinate care. Based on their needs, we had to ask ourselves, ‘How do we reflect the trends in the marketplace, and how do we change and achieve this collaboration?’”

Henry Schein and Cardinal Health will service IDNs seeking one contract for both acute-care and non-acute-care services, if they desire, he added. “It’s whatever the customer wants; it’s not what Henry Schein or Cardinal Health wants. We will offer seamless collaboration when it comes to supporting acute-care settings and non-acute-care offices, so supply chain executives can meet their objectives. By working together, we achieve a three-way partnership, if you will.”

Adds Inacker, “We think we can create a lot more value between Henry Schein and Cardinal Health than they could achieve with any other relationship. The key to this is being able to offer a defined portfolio of products across the entire continuum of care. Nobody else has the breadth that Henry Schein and Cardinal Health have together.”

Unique needs of the non-acute-care market
The agreement between Henry Schein and Cardinal Health reflects a changing market and changing attitudes on the part of IDN supply chain executives, according to both companies.

Not too many years ago, many IDNs were acute-care-focused organizations, said McKinley. They owned some clinics, but not as many physician offices as they do today. “When you mentioned Henry Schein to [materials managers] 10 or 15 years ago, they probably didn’t know us,” he said. “Today, we have changed our focus; we have followed the customer; and our brand has increased substantially among supply chain leaders across the country. I think it’s recognition of a changing market and environment.”

The agreement also signals that the supply chain needs of the physician office and that of the acute-care hospital are clearly different. That includes sales representation.

“The physician office space requires unique tools and a service platform to best serve their needs, whether they are IDN-owned or independent,” said Inacker. “Our customers are looking for partners who can bring a more efficient and cost-effective supply chain across the entire continuum of care. A key part of this solution are the physician office reps. They are critical in working with the customer to service the unique needs of that marketplace, whether it’s basic account management, driving cost-savings opportunities, data analysis, training and education, or product formulary development. Reps are truly the partners who can help physician office customers run their businesses better. They are the glue in this strategic alliance.”

As the Henry Schein team traveled throughout the country in December to speak with Cardinal Health physician office sales reps and acquaint them with Henry Schein’s capabilities, “they were pleased and excited to be joining us,” said McKinley. “We have about 900 sales reps and managers – a specialized sales force – out there. And we will support them with about 300 [inside] people.”

Cardinal Health’s physician reps should be fully integrated into the Henry Schein organization by the end of the first quarter of 2015, he said.

Similar cultures
“The cultures of our two organizations are very similar,” said Inacker. “We have similar values and morals, and the way we approach the marketplace is similar.” This creates fertile ground for a successful integration of teams and ultimately, an optimal customer experience, he said.

Cardinal Health’s physician-office customers will note changes in some of the systems they use to access their distributor’s product catalog, order products, receive invoices and submit payment. Henry Schein will serve its new physician-office customers from its five major distribution centers around the country. According to McKinley, customers will benefit from best-in-class service as a result of Henry Schein’s non-acute-centric distribution centers: Orders are shipped complete and fulfilled the same day from their primary distribution center.

Sean Postol, who has been leading Cardinal Health’s physician-office business, will remain with Cardinal Health after the transition. Postol is national vice president, sales and segment sales support.

“Our focus remains to drive the most efficient and cost-effective supply chain for our customers,” said Postol. “We believe this alliance will only strengthen our ability to do that. We have worked closely with the Henry Schein team to bring this to fruition.”

“We are excited about the level of talent that the agreement brings together,” added Postol. “The sales reps are ready to capitalize on this. They are excited about the opportunities they can bring to their customers. And as they move to Henry Schein, they join a class organization that does an incredibly good job of servicing office-based practitioners. The unique tools sets will be at their fingertips.”

Added Inacker, “They feel they will get the support and the programs they have always needed to really show what they can do in the marketplace.”

Manufacturers will continue to be “an important part of the value we deliver to the marketplace,” said Inacker. “Cardinal Health and Henry Schein have committed to a seamless and smooth transition for suppliers. The Cardinal Health team will continue to collaborate with our manufacturer partners, and an integration team from both companies will continue to work on a transition plan.”

Said McKinley, “Henry Schein is getting larger. This should be good news to manufacturers, as we have more capabilities.”

As part of the agreement, Henry Schein has committed to purchase Cardinal Health™ Brand products and use Cardinal Health as a primary source for various medical products. Henry Schein was selling Cardinal Health brand products prior to the new agreement, but “certainly this adds to a preferred brand of products now for us,” said McKinley. “We have more access to a greater number of SKUs than before.”

Said Inacker, “It’s not a different model for us in that we already sell our products through other distributors. We believe a lot more value will be created, and [the result] will be a less cumbersome environment for our customers.”

“This agreement is the first of its kind in the space,” said McKinley. “Healthcare today is all about collaboration, and Cardinal Health and Henry Schein have taken a huge leap forward in putting the customer first to deliver optimal service across the continuum.”

“I think the overarching message is the opportunity for [Henry Schein and Cardinal Health] to accelerate our offerings on a combined basis and bring about a more efficient supply chain that will meet the needs of our customers,” said Postol.

Said Inacker, “The short answer to why we’re doing this is, we’re better able to serve our customers, drive efficiencies, and drive value.”

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