More Consolidation in Physician Office Distribution

At press time, distributors McKesson Medical-Surgical and PSS were working out the details of their merger – actually, the acquisition of PSS by McKesson.

The pending transaction came as a surprise to me, though probably not to people much smarter than I. Yes, there had been indications that PSS was facing financial challenges. For example, the company was looking to sell its Gulf South long-term-care division at the time of its announced sale to McKesson. But, given what’s been going on in the market – that is, the acquisition of physician practices by hospitals and IDNs – I would have thought one of the big hospital distributors would have been interested in acquiring PSS. Perhaps they were, and McKesson beat them to it.

The disappearance of PSS from the market is a huge event for manufacturers and those in the distribution community. The company was founded by Pat Kelly in 1983 with a unique concept – 24-hour delivery. Kelly hired young, bright people to serve as sales reps – primarily because he didn’t have the money to hire experienced reps. But he believed in the power of education. He made sure his reps were trained on products and processes. They made significant inroads into the physician equipment market.

So, just as Journal of Healthcare Contracting readers have gotten used to consolidation in hospital distribution, now you must face it on the physician side. (That said, consolidation of physician-office distributors is nothing new. In fact, PSS itself grew largely by acquiring independent physician distributors in the 1990s and 2000s. That was Kelly’s dream – to create a national company.) What now?
Well, insofar as nationals go, McKesson Medical-Surgical, Henry Schein Medical and Cardinal Health remain standing. So do a sizable group of independent companies, many of them members of one of two co-ops or buying groups: National Distribution & Contracting Inc., and IMCO.

As your IDNs acquire physician practices, you face some difficult choices. Will you insist that one distributor service both your acute-care and non-acute-care sites, or will you work with one acute-care distributor and one non-acute-care distributor? Or perhaps you’ll arrive at another solution, such as self-distribution.

For this month’s issue, we asked several non-acute-care distributors (including Cardinal Health, which services both acute- and non-acute-care customers) this question: “What do you think materials managers need to know about what you do?” You can read what they had to say in the article. But to summarize, they maintain that serving physicians’ offices is a much more expensive proposition than serving hospitals – more sites, more service, more hand-holding. But they also believe they can help supply chain executives educate their newly acquired physician practices on supply chain concepts, such as standardization. Will you buy it? I’m curious to find out. So are your distributor partners.

Mark Thill About Mark Thill

Mark Thill is the Editor of The Journal of Healthcare Contracting and has been reporting on healthcare supply chain issues since 1985. He is a graduate of Dominican University in River Forest, Ill., and he received a master's degree in journalism from Northwestern University in Evanston, Ill.

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