The Greater New York Hospital Association has awarded its first distribution contract ever, partly to bolster competition in the industry, executives told MODERN HEALTHCARE.
GNYHA Services, the association's purchasing arm, recently signed a three-year distribution contract with Caligor Hospital Supply of Pelham Manor, N.Y. Potentially, the contract is worth $40 million to $60 million a year.
Caligor is a regional medical-surgical supply distributor with $150 million in annual revenues. It serves about 50 hospitals in the greater New York area, as well as clinics and alternate-site facilities in five states.
The GNYHA contract could signal more intense competition between regional and national distributors.
Three national distributors control roughly 70% of the market for medical-surgical supply distribution to hospitals, according to Sanford C. Bernstein & Co., a New York-based investment house. Two other medical-surgical distributors also sometimes are described as "national," although they aren't as large.
About five regional distributors chalk up more than $100 million in annual sales, according to the Health Industry Distributors Association.
Many smaller companies have disappeared in mergers in the past several years as distributors tried to gain economies of scale.
Some hospitals now complain that national distributors have extended their resources too far. New York hospitals, meanwhile, are particularly angry with Baxter International, the national distributor with the largest presence there, because it is pressing them to pay bills sooner (Dec. 4, 1995, p. 2).
"The regionals that were strong enough to make investments (earlier) will be reaping the benefits now as the nationals find they can't live up to their promise," said Bruce Haber, Caligor's president.
The main reason GNYHA Services negotiated a distribution contract is to help members operate more efficiently, but the group also wanted to fuel competition in distribution, said Alfred LoBiondo, its vice president of group purchasing. GNYHA Services represents 96 hospitals and 78 nursing homes.
Caligor was attractive because of its strong regional position and also because, unlike Baxter, it doesn't manufacture products, LoBiondo said. "We want to separate the contracting for products from the contracting for distribution," he said.