In a move as dramatic as it was unexpected, Columbia/HCA Healthcare Corp. is throwing all its drug and medical-surgical distribution business to McKesson Corp. under an exclusive five-year deal worth $5 billion.
Announced late last week, Columbia's decision resoundingly ratifies McKesson's strategy to build a one-stop shop for distribution services to hospitals. Historically only a drug distributor, San Francisco-based McKesson expanded into medical-surgical services through the acquisition of privately held General Medical for $775 million in February 1997.
Under the comprehensive distribution deal, McKesson also will exclusively supply pharmacy automation technology to Columbia and will help redesign its entire supply chain.
The complex pact will be rolled out in stages, with the shift in medical-surgical distribution occurring first. The exact date for the transition was not available at deadline. McKesson will become Columbia's exclusive drug distributor on Jan. 1, 2000.
The first public casualty of Columbia's pact with McKesson was Richmond, Va.-based Owens & Minor, which was Columbia's prime medical-surgical distributor.
Columbia canceled its contract with Owens & Minor without prior notice, which shocked its management.
"This came as a complete surprise to the company, and we're meeting with Columbia as we speak," said Ann Greer Rector, chief financial officer at Owens & Minor. "We're very, very disappointed."
She said Columbia's decision will have a "significant impact" and that "we will work aggressively to replace this business or reduce our costs accordingly."
The lost contract will knock off $360 million in annual sales for Owens & Minor, with the bulk of the damage coming in 1999. Rector declined to disclose the precise impact on company profitability but said it would be less than the 11% loss in revenues.