The Premier hospital alliance has inked a comprehensive set of agreements with McKesson Corp. for distribution of medical-surgical and pharmaceutical products to Premier's 1,800 hospitals, affiliated alternate sites and physician offices.
The wide-ranging distribution pact is a first for Premier, alliance executives said. For McKesson, Premier is another boost to the San Francisco-based company's one-stop-shopping strategy for both drug and medical-surgical products distribution. In May McKesson announced a similar deal with Columbia/HCA Healthcare Corp. (June 1, p. 18).
"We now have one source to meet the multiple needs of our physicians and hospitals across the entire spectrum of goods," said Robert O'Leary, chairman and chief executive officer of San Diego-based Premier. McKesson, he added, is "the only company we believe has the capacity to meet our needs."
Unlike Premier's mandatory product contracts, members will not be required to use McKesson as a distributor. Until now, Premier had no alliancewide corporate partnership for distribution.
This deal does build, however, on an existing medical-surgical products distribution agreement between Premier and McKesson, effective since August 1997. Currently, McKesson has revenues of about $850 million on distribution of drugs and medical-surgical products to Premier members. McKesson had no estimate of likely sales gains under the pact except to say that they are expected to outpace the rate of overall growth in the healthcare distribution business.
Premier executives said they believe the five-year contract with McKesson for acute-care hospitals, effective July 1, is attractive enough on both financial and service terms to garner high use among members. However, Premier could not provide estimates of the cost of the contract or expected savings to members.
Premier executives said they would select separate second-source distribution vendors for pharmaceutical and medical-surgical products. O'Leary said there is no timetable for that decision. He added, however, that McKesson will be the only distributor for both pharmaceutical and medical-surgical products.
As part of the pact with Premier, McKesson said it would acquire Hawk Medical Supply from Welsh, Carson, Anderson & Stowe, a New York investment firm, for about $155 million in stock. Premier is a minority owner in Pittsburgh-based Hawk, a specialty distributor. Hawk, which will be folded into McKesson's General Medical division, is the prime contractor in Premier's nonacute-care supply called Provider Select, launched last year. The Hawk acquisition is subject to antitrust review.
Limited so far to the Northeast and Midwest, Provider Select now will be rolled out nationally in months rather than years, thanks to McKesson's broad geographic reach, O'Leary said.
As part of the pact, McKesson's General Medical division inked a 20-year, exclusive agreement to supply medical-surgical and pharmaceutical products to physician practices and other nonacute-care sites within the Premier alliance under the Provider Select program. Premier estimates that these sites buy more than $1 billion in medical-surgical and pharmaceutical products each year.
Besides speeding up implementation of Provider Select, the McKesson purchase of Hawk will yield "significant proceeds" to Premier on the alliance's investment in the venture, the alliance said. But Premier's O'Leary declined to provide the figure. He and other executives said the profits would be used to improve the alliance's supply chain infrastructure. Beefing up information systems is a top priority, they said.
Under a separate plank in their agreement, Premier and McKesson agreed to harmonize their supply chain information systems and electronic commerce initiatives.
Premier also named McKesson its exclusive provider of pharmacy robot technology to alliance hospitals.
"It really helps endorse the robot as a quality solution to the challenges that pharmacists face today," said John Hammergren, group president of McKesson Health Systems Group.
Neither McKesson nor Premier, would specify the extent to which the honor carried beneficial financial considerations for Premier members.