Medical, Dental and Hospital Equipment and Supplies

The establishments in the medical, dental, and hospital equipment and supplies industry were subdivided into three categories: wholesalers engaged primarily in the distribution of surgical, medical, and hospital equipment and supplies; wholesalers engaged primarily in the distribution of dental equipment and supplies; and retailers of all other health and personal care products. According to 2009 statistics from the U.S. Census Bureau, there were a total of 8,478 establishments operating as medical, dental and hospital equipment and supply wholesalers in 2007 with 181,685 employees earning an annual payroll of nearly $14.4 billion. Additionally, there were 19,518 other health and personal care stores, which employed 97,314 people, who earned nearly $2.84 billion while generating approximately $13.9 billion. A majority of companies in these businesses were small as about 72 percent employed fewer than 20 workers.

During the early 1990s, rising health care costs led many hospitals to form alliances and make group purchasing decisions. Critics of the policy claimed that the situation created an adversarial relationship between the medical community and its suppliers because the purchasing groups left distributors with unprofitable margins. In addition to concern over cost containment, the medical community faced increasing pressure to reduce its impact on the environment. Costs related to the disposal of medical waste, including toxic and hazardous materials, were mounting. Medical administrators called upon manufacturers and distributors to help provide products able to serve patients' needs and also reduce waste.

As the 1990s continued, suppliers engaged in cutthroat competition and managed care placed additional pressure on the industry. Hospitals began to complain about declining standards of service, even from the major national suppliers. As a result, suppliers found themselves competing to provide improved service at lowered prices. "Activity-based costing," in which prices are based on actual costs rather than a negotiated price plus a set shipping cost, became popular. Some hospitals turned to regional distributors and even took back some functions formerly performed for them by distributors.

Not surprisingly, many smaller companies folded or were acquired by larger companies. For instance, in 1994, Owens & Minor Inc. acquired distributor Stuart Medical. Even the largest companies suffered a decline in profits. The average pretax profit margin for hospital distributors fell to 1.8 percent in 1994. In the latter part of the 1990s and early 2000s, the remaining national medical-surgical distribution companies were struggling to maintain their standing, with regional distributors and drug distributors providing additional competition.

According to the U.S. Census Bureau's 2007 Economic Census, the combined industries posted sales of nearly $148.5 billion. When ranked by sales, the top segment in the industry was surgical, medical and hospital equipment and supplies ($127.6 billion), which was followed by orthopedic and prosthetic appliances and supplies ($28.1 billion) and dental equipment and supplies ($8.9 billion).

The industry leader was Dublin, Ohio-based Cardinal Distribution L.P., a subsidiary of Cardinal Health, which dominated the list with nearly $100 billion in 2008 sales and about 29,600 employees. Coming in second was Fisher Scientific International Inc. of Hampton, New Hampshire, with $5.6 billion in 2005 sales and 19,500 employees. Rounding out the top three was FUJIFILM Medical Systems USA Inc. of Stamford, Connecticut, with about $5 billion in 2005 sales of X-ray equipment and supplies. Other industry leaders included (in order of 2005 sales): Owens & Minor Inc. of Mechanicsville, Virginia; Henry Schein Inc. of Melville, New York; and Allegiance Healthcare Corp. of Park City, Illinois.

The U.S. Department of Labor's Bureau of Labor Statistics reported that employment gains for the overall industry would continue to improve. For the professional and commercial equipment and supplies merchant wholesalers (the main category for the medical, dental, and hospital equipment and supplies wholesalers industry), employment rose about 8 percent between 1994 and 2004 with an expected increase between 2004 and 2014 of nearly 14 percent. Meanwhile, the pharmacies and drug stores category (the main category for the all other health and personal care stores industry) also saw a jump in employment between 1994 and 2004 of 13 percent with a projected increase of nearly 12 percent from 2004 to 2014.

One tool available to help medical supplies distributors locate specialized products is a CD-ROM database provided by MDI (Medical Data Institute) called EPIC Plus. The EPIC Plus system provides suppliers with an up-to-date database of more than 1,000,000 products produced by more than 2,500 manufacturers and wholesalers. The system was used by the Health Industry Distributors Association (HIDA), a group designed for medical products distributors, and recommended by the Independent Medical Distributors Association (IMDA), an organization formed to facilitate the exchange of ideas among medical suppliers and to meet the needs of firms involved in the distribution of specialized medical products.