From basic supplies to sophisticated equipment, PSS World Medical keeps doctors offices and nursing homes stocked. The company distributes medical supplies, equipment, and pharmaceuticals to doctors' offices, long-term care facilities, and home health care providers nationwide through a network of about 50 distribution centers. The company operates in two business segments: Its Physician Business distributes products to primary care and specialist doctors, while its Extended Care business, operating through its Gulf South Medical Supply subsidiary, sells medical supplies to nursing home, assisted living, home health care, and hospice providers. PSS has agreed to be acquired by drug distribution giant McKesson.
In October 2012 McKesson agreed to purchase PSS in a $2.1 billion transaction. The deal includes a $1.6 billion cash-for-stock exchange and nearly $500 million in debt assumption. Through the deal, McKesson will expand its medical distribution operations in its core US market, especially in the private-label and diagnostic supply markets. As part of the larger McKesson organization, PSS will benefit from McKesson's broad warehouse, delivery, and purchasing resources.
More than 1,000 sales representatives sell PSS products and services. The company also has a shared services division which delivers standardized services through departments that support its physician and extended care operating segments. The services it provides range from inventory sourcing and purchasing, shared operations and supplier management, and information technology development and support to administrative, accounting and finance, human resources, and legal and regulatory compliance services.
In 2012 the company announced it would restructure its operations to serve customers across four areas: physicians' offices, laboratories, in-office dispensaries, and home care and hospice facilities. As a result, the company announced plans to divest its nursing home and dental care customer segments. Later that year the company announced an agreement to sell its specialty dental business to investment firm Beecken Petty O'Keefe for some $68 million. Meanwhile, the firm intends to acquire smaller distribution firms that will expand its sales to its core customers.
PSS World Medical has supplier agreements with more than 70 manufacturers in multiple countries (primarily in Asia and Europe), and it distributes both branded and private-label products made by those suppliers to customers throughout the US. The company's physician business segment is its largest unit and generates more than 70% of sales. It offers more than 164,000 different products, most of which are disposable medical supplies (including gloves, bandages, syringes, applicators, and diagnostic test kits), as well as surgical and lab equipment and pharmaceuticals.
To better align with its customer base, the company rebranded its elder care business as its "Extended Care Business" during fiscal 2012. The extended care business (28% of sales)sells more than 46,000 different long-term care items, including medical supplies, personal care items, enteral feeding systems, point-of-care testing devices, advanced wound care items, and home medical equipment. These supplies include branded products from various manufacturers as well as the company's private label Select Medical Products. The extended care business also provides consulting services through its noncontrolling interest in Pathway Health Services and Medicare Part B and Medicaid billing services to nursing homes and assisted living facilities through its extended care unit's ProClaim subsidiary.
The company's multi-faceted strategy for growth includes expanding in key areas of product offerings (including health care IT offerings), sales and support, e-commerce initiatives and development, and vendor incentive programs. The company also seeks to develop marketing and distribution programs, increase productivity of its salesforce, and make strategic acquisitions, as well as improve efficiencies in its sourcing, supply chain, and distribution channels by leveraging its infrastructure and information systems.
Expanding its Select Medical Products unit is part of the company's growth strategy, and key to this plan is securing contracts with less-expensive non-US manufacturers (particularly those based in Asia) and packaging them for sale in the US. Select Medical Products' offerings are distributed through both the physician and extended care divisions.
PSS World Medical also places an emphasis on strengthening its IT services, which help health care providers conduct their operations more efficiently. The company distributes information technology solutions for health care providers through its physician business segment, where electronic orders make up about 75% of the division's customer orders. Internally, PSS World Medical has been upgrading its technology systems by streamlining its sales force automation platforms and its warehouse inventory management processes.
Acquisitions are another important part of PSS World Medical's growth strategy. Although purchases slowed after a spree in the 1990s, the firm continues to grow through selected buys. For example, the firm built up a new medication dispensing business offering (as part of its physician business segment) through the 2011 purchases of Linear Solutions, which markets a medical device that allows doctors to dispense medications to patients right from their practices, and Dispensing Solutions, which makes dispensing systems for the point-of-care and packaging markets. In fiscal 2012 the company scooped up eight acquisitions, paying more than $65 million to strengthen both its operating segments.
While the company continued to perform well overall in 2011, the flu-specific boost in sales it received in 2010 did not recur that year or the next. Sales in 2012 grew a modest 3%, and net income dropped slightly. Operating costs associated with the company's acquisitions and related expenses along with a drop in sales due to a historically light flu season were contributing factors to the decline. These were, however, partially offset by improved selling margin, reduced operating costs as a percentage of net sales, acquisitions, and the company's ability to leverage its distribution infrastructure. – less