Investing.com -- In a recent interview with In Practise, a former Medline vice president revealed that large medical-surgical distributors, including Medline and Cardinal, typically lose money on distribution alone. The costs related to distribution, which can amount to approximately 7% of revenue due to factors such as warehousing and trucking, often outweigh the distribution rates charged to hospitals, which are usually below 1%. This results in a negative 6% on distribution alone, even when accounting for some back-end funding.

Medline’s strategy to break even involves a heavy reliance on private label products. According to the former VP, a distribution deal for Medline typically breaks even when the Medline brand ratio reaches around 30%. If the ratio of Medline brand products is below 30%, the company is likely not making a profit on the deal, and it could even result in a loss. However, once the ratio exceeds 30%, the deal begins to become profitable, and at about 40% Medline brand, the account is considered mature and highly profitable.

The former VP also discussed how Medline disrupted the industry by eroding distribution markups. When the company entered the market around 2005, it began offering lower rates than the industry standard of 7% to 10% markups. Medline would propose to clients that if they guaranteed a 30% Medline brand product ratio, the distribution would be done at a 5% rate. This strategy allowed hospitals to save 50% on distribution costs and helped Medline grow its business rapidly.

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