I was so honored to be nominated and asked to serve as an independent corporate director for Welch Allyn in May of 2007. I had admired the strong Welch Allyn brand name and the extraordinary company success from the day I was recruited from college and decided to dedicate my career to healthcare. During my more than 30 year career, I've worked with healthcare companies to help navigate both the highs and lows of the various healthcare market cycles. However, the current market turbulence and pressures we are experiencing are unprecedented in my career.
Healthcare legislation, such as the Affordable Care Act and Medical Device Tax, has significantly added to the current overall market pressure— resulting in hospitals merging at an unprecedented rate in order to gain scale and reduce costs to survive these difficult times. As a result of this rapid hospital consolidation, our distributors have also responded by rapidly consolidating so they can meet the demand for continued price pressures from their healthcare providers both in the hospitals they serve, as well as in alternate care sites including the physician office sector.
Some of the most noteworthy examples of this consolidation include the acquisition of PSS World Medical by McKesson in 2013 to increase their scale and reach in the hospital sector, as well as in the alternate care non-hospital segments of healthcare. Another recent example is the new strategic alliance between Cardinal Healthcare Distribution and the Henry Schein Medical Company. In this case, both medical product distribution companies have decided to enter into a long term strategic agreement in order to increase their scale, market reach, and to drive out operating cost through improved efficiencies so they can be more responsive to the needs of their various healthcare provider customers.
In 2014, we also saw unprecedented mergers and acquisitions in our medical products sector as medical device companies tried to respond to the demand for lower product pricing from hospitals, group purchasing organizations (GPOs), and our distributors. The most dramatic was the recently announced acquisition of Covidien Healthcare Products Company by Medtronics Inc. for 43 billion dollars! These medical product giants are combining to create the largest professional medical products company the world has ever seen! So, the question is: how does Welch Allyn successfully respond to these turbulent times when our competitors are merging, becoming many times our size, and able to offer hospitals and other healthcare providers, as well as our distributors, product prices much lower than we have ever seen before?
I believe the answer can be summed up in two words: scale and differentiation. First, we must identify other medical product companies with whom we can form strategic alliances in order to combine our brand strength, product quality, and know how to increase our overall scale and geographic reach. Second, we must continue to invest in R&D and innovation in order to avoid having any of our products viewed as a commodity. Each Welch Allyn product MUST improve patients’ lives and allow caregivers to truly be more efficient— ultimately offering our customers more real VALUE than the product companies we compete with every day of the year!
The bottom line is: we must achieve more scale and improved product differentiation if we intend to continue our success of the last 100 years. We must achieve these goals in a timely fashion if we intend to survive and thrive in these very turbulent times, and enjoy a bright and successful future!