DRUG WHOLESALERS GET EDI'S COMPETITIVE CLOUT

DRUG WHOLESALERS GET EDI'S COMPETITIVE CLOUT

Mid-sized drug wholesalers have to hang together if they are to avoid being strangled by their giant, nationally oriented competitors.

Electronic data interchange is the tool they have found to enable them to do so without being strung up by antitrust authorities.A consortium of drug wholesalers is using an EDI communications network to win large, multi-company drug contracts - contracts that they could not ordinarily have fulfilled on their own.

The Chicago-based Hospital Distributors of America (HDA) is a group of mid- sized drug wholesalers that banded together to compete more effectively against the industry's largest wholesalers.

In order to do so, it needed to be able to act as a single body to fill large orders from hospitals.

In the health industry, upwards of 1,000 hospitals spread over a multistate region will use a single agent to procure pharmaceutical needs in one block order. The agent makes a contract with the pharmaceutical manufacturers and the wholesalers fulfill it.

Due to their moderate size and limited territorial reach, HDA members couldn't fulfill such large orders by themselves. They created a computerized system that allows them to pool their inventories and act as a single mega- wholesaler for their hospital customers.

The system is based on an EDI-based communications network that has been serving the pharmaceutical distribution industry for more than 10 years and is being put to innovative use by HDA.

Drug distributors and manufacturers use EDI to exchange purchase orders and invoices electronically over telephone lines. The data moves directly from the wholesaler's computer to the drug maker's computer. Overhead costs are cut and deliveries speed up.

Intended integrate manufacturers with wholesalers and not necessarily to tie in hospitals, the system handles more than 80 percent of all wholesale

drug transactions in the country, said Tom James, marketing communications manager for Ordernet Services Inc., the Columbus, Ohio-based owner of the drug industry network. Last year wholesale drug industry sales measured $19.7 billion.

The system allows mid-sized distributors, as a group, to attain the coveted prime vendor status with their hospital customers. Prime vendor status has traditionally gone only to the largest drug distributors.

Hospital buying agents normally collect a 1 percent fee on the dollar value of contracts. With multiple wholesalers supplying a single contract, calculating the total fee could be a nightmare. The EDI network, however,

keeps track of each wholesaler's contribution to a given contract. The individual contributions for a given contract easily can be assembled and their dollar volume tallied on a computer terminal.

Also, as customary in the pharmaceutical industry, large drug purchases come with price discounts. The hospital agents negotiate these discounts with the pharmaceutical companies. Often the agreed-upon prices may eliminate the wholesaler's margin altogether.

In these cases, the wholesaler is entitled to a charge-back from the manufacturer. With the automatic and comprehensive record keeping that the EDI system provides, calculating this is not a problem.

Linking electronically through Ordernet, the HDA group has become a single powerful vendor and yet does not violate antitrust laws.

For legal and practical purposes, they needed a third party, said Joe Ebersole, vice president of product development and operations at Washington- based International Health Information Applications Inc., a market research company.

They couldn't have a consortium without Ordernet.