Becton Dickinson Case

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Question 1

How has the healthcare industry changed (pre-1983 to post 1983)? What are the implications for BD? How has BD managed to build up an 80% market share in this market? Which many competitors bigger than BD have tried to enter without success?

In 1983 the entire health care industry was affected by the changes that the U.S government made in how to reimburse hospitals for Medicare patients (40% of all hospital patient days). So, let 's see how the situation was before and after these changes.

Before 1983

Hospitals had been reimbursed for all costs incurred in serving those patients.
Hospitals were rewarded for efficiency.
The buyers at the hospitals were specialist, without purchasing skills or interests in
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ASP was also a distributor for Terumo and Sherwood, 70% of Terumo 's sales went through ASP.
ASP is a division of American Hospital Supply Corporation (AHS), which manufactured 45% of what they distribute, but their manufactured products represented 70% of their profits. One AHS vice president said that he is hoping that before long, they will manufacture 65% of what they distribute, and by saying this is very clear that AHS is very dangerous as a future possible competitor.
Other major distributors were CMS, which had 20 warehouse locations and sold primarily to labs, and Fisher Scientific which had 20 warehouse locations and sold primarily to medical schools, research centers and industrial labs.
For Z contracts BD performs the negotiation and promotion flows through its sales people, who promote the products to lab specialists and negotiate with purchasing managers and corporations representatives. Distributors are responsible for physical possession activities, order and payment flows, they negotiate and promote products that are not sold through Z contracts. Ownership, financing and risking flows are performed by BD.
In total BD sold through 6 national distributors, with the remainder of its distribution network composed of regional chains and small local distributors. In most market areas 4 or 5 different distributors sold BD products. This implies lower prices, since end users can
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