AmerisourceBergen Analysis

Sindhu Reddy, Umar Syed, Ron Spencer, Moriah Reed, and Christine Mankarious
Healthcare Accounting 3311.001
Professor Bardhan
12/6/16
 AmeriSource Health Corporation merged with Bergen Brunswig Corporation and is now a leader
in global pharmaceutical sourcing and distribution services. The company has more than 19,000
employees and over 150 locations around the world. AmerisourceBergen has several centers: 26
pharmaceutical distribution centers, 4 U.S. specialty distribution centers, and 2 Canadian distribution
centers. The company has significant work in sustainability and social responsibility. Within operations
of AmerisourceBergen, the administration emphasizes safe product handling, manage greenhouse
emissions, improve energy efficiency, and work to minimize waste and maximize recycling. Concerning
communities, the company leverages associate volunteer engagement opportunities, donates products,
and supports corporate giving. AmerisourceBergen also partners with nonprofit organizations that focus
on health, education, and the community. The company wants to make sure that the people working
with it have a safe place to work and are not near anyone who would intrude on a path of personal
wellness. Within the supply-chain that the company is involved in, the employees collaborate with
customers and vendors to ensure responsible, credible work.
AmerisourceBergen has an impact in several areas of the pharmacies it works with. Within
global sourcing and distribution, the company is able to source more than 50,000 items from more than
1,500 different manufacturers (AmerisourceBergen). In addition, there are more than 13,000 associates
committed to improving healthcare delivery and patient care (AmerisourceBergen). The company has
generic purchasing programs that include competitive invoice pricing, performance-based rebates,
automated margin-improving solutions to make purchasing easier, and the company provides industry-
leading service levels (AmerisourceBergen). AmerisourceBergen in heavily involved in the pharmacy
network of the healthcare industry that includes more than 3,200 members. The company is one of the
largest managed care negotiating cooperatives. In addition, the company wanted to improve its own
business in areas that were weak such as its third-party inventory, claims collection, and generic
utilization along with innovative retail and clinical programs such as home healthcare, vaccinations and
diabetes management (AmerisourceBergen). In addition to the programs that AmerisourceBergen
provides, the company also has business consulting services. There are strategic consulting on
inventory management and third-party claims collection to merchandising and generic utilization,
insight on how to improve patient assistance and leverage inventory management solutions, how to
navigate 340B audit and compliance, and managing ambulatory pharmacy issues related to patient
safety, cost control, personnel shortages and regulatory compliance (AmerisourceBergen). Finally, the
company is heavily involved in finding optimal packaging solutions. AmerisourceBergen is the leading
provider of unit dose products to health systems and long-term care pharmacies. The company is
considered an [innovator] in premier packaging solutions that accommodate any pharmacys oral solid
dispensing needs (AmerisourceBergen). It also manages around 600 SKUs at a time in which a third are
exclusive in the pharmaceutical industry.
In addition to providing healthcare professionals with industry-leading global pharmaceutical
sourcing and distribution services, AmerisourceBergen has a diverse portfolio of provider services that
cater to the needs often associated in todays robust healthcare environment. With an extensive
specialty physician GPO (group purchasing organization) network, AmerisourceBergen clients are able to
make informative purchasing decisions across a broader service area. With cost reduction and
effectiveness being the primary driver in the healthcare industry, evidence-based knowledge used for
decision-making is essential to ensure costs incurred by providers are manageable and remain at an
optimal level. AmerisourceBergen has taken this ideal regarding cost management and knowledge-
based decision making and developed peer-to-peer networking and education programs designed to
provide healthcare professionals with a wealth of resources aimed at aiding them in the decision-making
processes involved in almost every facet of healthcare. From a business standpoint, AmerisourceBergen
recognizes the importance of profitability and growth and through their business consulting services try
to help clients identify ways to reduce costs, ascertain new channels of revenue, and enhance
operational and financial performance. Technological services offered by the firm are developed with
the focus mainly on data integrity, configuration and extraction (customization and data mining) for the
purpose of financial management, therapy and treatment regimens, healthcare products, and inventory
management. In comparison to industry competitors, AmerisourceBergens niche seems to be its access
to limited or specialty healthcare products (e.g. specialty medications) across a boisterous global
network, centered on todays healthcare professionals.
AmerisourceBergen, being the cohort between manufacturers and providers, has seized the
opportunity to provide services to improve manufacturers positions in a competitive healthcare
products and services market. The companys strategic consulting services provide manufacturers with
current healthcare policies information, health economics and outcomes research, distribution
strategies, and risk management data. With a 99.98 product fulfillment accuracy rate,
AmerisourceBergen prides itself on offering superior global logistic services to pharmaceutical
manufacturers. In addition, use of state-of-the-art distribution facilities that strictly adhere to quality
assurance processes and the use of the firms distribution services in more than 10,000 clinical studies
denotes AmerisourceBergens reputation built on efficiency, reliability, and quality not only regarding
provider and patient services but, manufacturer services. A major selling point for AmerisourceBergen
in the manufacturing sector is the large provider network it possesses and its GPOs high provider
retention rate, an ideal business environment for manufacturers seeking profitable business
opportunities. AmerisourceBergens patient support services help manufacturers identify the
healthcare trends of patients and providers and enable manufacturers to better meet the needs of their
consumers. Product awareness and marketing services is another major selling point offered by the
company to manufacturers seeking a competitive edge over their industry counterparts. Online and
printing advertising, event sponsorship, tele-sales, and direct marketing programs are a few inclusive
features of the firms product awareness and marketing services. In retrospect, AmerisourceBergens
business model and vision coupled with the vast array of products and services offerings has allowed for
continued growth and industry superiority.
Now looking at the distribution industry as a whole, healthcare product distribution started
being seriously regulated in 1876 when the Healthcare Distribution Alliance (HDA) was founded. The
HDA at the time was comprised of 95 wholesale druggists. It now serves 35 national and regional
pharmaceutical companies and represents 200,000 pharmacies. They establish industry standards for
companies like AmerisourceBergen and McKesson to ensure ethicality and quality.
The Affordable Care Act has caused a number of changes across the healthcare industry
spectrum. Some of these changes include increased amount of reimbursement models and cost
control/lean programs. The distribution industry has recently seen the need to retrain their sales forces
to discuss clinical outcomes and other performance metrics. One positive effect of the ACA has been
creating an environment of accountability through the use of performance measures not only for
hospitals and physicians, but for the suppliers as well. The ACA has had negative implications as well,
including lower margins for distributors due to lower reimbursement. Due to the HITECH Act, hospitals
and physicians have increased their usage of information technology systems and has made business
with the distributors more efficient.
Lawsuits are relatively frequent with distribution companies. Most are with pharmacies, drug
companies, hospitals/physican practices, and other distribution companies. The subject of these
lawsuits usually include breach in contracts and sub-par service.
Comparing the financial ratios of both McKesson, an industry competitor, and
AmerisourceBergen, give us a greater insight into how the company functions. The days in accounts
receivable for AmerisourceBergen was approximately 22.08 days in 2015 and 19.27 days in 2014. For
McKesson the days in accounts receivable was 32.44 in 2015 and 37.64 in 2014. Overall,
AmerisourceBergen is doing better than McKesson, because they are collecting their receivables from
their clients faster than McKesson. However, AmerisourceBergen is actually not improving over these
two years. This ratio shows that in 2014, this company was collecting their receivables faster than in
2015. The quick ratio for McKesson is 0.62 in 2014 and increases marginally to 0.63 in 2015. For
AmerisourceBergen, the quick ratio is 0.47 in 2014 and decreases marginally to 0.46 in 2015. A quick
ratio determines how well a company meets its short-term financial obligations. The calculated ratios
show that both of the companies are struggling. The ideal ratio for this area would be at least 2.00 and
higher. However, both McKesson and AmerisourceBergen are well below the benchmark.
AmerisourceBergen is able to meet short-term financial needs at a better rate than McKesson. The
current ratio for AmerisourceBergen in 2015 was 0.90 and 0.97 in 2014, compared to McKesson which
was 1.09 in 2015 and 1.10 in 2014. This shows that McKesson is at a better place to pay off its current
liabilities, because for every $1 of current liabilities it has $1.09 of current assets to pay it off (as of
2015). On the other hand, AmerisourceBergen has a lower ratio where for every $1 of current liabilities,
they only have $0.90 of current assets to use to pay it off (as of 2015). This comparison between the two
companies also shows that AmerisourceBergen is slightly lagging behind in current assets. Going off of
that ratio, the acid test ratio, shows how the specific current assets can be used to cover the current
liabilities. From 2014 to 2015, AmerisourceBergens acid test ratio decreased from 0.11 to 0.10, while
McKessons acid test ratio increased from 0.14 to 0.16. AmerisourceBergens acid test ratio is somewhat
low in comparison to McKesson and the fact that it is decreasing is not good. This shows that they are
making less current assets to cover their liabilities. Days cash on hand for AmerisourceBergen was 322.9
in 2014 and decreased to 270.45 in 2015. McKessons days cash on hand was 265.89 in 2014 and
decreased to 239.58 in 2015. In AmerisourceBergen to McKesson, it is seen that the days cash on hand is
overall less for McKesson. This shows that AmerisourceBergen is not reinvesting its cash into the
company as efficiently as McKesson is. AmerisourceBergen is not being The return on net assets for
AmerisourceBergen was 0.40 in 2014 and 0.67 in 2015. This is compared to McKesson which was 0.23 in
2014 and 0.37 in 2015. AmerisourceBergens ratios are significantly higher than McKessons, which
shows that they are making more return on their net assets and that return is also increasing over the
years. This shows that AmerisourceBergen is being wiser with their resources and are making a higher
return on their net assets than their competition, McKesson. The return on total assets for
AmerisourceBergen was 3.62% in 2014 and then decreased to 1.50% in 2015, whereas McKessons
return on total assets was 4.57% in 2014 and increased to 5.51% in 2015. AmerisourceBergens return
on total assets is significantly lower than its competitors. This shows that McKesson is making a higher
return for their total assets than AmerisourceBergen. Not only is McKesson making a higher return, but
AmerisourceBergen is making a lower return as the years progress. This is an indication that they are not
being as wise with their resources as they should. The total asset turnover ratio for AmerisourceBergen
was 5.6 in 2014 and decreased to 4.9 in 2015. This is compared to McKessons total asset turnover ratio
which was 2.66 in 2014 and increased to 3.66 in 2015. AmerisourceBergens total asset turnover ratio is
significantly higher than that of McKesson. This shows that AmerisourceBergen is doing better in
generating revenue out of its total assets. However, they are slowly declining in that revenue because
this ratio decreased from 2014 to 2015 while McKesson increased by a greater margin.
AmerisourceBergens net assets to total assets ratio was 0.20 in 2014 and decreased to 0.15 in 2015,
while McKessons net assets to total assets ratio was 0.09 in 2014 and 0.02 in 2015. Ideally, this ratio
should be around 0.50. This means that the company holds about the same liability as it does equity.
AmerisourceBergen is closer to this ratio than McKesson, which shows that AmerisourceBergen has
more equity in order to cover its liabilities. Operating margin for McKesson decreases from 1.72% in
2014 to 1.66% in 2015. For AmerisourceBergen, the operating margin decreases from 0.65% in 2014 to
0.31% in 2015. Operating margin essentially shows how much money a company is making after costs in
comparison to the amount of revenue obtained. McKesson has a higher operating margin in comparison
to AmerisourceBergen, although both are decreasing. Both are getting worse at maintaining a significant
net income over the amount of revenue collected.
For improving the liquidity ratios (quick and current) AmerisourceBergen can transfer funds into
higher interest accounts, then switch it back once needed. Another way to improve the quick ratio
would be to rely on long-term financing to acquire inventory instead of cash and getting rid of any
unnecessary assets.
For improving return on total assets and return on net assets, AmerisourceBergen must look at
all of its holdings and determine what is contributing to the bottom line and what is not. After process of
elimination, AmerisourceBergen can either cut its expenses or increase its revenues.
The operating margin (OM) for AmerisourceBergen is low at 0.31% compared to McKessons
1.66%. The fact that the OM actually decreased shows how bad AmerisourceBergen is bleeding profits
and losing opportunities. The methods for return on total/net assets can be used for improving
Operating Margin. The main goal is to increase your revenues and decrease your expenses. A good step
to figure out where you are losing money is to look at your fixed costs and variable costs. An audit of the
utilities and insurance expenses would be the best place to start. Reducing your other expenses such as
cost of goods sold and salaries/wages would be beneficial as well.
Appendix (Graphs and Charts):

AmerisourceBergen (2014; 2015) McKesson (2014; 2015)

Days in Account Receivables 19.27; 22.08 37.64; 32.44

Quick Ratio 0.47; 0.46 0.62; 0.63

Current Ratio 0.97; 0.9 1.1; 1.09

Acid Test Ratio 0.11; 0.1 0.14; 0.16

Days Cash on Hand 322.9; 270.45 365.89; 239.58

Return on Net Assets 0.4; 0.67 0.23; 0.37

Return on Total Assets 3.62%; 1.50% 4.57%; 5.51%

Total Asset Turnover 5.6; 4.9 2.66; 3.32

Net Assets to Total Assets

Ratio 0.09; 0.02 0.2; 0.15
 Operating Margin 0.65%; 0.31% 1.72%; 1.66%

Works Cited

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"About." The Healthcare Distribution Alliance. N.p., n.d. Web. 05 Dec. 2016.

Balasubramaniam, Kesavan. "What Are the Risks of Having Both High Operating Leverage and
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Investopedia. "How Can a Company Increase Its Return on Total Assets?" Investopedia. N.p., 01
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Maverick, J.B. "How Can a Company Quickly Increase Its Liquidity Ratio?" Investopedia. N.p., 12 Jan.
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