Sell Direct Or Through Distribution? What Every Healthcare Supplier Should Know
By BRIAN GALVIN
Consultant
[September 17, 2025] – Put yourself in this scenario [if you’re not already there] …
You’ve created an innovative, new medical device that could absolutely transform patient care. You’re ready to get it into hospitals but you’re stuck at a crossroads as to how to most effectively and profitably put it in the hands of users.
One path leads to selling direct — full control, no middleman, what your instincts may tell you is best.
The other path winds through the seemingly overwhelming world of distribution. It promises national reach which is greatly appealing … but at what cost?
Welcome to the dilemma where big decisions must be made that could turn out tremendously for you and your company … or leave you at a dead end. Alas, what to do? To begin with, breathe. If you’re asking yourself these questions, you’re not alone.
In the complex, competitive world of acute care sales, the decision between selling direct and leveraging distribution isn’t an easy one. So let’s break down the real story behind each route, and how understanding both approaches can help you land on the right decision and give your product the traction it needs and deserves. But first, let’s take a quick look at some industry trends …
Distribution Is Gaining Strength. Why?
In today's healthcare ecosystem, Integrated Delivery Networks [IDNs] are consolidating purchasing power. And they want fewer suppliers. The preference among IDNs is clear: Work with a big national distributor who can manage everything under one umbrella. Here’s why that matters:
Primary distributors negotiate deeply tiered agreements that reward IDNs for routing a higher percentage of their total products through one channel. On the flip side, they penalize IDNs if they don’t hit certain purchasing thresholds.
Products are prioritized by profitability. Branded or private distributor private label products typically come first, followed by suppliers who pay higher channel fees, and then everything else.
In short, unless your product offers a truly significant value-add, making it through this gauntlet can be tricky. Distributors are also aggressively converting hospitals away from “clinically preferred” solutions to “clinically acceptable” ones — a shift strongly driven by the financial structure of their agreements, not always by optimal clinical outcomes. [That’s an ethical discussion for another day …]
Why Distribution May Be Your Best Play
Distribution offers some truly alluring advantages that are hard to ignore if your strategy and preference is to gain scale:
National Reach — 40+ distribution centers ship truckloads to their hospitals daily across the U.S. These consolidated shipments also do not tack on additional freight charges which are often hefty.
Inventory Cushion — Distributors carry 30–60 days of stock, reducing the risk of backorders.
Operational Convenience — They’ll deliver directly to existing clinics or hospital floors, an area of business ops in which smaller suppliers often struggle.
Sales Leverage — You can tap into their established sales force and onsite distribution reps who have visibility into all products moving through the hospital — including your competitors.
Streamlined Processes for IDNs — Fewer deliveries, fewer Purchase Orders [PO], and reduced administrative work.
Analytics & Reporting — Distributors are able to mine real-time, sophisticated data insights and handle tricky compliance management, especially in areas like recalls which they are experienced and adept at handling.
From an IDN’s perspective, these efficiencies are invaluable to suppliers and worth every cent. From your perspective as a supplier, getting onboard means plugging into a powerful infrastructure you might never be able to replicate directly. So yes, there are definitely advantages. Yet …
Going Direct Still Has Power
That said, going direct also has its clear advantages — particularly in certain, specific scenarios. Most importantly, with no channel fees draining your margin, you’re able to hold onto more of your money which is something we all prefer to do. Selling direct also makes sense when:
Your sales volumes are relatively small or localized.
You’re introducing a highly specialized product, or something capital-intensive rather than consumable.
Your product requires clinical expertise or hands-on physician engagement, or specialized device training, although this can still be accomplished if you work in conjunction with your distribution partner.
You’ve got serious brand equity backing you [think Medtronic-level mega-support].
Supply chain complexity is minimal. You don’t need mandated Periodic Automatic Replenishment [PAR] levels or large-scale logistics support.
In these cases, distribution may not deliver enough value to justify the cost outlay and direct sales may be the better way to go. Hmmm … still feel stuck? It’s understandable.
The Strategic Catch
Here’s where it gets interesting. Unlike many industries in which companies start with distribution then “graduate” to direct selling once they’re big enough, acute care flips that script.
Distributors actively pursue those direct sales by leveraging their IDN contracts. They’ll encourage health systems to shift purchases from direct suppliers back into the distribution channel. You see, distributors make slim margins [often 3% or less] from distribution itself. Where they profit heavily is in branded product sales and channel fees paid by the supplier.
Bottom Line: You may be able to sell direct in the short run, but as you scale, distributors will almost certainly squeeze their way into the mix whether you’re ready and open to that or not. Unless your brand is untouchable — again, think of an entity like a Medtronic — eventually and inevitably, distribution will become part of the equation.
What It All Means for Your Long-Term Strategy
When you’re evaluating whether to sell direct or go through distribution, the biggest mistake is looking only at obvious surface-level costs like Group Purchasing Organization [GPO] fees or the 3% distributor fee. The real picture is significantly more layered. You must also:
Consider the distribution channel fee upfront — It’s not just about today’s margins, it’s about whether you’ll even be allowed to bypass distribution as your volumes grow.
Understand the distributor’s incentives — Their go-to-market strategy is built around maximizing branded product sales and channel fees. If you can align with that structure, they’ll prioritize you. If not, you’ll fall deeper into the overall mix.
Think about your own sales force reality -- With distribution, sales reps are generally tiered in how they’re compensated:
“A Suppliers” [highest channel fee] are most incentivized, and always include the distribution’s private label
“B Suppliers” [next highest channel fee] are next.
“C Suppliers” [low-fee paying suppliers] are next.
“D Suppliers” [direct competitors] get the least push.
If you haven’t yet built out your own strong sales team armed with a winning strategy, paying a higher channel fee might actually help accelerate your journey to market.
Fish or Cut Bait … or Both?
Choosing between direct sales and distribution isn’t about being right or wrong – no, it’s about timing, product type, and long-term positioning.
If you’re launching a niche, clinician-driven product, going direct may give you the traction you need early on. If your immediate goal is rapid scaling -- aka broad national reach -- and seamless IDN adoption, distribution will be the channel you select now. Or likely one you won’t be able to avoid as your product grows.
At the end of the day, the smartest move is to plan for both. Start where it makes the most sense, but recognize that, ultimately, distribution holds the keys to greatest scale in acute care.
Final Thoughts …
Don’t let your go-to-market strategy stall at the crossroads. Whether you’re set on blazing your own trail or jumping in the fast lane of distribution, understanding the rules of the road is crucial.
If you’re unsure which approach is best for your unique, innovative product [or how to pivot as you grow], let’s connect. Our team at Excelerant has the wisdom and experience to assist healthcare suppliers skillfully navigate these critical decisions. We’d be delighted to partner with you on your market journey and help you decide which path is best to unlock your full growth potential.
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ABOUT BRIAN GALVIN
Brian has more than two decades of healthcare leadership, particularly in strategic manufacturing and distribution with a focus on developing and implementing effective go-to-market strategies for both. He has consistently delivered solutions that enhance patient outcomes in Acute Care, Non-Acute Care, Government, and Home Health. Brian has a deep and comprehensive understanding of all facets of pricing, contracting, and private-label strategy, and has been pivotal in negotiating with a wide variety of industry groups, including suppliers, distributors, Group Purchasing Organizations [GPO], and Integrated Delivery Networks [IDN]. This experience has afforded him a thorough understanding of the various complexities, demands and stages along the pathway to product commercialization. Most recently, Brian served as Group Vice President of National Accounts for Owens & Minor.
ABOUT EXCELERANT CONSULTING
Excelerant Consulting is the go-to organization for med-tech companies that need to position products and services successfully for value analysis committees, contract acquisition, and sales modeling and execution to commercialize the launch of medical devices or services with Group Purchasing Organizations [GPO], Integrated Delivery Networks [IDN], or Regional Purchasing Coalitions [RPC]. Our clients rely on us to enhance their product positioning, navigate corporate contracting opportunities, and provide sales support to accelerate sales growth.
For more info, contact Excelerant Consulting at info@excelerantconsulting.com