Professional Documents
Culture Documents
6. McKesson Corporation
Since 1950s, McKesson has derived a growing proportion of its income from medical technology
rather than pharmaceuticals. This culminated in its purchase of medical information systems firm
HBO & Company (HBOC) in 1999. Irregularities in accounting at HBOC produced a one-day, $8.6
billion plunge in McKesson’s stock on April 28, 1999. Shareholders lost nearly half of the value of
their holdings. Several McKesson and HBOC executives were dismissed and prosecuted by the
New York State comptroller, who was the lead plaintiff among thousands of others. Current
chairman and CEO John Hammergren, who led McKesson’s wholesale drug unit at the time, was
promoted to head the company. McKesson Technology Solutions has continued to increase its
market share through acquisitions, notably Per Se Technologies, RelayHealth, and Practice
Partner. Today, McKesson is one of the leading healthcare IT companies in the U.S., with software
and hardware in more than 70% of hospitals with more than 200 beds. KLAS Enterprises, an
independent monitor of healthcare IT vendors, rated 18 McKesson products in the top three in their
categories in its 2007 report.
McKesson at a glance
6.2 Recent Acquisitions • Delivers more than $1 billion in medi-
cines to pharmacies, hospitals, physi-
From fiscal year 2006 through 2008, McKesson spent cian offices, and other healthcare sites
$3.1 billion on strategic acquisitions. Many of these were every week — one-third of the medi-
smaller investments that improved the company’s value cines used each day in North America.
proposition to customers in both distribution and • Distributes more than 150,000 medical-
information technology. In his 2008 letter to shareholders, surgical products — ranging from
Hammergren noted three major investments the company gloves and bandages, to surgical las-
made in the past three years that, as he said, “create ers, to flu vaccines — to more than
opportunities to increase stockholder value.” 300,000 physician offices and other
customers.
In October 2007, McKesson acquired Oncology • Provides bar-code scanning solutions
Therapeutics Network (OTN) of San Francisco for $531 in hospitals that prevent 700,000 medi-
million. OTN is a leading distributor of specialty cation errors every week.
pharmaceuticals, McKesson believes this purchase • Helps insurers, including the top 25
“significantly enhanced” its presence in what the “fastest- managed care organizations, pay
growing sector of the pharmaceutical market.” In January claims for more than 160 million plan
2007, McKesson acquired Per-Se Technologies of members.
Alpharetta for $1.8 billion, the company’s largest IT
• Provides physician portal for secure
acquisition since 1999. Per Se is a leading provider of access to patients’ records, with current
financial and administrative solutions for hospitals, usage of 3.7 million visits per month.
physicians and retail pharmacies. In 2006, McKesson
acquired D&K Healthcare of St. Louis, expanding its Source: McKesson 2008 Annual Report
footprint among independent pharmacies in the Midwest.
In February 2007, McKesson acquired Physician Micro Systems, known as Practice Partner, a
provider of integrated software for electronic health records, medical billing and appointment
scheduling for independent physician practices. Terms of the agreement were not disclosed. The
McKesson press release said that this acquisition, along with Per-Se Technologies, demonstrates
the company’s “commitment to provide a complete solution – including software, billing and
collection services, supplies and connectivity – to physician practices regardless of size, specialty or
geographic location.” Pamela Pure, president of McKesson Technology Solutions, said the
company had established “a technology footprint” with 20% of U.S. physicians.
In his 2008 letter to shareholders, CEO Hammergren cited two other acquisitions that “advance our
long-term strategy,” one in distribution and the other in information technology. McKesson increased
the size of its Midwest distribution footprint even further by acquiring McQueary Brothers Drug
Company, a Springfield, Missouri-based distributor to more than 400 independent and regional
chain pharmacies. This move also expands McKesson’s distribution profile in the independent
pharmacy segment, opening up new opportunities for building out McKesson’s Health Mart
franchise and OneStop Generics program. In its technology business, the company acquired
© Fuld & Company 2009 Healthcare War Game Briefing Book 49
The Battle for Healthcare Information
Rosebud Solutions of Ann Arbor, a provider of software that tracks and manages instruments,
endoscopes, tissue implants for surgical services, as well as medical crash carts and mobile
equipment. McKesson believes Rosebud Solutions will help hospitals create efficient workflow
processes that improve patient safety and reduce surgical delays and costs. Rosebud offerings
complement McKesson’s existing materials management and surgical services solutions.
The company’s 2008 annual report presents a bold summary of McKesson’s position: “Drawing on
our formidable array of assets, we are serving customers in ways that truly set McKesson apart in
the marketplace. We are the healthcare industry’s most complete solution provider, with the ability
to deliver distribution and supply chain services, software solutions, claims processing capabilities,
consulting services, pharmacy management systems, hospital automation, and disease
management programs.... We are combining our capabilities in bold new ways to create unique,
innovative solutions that expand and redefine the segments in which we compete and drive
improvements across the entire healthcare spectrum.”
St. Luke’s Episcopal Healthcare System – McKesson promotes its relationship with St. Luke’s in
Houston as an example of its growing number of “One McKesson” customers who use a
combination of McKesson-provided information technology, automation and pharmaceutical
distribution solutions. St. Luke’s recently added extensive clinical IT capabilities to its three hospitals
and 18 clinics: more than 300 McKesson AcuDose-Rx® medication dispensing cabinets, a software
and hardware solution that drives patient safety and process efficiency. This was the largest
contract ever signed in McKesson’s automation business. St. Luke’s is also a McKesson
pharmaceutical distribution customer.
ProMedica – In March 2008, McKesson signed a contract with this Ohio-based network of ten
hospitals to provide an array of clinical solutions, pharmacy automation and medication distribution
services.
Blue Cross and Blue Shield of Massachusetts – In February 2008, BCBSMA, an independent
not-for-profit health care benefits company, licensed McKesson’s InterQual suite of products.
Community Health Systems (CHS) – In January 2008, McKesson signed a national agreement
with CHS, one of the largest operators of general acute care hospitals in non-urban and mid-size
markets in the US. McKesson will deploy clinical information systems in over 40 of its larger
hospitals.
Aetna – In January 2008, McKesson announced a five-year agreement with Aetna, a leading health
care benefits company, under which Aetna will add McKesson’s ClaimsXten software to its claims
management capabilities.
Amerinet – In October 2007, the company signed an agreement with this national healthcare
purchasing organization to provide central pharmacy automated distribution systems. The
agreement gives Amerinet members access to McKesson’s barcode-based medication packaging
solutions.
• Health Mart® –McKesson’s franchise program helps independent pharmacies attract new
business, maximize the value of existing customer relationships and enhance operational
efficiency. In FY 2008, Health Mart grew by more than 600 new stores, bringing the total to more
than 1,850. McKesson credits Health Mart for contributing to its 11%YoY growth in sales for
generics, significantly above overall market growth for generics, according to McKesson.
• Prefer Rx – Through this discount program, McKesson offers aggressive prices on more than
100 branded drugs, helping retail independent pharmacies increase margins and eliminate
rebate paperwork.
Hammergren has been the chairman of McKesson since 2002, president and CEO
since 2001. He was co-president/CEO of the company from 1999 to 2001.
Previously, he was the executive vice president of the company and
president/CEO of the Supply Management Business from January 1999 to July
1999, group president of McKesson Health Systems from 1997 to 1999, and vice
president of the company since 1996. He also is a director of Nadro and Verispan
entities in which McKesson holds interests, and serves on Hewlett-Packard’s
board of directors.
– John H. Hammergren
Paul C. Julian, 52, executive vice president, group president, McKesson Distribution
Solutions
Julian has served in this role since 2004. Previously, he was senior vice president since 1999 and
president of the Supply Solutions Business since 2000. Prior to joining McKesson, Julian held a
variety of senior management positions in healthcare companies, including Owens and Minor and
Stuart Medical, where he served in several where he served in several roles including group vice
president and chief operating officer.
Pamela Pure, 47, executive vice president, president, McKesson Technology Solutions
Pure has served in this role since 2004. She joined McKesson in 2001 as group president, Product
Development and Support. She has more than 20 years of operating and executive experience in
the health care information technology industry. Before joining McKesson, Pure was the chief
operating officer for the Channel Health subsidiary of IDX Systems. Previously, she held a series of
management, product development and marketing positions at Shared Medical Systems.
Randall N. Spratt, 56, executive vice president, chief information officer, McKesson
Spratt has been with McKesson for more than 18 years, most recently as chief process officer for
McKesson Technology Solutions managing business development, information technology, and
strategic planning officers, as well as the technology services business. Prior to joining McKesson,
Spratt held executive positions of increasing responsibility at the start-up Advanced Laboratory
Systems, where he ultimately became the chief operations officer. After the acquisition of ALS in
1999, Spratt took on responsibility for HBOC’s laboratory systems business. After the acquisition of
HBOC by McKesson in 1999, he became part of the reconstructed management team.
Marc E. Owen, 48, executive vice president, Corporate Strategy and Business Development
Owen has served in this role since 2004. Prior to joining McKesson, he was a senior partner at
McKinsey. He was also a founding partner responsible for establishing McKinsey’s presence in
Silicon Valley and a leader of McKinsey's Business Technology office globally. He was also CEO of
MindCrossing. Owen is currently a director of Nadro, Verispan, Proventys, and MedVantx.
McKesson’s non-executive board of directors has nine members, including David M. Lawrence, 66.
Dr. Lawrence has been a director of McKesson since 2004. He served as chairman of the board of
Kaiser Foundation Health Plan and Kaiser Foundation Hospitals from 1992 to 2002, when he retired
as chairman emeritus. He served as CEO of Kaiser Foundation Health Plan and Kaiser Foundation
Hospitals from 1991 to 2002. Dr. Lawrence held a number of positions with these organizations,
including vice chairman of the board and chief operating officer. Dr. Lawrence is also a director of
Agilent Technologies, Dynavax Technologies, and Raffles Medical Group.
Stock Repurchase Plan and Doubled Dividends: Over the past three years, McKesson has
repurchased $3.7 billion of outstanding McKesson common stock. The company is also committed
to returning capital to stockholders, and earlier this year, doubled the quarterly dividend from 6
cents to 12 cents per share.
Ten Customers Account for 53% of Total Revenue: In recent years, a significant portion of
McKesson’s revenue growth has been with a limited number of large customers. In 2008, sales to
its ten largest customers accounted for approximately 53% of total consolidated revenues. Sales to
the two largest customers, CVS Caremark Corp. and Rite Aid Corp., accounted for 14% and 13% of
total consolidated revenues.
Ten Suppliers Account of 48% of Purchases: McKesson obtains pharmaceutical and other
products from various manufacturers, none of which accounted for more than approximately 9% of
its purchases in 2008. The company’s ten largest suppliers in 2008 accounted for approximately
48% of its purchases.
Revenues increased 9% to $101.7 billion in 2008 and 7% to $93.0 billion in 2007. The growth in
revenues was primarily driven by the Distribution Solutions segment, which accounted for 97% of
revenues.