Mckesson

History
Started in 1833 by John McKesson and Charles Olcott ( importing and
wholesaling chemicals and therapeutic drugs in small shop new your city
In 1855 McKesson entered into manufacturing business, producing pills and
fluid extracts
After fifty years the company added several subsidiary wholesale
businesses and become a leading pharmaceutical products distributor
In 1960 McKesson merged with san Francisco, California based dairy
company, subsequently expanding its production and distribution
portfolio to include hospital and lab supplies and equipment, fresh dairy
products and processed water and alcoholic beverages.
In 1980s and 1990s, McKesson focused on health care

Its deepend engagement with customers by adding IT and various value -
added offerings (Health mart)








About Mckesson
Health care equipment and medical-surgical products
Software and connectivity solutions
Drug distribution


America's 15th largest company(Sandwiched between Citi group and
Verizon on the fortune 500)
178 year old McKesson corporation was a san Francisco, California- based provider of
Mckesson have more than 36000 employees and 112 USD billion in revenues.
Mckesson supplied products and services for 50% of all hospitals,
40% of pharmacies and 90 % of Payors in the U.S
John Hammergren
Bachelor's degree in business administration & MBA from Xavier University in Cincinnati.
1996 -Joined McKesson
1999- Director and Co- CEO
2001- president and CEO
2002- chairman of the board
Mckesson's revenues more than doubled under Hammergren, from $ 42 Billion int 201 to $
112 billion in 2011

Stockprice got increased
In 2006 purchased -Per Se Technologies (Relay health).

From 2006 to 2011 Mckesson Executed 30 acquisition for a total of $ 5.7 billion.
I care
Six Sigma
Hammergren Initiatives
$ 100 million internal savings
Improving customer sevice
99.9% accuracy rate in customer order fulfilment
Operating Segments




l
Segment Offerings
Distribution Solutions

Technology Solutions

Wholesaling and other services (e.g.
Consulting) to manufacturers of
Pharmaceuticals and medical-surgical
supplies, and consumer health care products.

This segment provided software, automation
services(e.g inventory management and drug
dispensing systems), and consulting to hospitals,
physician offices, imaging centers, home health
care agencies, and payors.

Specialty Care

USON- specialty care business provided products
and services used by medical specialists to care
for patients with complex and costly diseases
(e.g, cancer, HIV, osteoporosis, rheumatoid
arthritis etc..)

Relay Health

Many of McKesson's IT products were offered through
Relay Health, a unity that included electronic prescribing
by physicians, point-of-service resolution of pharmacy
claims by Payors.

Medical-surgical

Sold more than 150000 national brand and
McKesson-brand products to physician practices

Each month 40000 to 50000 physician practices
purchased medical- surgical products from
McKesson.

employed 550 sales people focused on small
independent practices, large physician groups,
integrated delivery network

HITECH

Part of the American Recovery and reinvestment act of
2009,HITECH provided financial incentives for
physicians and hospitals to adopt EHRs.

Pressure in U.S Health Care
Environment
U.S Health care spending, which consistently grew much faster than inflation, was
projected to reach $4.3 trillion or 20.3 % GDP by 2018

Citizens 65 and over- a group whose health care costs were three to five times that of
people under Age 65

cost of cancer was projected to rise to 39% in the U.S from 2010 to 2020, reaching up
to $ 173 billion
Patient Protection and Affordable Care Act (PPACA) targeted three pain points in the U.S
health care system: Cost, Quality and insurance coverage
Pressures on Independent Physicians
Mandates for individuals to obtain health insurance
Firms with 50-plus workers to sponsor employee coverage

The law cut Medicare and Medicaid reimbursement to physicians, hospitals, and drug
companies

The new payment model provisions of the bill(bundling,ACO) threatened Independet
physicians.

Contrast to Fee for service payments(insurers paid providers a fee for each service)

Insurers paid providers a flat payment to manage all care required for certain health
needs of a group of health plan enrollees

Payments were usually calculated on per-Member-Per Month Basis(PMPM) and
included a profit margin for the provider

Accountable Care Organizations (ACOs)
Patient- Centered Medical homes (PCMH)
Bundled payments
New payment and Delivery Models
A Physician-led team of clinicians was responsible for coordinating all health care for a pool
of patients covered under a particular Payor

Aimed to lower costs and improve quality through specific standards of care provision and
data collection
IN this model a health care delivery system was accountable for the quality and the total
cost of care for a defined, local patient population.

Patient established a budget, calculated based on historical cost
Fee-for-Service Business
Model
In the past McKesson and the other pharmaceutical
distributors, Cardinal Health and AmerisourceBergen,
operated on a buy/hold business model under which a
company would purchase drugs from manufacturers in large
quantities based on what their own pricing models predicted
would happen to the value of the drugs. Then McKesson
would sell the drugs to its customers for--hopefully--a higher
price than that paid for the drugs.

However, McKesson and its competitors have switched their
business model to a fee-for-service (FFS) model. Distributors
now have arrangements with manufacturers that provide fees
and/or discounts to distributors for meeting certain levels and
requirements. Although the shift to FFS has cut down on the
influence of drug price inflation on McKessons margins, price
inflation still accounts for approximately 20-25% of
McKessons profits.
Customer Partnership Models:Health Mart and
USON
McKesson bought FoxMeyer Drug company in 1996, along with its subsidiary health mart
(with 800 Pharmacy Franchisees)

Acquisition build on McKesson's existing independent pharmacy franchise, value-Rite, and its
IT suite for prescription and payment management

Around 2005, McKesson refocused on the independent pharmacy sector and decided to
invest in Health mart as its flagship franchise

In 2010, overall U.S. spending increased 21.7% on unbranded generics and 4.5% on branded
generics, while spending on branded drugs declined 0.7%

In 2011, the Health Mart network included more than 2700 pharmacies
USON was formed through the 1999 merger of two cancer care management companies
(Physician Reliance Network and American Oncology Resources).

USON operated in two main businesses: Specialty drug distribution and a
comprehensive strategic alliance (CSA)

USON's 540 affiliated sites, including more than 100 radiation treatment facilities and
986 physicians, treated over 850000 cancer patients across the US
Drug Distribution and Specialty Pharmaceuticals Companies

Cardinal health
Amerisource Bergen

Diversified Health Care IT Companies

Optum
ActiveHealth
Athena Health
GE Healthcare
Emdeon
eClinicalWorks
Mckesson Competitors
Cardinal Health:
Cardinal Health is McKesson's top competitor, in terms of revenue as well as
services offered. Cardinal Health is slightly more diversified than McKesson
as only approximately 86% of its revenue is generated from the distribution
of drugs.
The rest of Cardinal Health's revenue is derived from the distribution of
medical and surgical supplies to hospitals and other healthcare facilities
(approximately 8% of revenue), providing software and IT services (about
5%) and the production of medical products (approximately 1%). Cardinal
Health lags McKesson in terms of revenue, but is more profitable than
McKesson because of its more high-margin product and service mix.
Mckesson Competitors
AmerisourceBergen
The great majority of AmerisourceBergen's revenue (approximately 97%) comes
from the packaging and distribution of drugs and related services. The remaining
3% of revenue is derived from the distribution of healthcare products and services
to alternate-site healthcare facilities and long-term care patients.
AmerisourceBergen is similar to McKesson as it is so focused on the distribution
of drugs. However AmerisourceBergen is not involved in the healthcare IT
market, which may give McKesson an advantage as the healthcare IT market
grows and possibly becomes more consolidated.
Mckesson's Options




Primary care physicians monitored patients overall health and diagnosed and treated common
and chronic illnesses.
Primary Care
Rheumatologists were internists (Physicians focused on adult diseases) and pediatricians
(Focused on childhood diseases)
Gastroenterologists were internists specialized in the diagnosis and treatment of diseases of
the gastrointestinal tract and liver.
The orthopedic medical specialty diagnosed and treated injuries and conditions of the
musculoskeletal system (Bones, joints, ligaments, Tendons, muscles, and nerves).
Specialized in the diagnosis and treatment of diseases of the joints, muscles, and bones,
including osteoarthritis and rheumatologists

Orthopedics
Gastroenterology
Rheumatology
SWOT
Strength

Mckesson is a long established company ,this
has a reputation over a period of 175 years-
Strong Market Position.

Leading provider of pharmaceutical
Distribution and dealership with large
companies.-Improved Profitability

Mckesson provides services and products to
health care providers and payers-Value added
Services

It provides its services to more than 40000 US
pharmacy stores, Large customer base is
definitely a strength.

Mckesson employees information
technology systems ,that requires decimate
paper prescription and patient records.

Weakness

Being a company in health care and Medical
business, it faces several legal tangles and
restrictions related to patients.

Mckesson is the lack of proper healthcare
information grouping .

Since there is a growing demand for effective
products and services, McKesson is not
strong enough to deliver.

Opportunities


Acquisitions

partnership with healthcare service providers.

Threats

Intense competition may erode profit.

Cost-containment measures.



2010 2009
High Low High Low
First quarter $ 45.27 $ 33.13 $ 58.78 $ 51.96
Second
quarter
$ 59.95 $ 42.61 $ 58.85 $ 52.32
Third quarter $ 64.98 $ 55.82 $ 52.55 $ 28.6
Fourth
quarter
$ 66.98 $ 57.23 $ 45.8 $ 34.77
Stocks Prices in 2009-2010 Fiscal year
Thank you
Sriram Parthasarathy
Neeraj Gupta
Chadrasekar