McKesson partners with pharmaceutical manufacturers, providers,pharmacies, governments and other organizations in healthcare to help providethe right medicines, medical products and healthcare services to the rightpatients at the right time, safely and cost-effectively.
Shifts in the healthcare industry could leadto cuts in Medicare and Medicaid reimbursement levels which could impact McKesson’s revenues andearnings. If there is a price inflationfrom suppliers this could squeeze margins and reduce revenues and earnings andmay impact McKesson various range of products and services. The generic drug manufactures could progressively challenge the validity and enforceability of McKesson patent on brandedpharmaceutical products which may lead to bigger competition and loss of marketshare. If McKesson cannot secure promisingdistribution business agreements with its current suppliers than they mightloss major customers (Pysh, 2017). Whenever an investment is considered onemust compare it to any alternatives to weigh up the opportunity cost.
“Atpresent 10-year treasuries are yielding 2.16%, if we take inflation intoaccount the real return is likely to be closer to 1%. The S&P 500 Index iscurrently trading at a Shiller P/E of x 30 meaning it is priced for an earningsyield of 3.3% (Pysh, 2017)”.
Investorsmust also consider macroeconomic factors that could impact economic and marketperformances. “At present the S&P is priced at a Shiller P/E of 30,this is over 85% higher than the historical average of 16.8 suggesting marketsare at elevated levels.
US unemployment figures are at a 30 year low suggestingthat the current business cycle is nearing its peak. US private debt/GDPcurrently stands at 199.6% and is at its highest point since 2009 when the lastfinancial crisis prompted private sector deleveraging (Pysh, 2017)”.
McKesson has brought employmentopportunity to the Dallas Forth area with its new state of the art facilitythis has created 1,000 new jobs. McKesson has a number of offices located in the Dallas-Fort Worth areathat employees about 900 people. Withthe move of its corporate headquarters from San Francisco to Irving Texas McKessonhas promised to “add 975 new jobs and spend $157 million in capital investments(Repko, nd)”.
McKesson also has beenawarded a grant of $9.75 million in economic incentives from the TexasEnterprise Fund. John Hammergren, Chief executive officer said “McKessonlooked to Dallas-Fort Worth for expansion because of its large existingemployee base, its reasonable cost of living and Texas’ business-friendlyclimate (Repko, nd)”. This is a greatlocation for a pharmaceutical supply chain company.
Social-CulturalEnvironment Thereis good and bad social cultural environments that effect McKesson Corporation. Let’s start with the bad McKesson outsourcesits deliveries to customers with a transportation courier. Each driver has his/her own route anddeliveries product in secure totes to hospitals, and pharmacy’s. There have been times when the driver’s truckhas been stolen during his/her deliveries resulting in pharmaceutical drugsbeing sold on the streets. We aretalking about drugs like Morphine, OxyContin, and Hydromorphone these drugs inthe wrong hands have a huge impact on our society not to mention the hospitalor pharmacy that the order was intended for is now out of product and that couldresult in patient care. A black couldthat lingers over McKesson’s head is a story that was aired on 60 minutesclaiming that the company is the cause of the opioid crisis in America (“Opioid Abuse – Fighting the Epidemic |McKesson,” n.
d.). McKesson settled with the Department ofJustice for $150 million dollars for violating the Control Substance Act. A Control Substance Monitoring Program was implantedfor all customers. What this does is assigncustomers monthly thresholds for all controlled substance items and the processgoes through three levels of review. This review helps report suspicious customers and suspicious orders andthen McKesson can report this to the DEA (Fry, 2017).
As a companyMcKesson believes that better business health and better patient healthcare areintimately linked together. Throughtheir distribution and technology solutions McKesson helps it customers byimproving the efficiency and effectiveness of their healthcare operations. McKesson also focuses on the delivery of careacross different healthcare settings.
This ensures that right medication or medical tool is given at the righttime. And finally McKesson focuses onconnectivity among all parts of the healthcare system. From the manufacturers, to the hospitals, tothe pharmacies, to the payer, and ultimately the patient better connectivityenables high quality care at a lower cost (“McKesson Investor Center | McKesson Investor Relations,”2018).TechnologicalEnvironment McKessonTechnology Solutions division provides a complete portfolio of software servicesto help its customers improve quality, patient safety, and reduce cost.
The divisions that make up this portfolio areMcKesson Health Solutions, Connected Care and Analytics, Imaging and WorkflowSolutions, Business Performance Services, and Enterprise InformationSolutions. McKesson Health Solutions is a service that provides softwareproducts to manage the cost and quality of care for payers, providers, hospitalsand government organizations. ConnectedCared and Analytics uses a third party vendor to provide healthinformation exchange solutions that streamline clinical and administrativecommunications between patients, providers, payers, pharmacies, manufactures, governmententities and financial institutions. Imagingand Workflow Solutions offersmedical imaging and information management systems for healthcare organizations. Business Performance Services helps providers to focus on deliveringhealthcare while McKesson manages their revenue cycle operations andinformation technology through a comprehensive suite of managed services. Enterprise Information Solutions providescomprehensive clinical and financial information systems for hospitals of allsizes. This system is designed to improvethe safety and quality of patience care and improve clinical, financial andoperational performances (“McKessonInvestor Center | McKesson Investor Relations,” 2018).
GlobalEnvironment By acquiring Celesio McKesson has made its mark on the globalenvironment. Celesio is a leading international wholesale and retail company andprovider of logistics and services to the pharmaceutical and healthcaresectors. “With 38,000 employees, Celesio operates in 14 countries around theworld. Every day, the group serves over 2 million customers – at 2,200pharmacies of its own and 4,100 participants in brand partnership schemes. With132 wholesale branches, Celesio supplies 65,000 pharmacies and hospitals everyday with up to 130,000 pharmaceutical products. The services benefit a patientpool of about 15 million per day (“McKesson Secures Acquisition of Celesio Through New Agreements |McKesson,” n.d.)”.
By acquiring Celesio McKesson has significantlyincreased the importance of their foreign operations foot print and expandingthe future of their growth. CompetitiveEnvironment In theworld of pharmaceutical distribution operations the competitive market isbetween three players McKesson Corporation, Cardinal Health, and Amerisource Bergen. You might think that because there are onlythree companies that the competition would not be so bad. Think again. To keep existing customers and to get new customers drug distributors needto have competitive pricing, great service, third party logistics, and a largepayer organization. In recent years somepharmaceutical supplier have been subject to increasing consolidation. When this happens it results in a smallnumber of very large companies to control a significant share of the market. If this trend continues it could reduce thenumber of market participates resulting in greater bargaining power which leadsto erosion of prices for product and services (“McKesson Investor Center | McKesson InvestorRelations,” 2018).
GovernmentalRegulations McKesson recognizes that thedecisions made by policymakers can have an extreme impact on their industry.With businesses and customers that extend over all settings of health care theyare actively involved in several public policy issues that influences theiroperations, and those of their customers. McKesson’s Public Affairs teamfunctions at the intersection of healthcare, policy and politics on behalf ofthe company. Their role is to establish and strengthen governmentalrelationships with federal, state and local elected and government officialsand educate them on McKesson’s operations.
Public policy at McKesson isan important business strategy and their mission is to work with business unitpartners to effectively impact the outcome of public policy actions taken byfederal, state and local government. Only by staying ahead of the policycurve and helping to shape the environment in a way that best supports theneeds of our customers, the patients they serve and a more efficient,quality-driven healthcare delivery system, can we ensure that McKesson’s policybrand enhances our overall value proposition and competitive position (“Public Affairs | McKesson,” n.d.).