McKesson builds portfolio with US Oncology deal
For those who still needed convincing, McKesson Corp. recently provided $2.16 billion worth of evidence illustrating how the healthcare industry is driving the nation’s economy. That’s how much money the San Francisco-based pharmaceutical and information technology megacompany is spending to acquire US Oncology. Based in the Woodlands, a Houston suburb, US Oncology boasts more than 1,300 affiliated physicians providing care for 700,000 cancer patients at 496 locations in 2009.
Observers are wondering if there will be a culture clash with McKesson entering the provider arena. But during a Nov. 1 conference call with investors, McKesson CEO John Hammergren said the company plans to continue the US Oncology business model of affiliating with, rather than employing, the physicians in its workforce. “We do not plan to ever own providers,” Hammergren said.
At least one US Oncology physician, Nicholas Vogelzang, chair and medical director of Comprehensive Cancer Centers of Nevada, noted how he expects the deal to help him maintain an independent practice.
“The US Oncology model is hospital-independent—this allows us to stay that way for a long time,” Vogelzang said.
In addition to benefitting from McKesson’s pharmaceutical distribution prowess, Vogelzang said, doctors in the US Oncology network are expecting McKesson to upgrade US Oncology’s iKnowMed cancer-care electronic health record. He said it provides strong analytical and decision-support tools but also can slow workflow with it “clunky” data-entry procedures.
Under terms of the deal, which is expected to close by Dec. 31, McKesson will assume US Oncology’s outstanding debt of some $1.6 billion and will acquire about $155 million in tax credits from operating losses “to be used in the future by McKesson,” Hammergren said during the conference call. McKesson declined to provide a representative to be interviewed for this article.
Hammergren said McKesson will pay “$400 million or so in cash off the balance sheet” and add about $1.7 billion to its own existing debt—first in the form of a shortterm bridge loan and then some form of permanent financing. He added that the deal is being done at time that is typically the low point in the company’s cash cycle—but “in no way taps out our ability to deploy capital.” McKesson’s growth and financial strategies of portfolio expansion and stock repurchasing are expected to continue, he said.
“The acquisition makes great financial sense for our shareholders and will be a source of earnings growth almost immediately,” Hammergren said.
US Oncology will come under McKesson’s Specialty Care Solutions business, which will now be based in the Woodlands and be led by US Oncology President and CEO Bruce Broussard, who will report to Paul Julian, McKesson’s executive vice president and group president. Because of this arrangement, Roy Beveridge, US Oncology executive vice president and medical director, said there will be no culture clash between the two companies’ respective workforces.
“What’s happening is that McKesson has a great number of oncology assets, and US Oncology is staying in Houston, Texas, and a lot of these assets are moving from San Francisco to Houston,” Beveridge said. He noted that employees and affiliates of US Oncology will still work for the same CEO, and the company name also is staying the same. “So, the culture will remain that of US Oncology.”
Almost 1.5 million people are expected to be newly diagnosed with cancer in 2010, according to Hammergren.
Hammergren: “We do not plan to ever own providers.”