George Barrett, CEO of Cardinal Health, is used to change. He has been everything from a star college athlete to a classically trained opera singer and professional musician to the CEO of a small drugmaker. Having a broad range of skills and the ability to switch gears successfully is a good thing in the health care industry. After all, many lawmakers still want to repeal the Affordable Care Act (ACA), which overhauled health care insurance and expanded Medicaid, among other changes. As the sixth-largest health care company in the U.S., with $103 billion in annual revenue, Cardinal Health’s future will be shaped by that debate. The Dublin, Ohio–based company distributes drugs and medical and laboratory supplies to hospitals, physician offices, pharmacies and ambulatory surgical centers. It also manufactures products for doctors and individuals and is a provider of home health care services.
Barrett joined Cardinal Health in 2008 as vice chairman and CEO of its health care supply chain services division after a decade at generic drugmaker Teva Pharmaceutical Industries. Cardinal Health had just reached a $34 million settlement over charges that it had failed to notify the Federal Drug Enforcement Agency about suspicious shipments of drugs, which were later sold online. Cardinal lost at least $1 billion in sales that year, and almost a dozen high-level executives left or were forced out. Barrett became CEO in 2009, just in time to take responsibility for the drug embarrassment and to evaluate the dozens of acquisitions Cardinal Health had made since the 1980s.
As CEO, Barrett started refocusing Cardinal Health on its core drug distribution business, and spun off its high-growth clinical and medical technology businesses to create a company called CareFusion. He felt Cardinal Health needed to be better aligned to trends in health care, including aging populations and a relentless focus by insurers and others on the high cost of care.
The 60-year-old chief executive has plenty of experience with recovery and going in new directions. After graduating from high school in Westport, Connecticut, he attended Brown University, where he quickly became a star on the soccer team. A back injury ended his dream of playing professionally. Barrett instead focused on singing — he is a tenor with perfect pitch — and graduated Brown in 1977 with a double major in music and history. He spent several years in New York focusing on his music — which had moved from opera to the folk rock clubs — before joining NMC Laboratories, a dermatology products company started by his future father-in-law. He was 26. “I actually like sleeping at night and being awake during the day,” Barrett says.
He rose to CEO of NMC, which was acquired in 1990 by what went on to become Alpharma. He stayed on until 1997, running U.S. pharmaceuticals for several years, then left to launch a start-up with Johns Hopkins Medical Center before joining Teva.
Barrett has spearheaded a number of acquisitions for Cardinal Health. Last year it purchased Harvard Drug Group to expand its generics and over-the-counter medications business, as well as cardiology company Cordis, which provides less-invasive treatments for heart problems, from Johnson & Johnson. It also bought Metro Medical, the largest independent distributor of specialty drugs. Senior Writer Julie Segal recently spoke to Barrett about his management strategy and how Cardinal Health is positioning itself to do well in a health care environment that is almost unrecognizable from a decade ago.
Institutional Investor: You’re leading a huge company that does everything from delivering drugs to 100,000 locations a day to manufacturing surgical products. How do you develop a strategy for such a vast organization?
Barrett: When I think back to my first corporate job — a small dermatology start-up — I got to touch everything from sales and marketing to regulatory affairs to quality control and finance.
I even worked on the factory floor. That did allow me to function more comfortably as a leader because I felt fluent in many areas. But I was well aware that I wasn’t an expert in any one of them. I’ve always been pretty good at knowing what I’m not, and been able to draw on others for that expertise. I wound up running that dermatology business, and had to be able to draw on the talents of others. I was able to train myself with people who had great technical know-how. I do the same thing here. I surround myself with really competent people. We tend to think, as leaders, that we’re supposed to be the teachers all the time. But actually, really good leaders are good students as well.
When you joined Cardinal Health, it was stumbling. What influenced your thinking in leading it in a new direction?
Cardinal had been a really successful company through the ’80s and ’90s and then it ran into a bit of a bump in the early 2000s. I arrived when there was a real question inside the organization as to whether or not one part of our med-tech business and the rest of the business fit together that well. To be honest, coming in from a product company,
I was quite reluctant to part with some of those lines of business. But I did come to believe that our portfolio could be a more coherent integrated health care company by making some moves. We ended up spinning off part of the business, which became CareFusion and which was acquired [by Becton Dickinson] this past year. But part of what we needed to do was to reset who we were, and make sure that the portfolio that we had was coherent and strategically aligned with the changes that we saw in front of us in the health care system.
What was the most difficult part of the reorganization?
Inside the organization, the part that we spun off was seen by many as the high-growth med-tech sector, and the larger part of the organization — distribution — was seen as more mature. And in some ways, the organization had come to see the more mature part as almost the cash generator for the med-tech business.
I had to get the organization to rethink that. That actually, that large business was its own growth engine. Part of the challenge and excitement was to just help us reset our trajectory around how much capability we had, what a broad ranges of services and products that we had, and what enormous reach across the health system we had — and that we could use that as a source of growth.
How did you change people’s minds?
In every opportunity in front of employees, I was talking about growth. I was talking about the capabilities we had to be on the right side of health care changes to drive accelerated growth, and that we had the opportunity to be a very attractive investment for shareholders. I tried to make sure that I surrounded myself with people who felt the same way. When you’re trying to reframe a business, it can’t just be a simple message. It has to be very deeply integrated in your behaviors and your investment strategies and your deployment of capital and the things that you reward and don’t reward.
Talk about the incredible changes taking place in health care, including the ACA.
These were the changes we were thinking about back in 2009, when we started to regroup. It’s well beyond the Affordable Care Act, which hadn’t yet been implemented. Demographic changes are tremendous. We have a dramatically aging population. We have 11 million people today over the age of 80. That number will double by 2025. This is just in the U.S., but it’s happening globally as well. As you know, older people are higher consumers of health care products and services. That creates economic pressures. How are we going to give these people access? We are spending around 18 percent of GDP on health care, crowding out spending on other issues like infrastructure and education.
Innovation is also transforming health care and our ability not only to prolong life and treat disease, but in some cases to cure diseases and repair physical pathologies with medical devices. Finally, the big trend is consumers becoming more like consumers, meaning they will have a greater role in their own health and, ideally, in their own wellness.
How do these forces change what you do as a company?
It changes everything: how we deliver care, in what setting we deliver care and by whom. How do you measure the quality of the care over time and, of course, who pays for it?
What’s the most difficult part of planning for that?
Well, the easier part was clearly having a point of view on what kind of changes would occur. The hardest part, in a way, is managing pace. It wasn’t impossible to imagine some of the changes or how they might play out, although getting them all right is, of course, impossible. What’s most difficult is over what time period. How fast does it occur? How dramatic are the changes?
As a leader, that’s actually one of the biggest challenges. I could assume that change will happen as it has historically, just rather slowly, and you just stick exactly to what got you there. Then you run the risk of really being disrupted or blindsided. On the other hand, you can assume that change is going to occur overnight, very fast. You’re so preoccupied with the future you’re not focusing on the disciplines of competing in today’s world, and you get hurt in your core activities, and you’re sort of out over your skis on the future. I think this issue of managing pace is important. I remind the organization all the time that we need to compete to win in the world as we know it today, and — it’s an and, not an or — have a clear point of view on some of these future trends and make some thoughtful, disciplined, measured bets on the long term.
That seems, on the face of it, impossible.
It’s hard to do. Let me give you an example of some of our decisions. We believed that care would move to new settings. Generally more ambulatory and ultimately to the home. So we expanded our work in surgery centers and oncology clinics. We acquired a company called AssuraMed in 2013 to be able to deliver medical products to people in their homes. We formed an alliance with [medical supplier Henry] Schein to be able to more effectively serve some of the small physician practices, which was not our strength, and to ensure that we could serve a patient across the entire continuum, from hospital to clinic to surgery center to doctor’s office to pharmacy to home.
Tell us about changes in payment models, a trend that isn’t as clear at this point.
We felt that we’d start to see new kinds of payment models. Not completely moving away from the fee-for-service business, because we still see plenty of that, but more work around pay for outcomes or pay for quality, for value. And that’s hard to do, but I think that’s a journey for health systems. But the work that we do in interventional cardiology, for example, plays into this need. We acquired the Cordis line of business from Johnson & Johnson to be able to bring some of those cardiology products and services and our services together to help providers compete in a world where there might be different payment models, like payment for outcomes.
Are you involved in educating doctors, patients and others?
Yes, education, but not in the classic sense where we’re doing seminars. We’re using data to help providers identify patients and where they’re likely to be most effectively treated. So if you take a patient who is probably best served in a rehab facility and you send them to a long term care facility and they’re not getting the kind of physical rehabilitation they need, they’ll decline.
Health care is obviously a big issue in the upcoming U.S. presidential election. There may be enormous changes coming regardless of which party wins. How do you plan around that?
I mentioned earlier that it’s hard to judge pace. Now add the complexity of the political year and the political discourse, which can be headline driving, but not necessarily deeply informed as to what’s happening on the ground in health care. I think we have to remind ourselves that what’s happening in the trenches is often different than what’s happening in the news.
It’s going to be a year where there’s a lot of discussion in the political realm about health care. There are certainly those who continue to talk about whether the Affordable Care Act is going to be repealed. I think undoing that is extremely difficult and we would not bet on that. I do think, like any piece of large social legislation, it will probably be modified over time. I don’t think that would be unusual. I think for us the key is staying agile, having a point of view on the future, making sure we have a seat at the table as we’re thinking about policy changes and that our voice is heard.
Follow Julie Segal on Twitter at @julie_segal.
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