07.22.21
Rank: #8 (Last year: #8)
$15.44 Billion ($152.92 Billion)
Prior Fiscal: $15.63 Billion
Percentage Change: -1.2%
No. of Employees: 48,000 (total)
Global Headquarters: Dublin, Ohio
KEY EXECUTIVES:
Gregory B. Kenny, Board Chairman
Michael C. Kaufmann, CEO
Jason M. Hollar, Chief Financial Officer
Stephen M. Mason, CEO, Medical Segment
Victor L. Crawford, CEO, Pharmaceutical Segment
Michele A. M. Holcomb, Chief Strategy and Business Development Officer
Jessica L. Mayer, Chief Legal and Compliance Officer
Brian S. Rice, Exec. VP, Customer Support Services and Chief Information Officer
Sarah D. Wills, Exec. VP, Chief Corporate Affairs Officer
They headed south, far beneath the Mason-Dixon Line, to confront a difficult reality.
None of the travelers expected this trip to be easy. But each sensed it was necessary for both personal and professional growth.
“This is about living our values,” Cardinal Health CEO Michael C. Kaufman said in the company’s FY20 Corporate Citizenship report. “It’s about doing the right thing even when it is hard.”
For Kaufman, doing the right thing entailed journeying to Montgomery, Ala., last winter with a group of Cardinal Health executives to tackle racial injustice. The group visited the National Memorial for Peace and Justice, a six-acre tribute to the “legacy of enslaved Black people,” and African American lynching victims; the structure is meant to acknowledge past racial terrorism in America and champion social justice, according to the website.
Located in downtown Montgomery, the memorial consists of 805 hanging steel rectangles, representing each of the U.S. counties where a documented lynching occurred. Each suspended slab is engraved with the names and dates of documented victims, four of which unexpectedly matched the surnames of Kaufman’s travel companions.
After exploring the Memorial, the Cardinal group visited the Legacy Museum, which uses interactive media, sculpture, videography, and photographs to recount America’s slave trade, racial terrorism, the Jim Crow South, and world’s largest prison system.
Kaufman said he and his colleagues left Montgomery “deeply committed” to work together to fight racial inequity and social injustice. “We know that racism is our past and our present. If we do nothing and these issues remain unchecked, racism will be our future. We cannot let that happen,” he wrote in the Corporate Citizenship report. “The leadership team at Cardinal Health is deeply committed to a future with equity and justice, and we embrace the challenges along this path. It is the right thing to do...But it is also the smart thing to do. As we create a more diverse, inclusive, and equitable culture, we become a destination for the best talent. We also become more dynamic, innovative, and better able to serve our customers and communities around the world.”
And thence, the company becomes more profitable.
Smart indeed.
ANALYST INSIGHTS: Interestingly, in a heavy M&A year, Cardinal Health has been quiet on acquisitions. COVID has helped the outlook for Cardinal across its portfolio. It will be interesting to see if Cardinal continues to stay the course or make some type of dramatic portfolio moves. We’re guessing they don’t do anything major in the short term.
Yet Cardinal Health cannot base its future growth on racial equity alone. The company also must bolster its prospects through better data capabilities (artificial intelligence, predictive analytics), breakthrough innovations, and significant investments in such high-growth areas as Connected Care, Medical services, Specialty, and Cardinal Health at-Home.
“Across the company, our initiatives to enhance our operations, processes, and technologies are delivering meaningful value,” Kaufman noted in Cardinal Health’s FY20 annual report. “In the [fiscal] year, we invested $375 million back into the business, with a focus on enhancing our IT infrastructure and fueling strategic growth opportunities. We are on track to deliver savings beyond our multi-year, $500 million target. This disciplined approach will enable strong cash flow and working capital efficiency in 2021 and will position us for consistent, sustained growth in the future.” Overall, although this year presented significant global and industry challenges, we delivered on our commitments.”
And delivered well: Total sales rose 5 percent in fiscal 2020 to $152.92 billion, driven mostly by a 6 percent boost in Pharmaceutical segment revenue (to $137.5 billion). That growth resulted mainly from higher sales of drugs and Specialty solution products, Cardinal’s annual report stated.
Medical segment proceeds suffered the opposite fate, falling 1 percent to $15.44 billion due to the global coronavirus pandemic. But revenue was slightly offset by strong sales of Cardinal Health at-Home Solutions.
Global manufacturing and supply chain “cost-saving initiatives” bolstered Medical segment profit 15 percent to $663 million. Although the report did not provide specifics of those “initiatives,” one cost-saving measure likely was the springtime sale of Cardinal Health’s remaining equity interest in post-acute care benefits manager naviHealth.
Founded in 2012, naviHealth partners with health plans, hospital systems, physician groups, and other healthcare providers to coordinate clinical decision-making and track patient data. The firm manages acute-care services for about 4.5 million Medicare Advantage members and serves more than 140 hospitals in the Centers for Medicare and Medicaid Services’ Bundled Payments for Care Improvement Advanced program.
Brentwood, Tenn.-based naviHealth develops decision-support tools and uses standardized clinical operations as well as local care coordinators to identify existing care resources in the community and appropriate medical treatments. naviHealth claims its approach helps patients recover more quickly from ailments and hospitalizations.
Cardinal acquired a 71 percent stake in naviHealth six years ago for $290 million; the deal was hailed at the time for expanding Cardinal Health’s services to customers navigating the value-based reimbursement paradigm.
“Discharge and post-acute care coordination is critical for both hospital CEOs and their patients, as care is increasingly delivered in alternative sites and payment models shift the focus to patient outcomes rather than activity,” Michael Petras, president of Cardinal Health at-Home, said when the naviHealth deal was announced. “The acquisition of naviHealth aligns with Cardinal Health’s strategic priority of offering the most complete and integrated suite of services to meet the needs of our Integrated Delivery Network, hospital, and other customers.”
Cardinal Health retained its majority stake in naviHealth for nearly three years before selling a 55 percent ownership in the company to private equity firm Clayton, Dubilier & Rice in June 2018. naviHealth changed hands again less than two years later with its May 2020 sale to UnitedHealth Group’s Optum business. Terms of the deal were not disclosed but published reports estimated the transaction to be worth more than $1 billion.
Cardinal Health garnered $579 million from the sale of its remaining equity stake in naviHealth, according to the annual report. The money came in handy too, as the company incurred $85 million in expenses to recall potentially unsafe surgical gowns (just as the coronavirus began spreading rapidly, creating supply chain challenges) and $8.8 million to settle federal criminal charges.
The company recalled more than 9.1 million AAMI Level 3 (standalone) surgical gowns and 2.9 million Presource procedure packs containing surgical gowns over a contract manufacturing issue that potentially rendered the apparel unsterile. In its recall notice, Cardinal Health told customers the gowns were made beginning in the fall of 2018 at unapproved locations under improper environmental conditions, and were neither registered with the U.S. Food and Drug Administration nor qualified by Cardinal Health.
Affected Presource pack products included the company’s Non-Reinforced, Fabric-Reinforced, and RoyalSilk Non-Reinforced Surgical Gowns. Of the 9.1 million gowns included in the recall, 7.7 million were distributed to roughly 2,800 facilities.
“The safety of our products is a responsibility we take very seriously,” Cardinal Health said in a Jan. 15, 2020, letter to customers. “Our decision was based on quality issues identified at this contract manufacturer’s facility. At this time, we cannot provide sterility assurances with respect to the gowns or the packs containing the gowns because of the potential for cross-contamination. Our communications with the FDA confirm our direction that the affected products and packs containing the affected products should not be used.”
Cardinal Health tried mitigating any recall-related gown shortages by increasing its own production of similar products, and identifying alternative supply sources. The company also offered up AAMI Level 4 gowns to customers as penance.
A second act of contrition involved Cardinal Health paying $5.4 million to the U.S. Securities and Exchange Commission (SEC) to resolve a bribery case dating back to 2010. The company’s former Chinese subsidiary (Cardinal China) stood accused of violating the Foreign Corrupt Practices Act by making improper payments to state-owned retail entities in order to boost sales of a skincare company whose products it distributed in China.
Between 2010 and 2016, Cardinal China retained thousands of workers and managed two large marketing accounts for a European beauty and health company. The employees used marketing account money meant to promote the company’s products on payments to government-employed healthcare professionals and to employees of state-owned retail companies who had influence over purchasing decisions. Cardinal Health received a percentage of profits from sales derived from the improper payments, the SEC charged.
The agency said Cardinal did not do enough to make sure the transactions were executed appropriately.
““Cardinal’s foreign subsidiary hired thousands of employees and maintained financial accounts on behalf of a supplier without implementing anti-bribery controls surrounding these high-risk business practices,” Anita B. Bandy, an associate director in the SEC’s Division of Enforcement, said in February 2020 news release announcing the settlement. “The FCPA is designed to prohibit such conduct, which undermined the integrity of Cardinal’s books and records and heightened the risk that improper payments would go undetected.”
Without admitting or denying wrongdoing, Cardinal Health agreed to pay $5.4 million in disgorgement as well as $2.5 million and $916,887 in pre-judgement interest to the SEC.
More reparations are probable in FY21, as the company was named last July as a defendant in hundreds of product liability lawsuits filed in northern California. The more than 4,200 people lodging the complaints claim they were injured using the Cordis OptEase and TrapEase inferior vena cava filter products—items Cardinal Health inherited with its $1.9 billion purchase of Johnson & Johnson’s Cordis business in 2015. (The company sold the business in March 2021 for approximately $1 billion).
Nearly 40 plaintiffs in jurisdictions outside California have levelled similar accusations about the two Cordis products in 31 additional lawsuits. Cardinal Health expects its legal tab to run as high as $919 million, and has already accrued more than half of it ($468 million as of June 30, 2020).
“These lawsuits seek a variety of remedies, including unspecified monetary damages,” the company said in its FY20 annual report. “We continue to vigorously defend ourselves in these lawsuits and have begun to engage in preliminary resolution discussions with plaintiffs.”
$15.44 Billion ($152.92 Billion)
Prior Fiscal: $15.63 Billion
Percentage Change: -1.2%
No. of Employees: 48,000 (total)
Global Headquarters: Dublin, Ohio
KEY EXECUTIVES:
Gregory B. Kenny, Board Chairman
Michael C. Kaufmann, CEO
Jason M. Hollar, Chief Financial Officer
Stephen M. Mason, CEO, Medical Segment
Victor L. Crawford, CEO, Pharmaceutical Segment
Michele A. M. Holcomb, Chief Strategy and Business Development Officer
Jessica L. Mayer, Chief Legal and Compliance Officer
Brian S. Rice, Exec. VP, Customer Support Services and Chief Information Officer
Sarah D. Wills, Exec. VP, Chief Corporate Affairs Officer
They headed south, far beneath the Mason-Dixon Line, to confront a difficult reality.
None of the travelers expected this trip to be easy. But each sensed it was necessary for both personal and professional growth.
“This is about living our values,” Cardinal Health CEO Michael C. Kaufman said in the company’s FY20 Corporate Citizenship report. “It’s about doing the right thing even when it is hard.”
For Kaufman, doing the right thing entailed journeying to Montgomery, Ala., last winter with a group of Cardinal Health executives to tackle racial injustice. The group visited the National Memorial for Peace and Justice, a six-acre tribute to the “legacy of enslaved Black people,” and African American lynching victims; the structure is meant to acknowledge past racial terrorism in America and champion social justice, according to the website.
Located in downtown Montgomery, the memorial consists of 805 hanging steel rectangles, representing each of the U.S. counties where a documented lynching occurred. Each suspended slab is engraved with the names and dates of documented victims, four of which unexpectedly matched the surnames of Kaufman’s travel companions.
After exploring the Memorial, the Cardinal group visited the Legacy Museum, which uses interactive media, sculpture, videography, and photographs to recount America’s slave trade, racial terrorism, the Jim Crow South, and world’s largest prison system.
Kaufman said he and his colleagues left Montgomery “deeply committed” to work together to fight racial inequity and social injustice. “We know that racism is our past and our present. If we do nothing and these issues remain unchecked, racism will be our future. We cannot let that happen,” he wrote in the Corporate Citizenship report. “The leadership team at Cardinal Health is deeply committed to a future with equity and justice, and we embrace the challenges along this path. It is the right thing to do...But it is also the smart thing to do. As we create a more diverse, inclusive, and equitable culture, we become a destination for the best talent. We also become more dynamic, innovative, and better able to serve our customers and communities around the world.”
And thence, the company becomes more profitable.
Smart indeed.
ANALYST INSIGHTS: Interestingly, in a heavy M&A year, Cardinal Health has been quiet on acquisitions. COVID has helped the outlook for Cardinal across its portfolio. It will be interesting to see if Cardinal continues to stay the course or make some type of dramatic portfolio moves. We’re guessing they don’t do anything major in the short term.
—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors
Yet Cardinal Health cannot base its future growth on racial equity alone. The company also must bolster its prospects through better data capabilities (artificial intelligence, predictive analytics), breakthrough innovations, and significant investments in such high-growth areas as Connected Care, Medical services, Specialty, and Cardinal Health at-Home.
“Across the company, our initiatives to enhance our operations, processes, and technologies are delivering meaningful value,” Kaufman noted in Cardinal Health’s FY20 annual report. “In the [fiscal] year, we invested $375 million back into the business, with a focus on enhancing our IT infrastructure and fueling strategic growth opportunities. We are on track to deliver savings beyond our multi-year, $500 million target. This disciplined approach will enable strong cash flow and working capital efficiency in 2021 and will position us for consistent, sustained growth in the future.” Overall, although this year presented significant global and industry challenges, we delivered on our commitments.”
And delivered well: Total sales rose 5 percent in fiscal 2020 to $152.92 billion, driven mostly by a 6 percent boost in Pharmaceutical segment revenue (to $137.5 billion). That growth resulted mainly from higher sales of drugs and Specialty solution products, Cardinal’s annual report stated.
Medical segment proceeds suffered the opposite fate, falling 1 percent to $15.44 billion due to the global coronavirus pandemic. But revenue was slightly offset by strong sales of Cardinal Health at-Home Solutions.
Global manufacturing and supply chain “cost-saving initiatives” bolstered Medical segment profit 15 percent to $663 million. Although the report did not provide specifics of those “initiatives,” one cost-saving measure likely was the springtime sale of Cardinal Health’s remaining equity interest in post-acute care benefits manager naviHealth.
Founded in 2012, naviHealth partners with health plans, hospital systems, physician groups, and other healthcare providers to coordinate clinical decision-making and track patient data. The firm manages acute-care services for about 4.5 million Medicare Advantage members and serves more than 140 hospitals in the Centers for Medicare and Medicaid Services’ Bundled Payments for Care Improvement Advanced program.
Brentwood, Tenn.-based naviHealth develops decision-support tools and uses standardized clinical operations as well as local care coordinators to identify existing care resources in the community and appropriate medical treatments. naviHealth claims its approach helps patients recover more quickly from ailments and hospitalizations.
Cardinal acquired a 71 percent stake in naviHealth six years ago for $290 million; the deal was hailed at the time for expanding Cardinal Health’s services to customers navigating the value-based reimbursement paradigm.
“Discharge and post-acute care coordination is critical for both hospital CEOs and their patients, as care is increasingly delivered in alternative sites and payment models shift the focus to patient outcomes rather than activity,” Michael Petras, president of Cardinal Health at-Home, said when the naviHealth deal was announced. “The acquisition of naviHealth aligns with Cardinal Health’s strategic priority of offering the most complete and integrated suite of services to meet the needs of our Integrated Delivery Network, hospital, and other customers.”
Cardinal Health retained its majority stake in naviHealth for nearly three years before selling a 55 percent ownership in the company to private equity firm Clayton, Dubilier & Rice in June 2018. naviHealth changed hands again less than two years later with its May 2020 sale to UnitedHealth Group’s Optum business. Terms of the deal were not disclosed but published reports estimated the transaction to be worth more than $1 billion.
Cardinal Health garnered $579 million from the sale of its remaining equity stake in naviHealth, according to the annual report. The money came in handy too, as the company incurred $85 million in expenses to recall potentially unsafe surgical gowns (just as the coronavirus began spreading rapidly, creating supply chain challenges) and $8.8 million to settle federal criminal charges.
The company recalled more than 9.1 million AAMI Level 3 (standalone) surgical gowns and 2.9 million Presource procedure packs containing surgical gowns over a contract manufacturing issue that potentially rendered the apparel unsterile. In its recall notice, Cardinal Health told customers the gowns were made beginning in the fall of 2018 at unapproved locations under improper environmental conditions, and were neither registered with the U.S. Food and Drug Administration nor qualified by Cardinal Health.
Affected Presource pack products included the company’s Non-Reinforced, Fabric-Reinforced, and RoyalSilk Non-Reinforced Surgical Gowns. Of the 9.1 million gowns included in the recall, 7.7 million were distributed to roughly 2,800 facilities.
“The safety of our products is a responsibility we take very seriously,” Cardinal Health said in a Jan. 15, 2020, letter to customers. “Our decision was based on quality issues identified at this contract manufacturer’s facility. At this time, we cannot provide sterility assurances with respect to the gowns or the packs containing the gowns because of the potential for cross-contamination. Our communications with the FDA confirm our direction that the affected products and packs containing the affected products should not be used.”
Cardinal Health tried mitigating any recall-related gown shortages by increasing its own production of similar products, and identifying alternative supply sources. The company also offered up AAMI Level 4 gowns to customers as penance.
A second act of contrition involved Cardinal Health paying $5.4 million to the U.S. Securities and Exchange Commission (SEC) to resolve a bribery case dating back to 2010. The company’s former Chinese subsidiary (Cardinal China) stood accused of violating the Foreign Corrupt Practices Act by making improper payments to state-owned retail entities in order to boost sales of a skincare company whose products it distributed in China.
Between 2010 and 2016, Cardinal China retained thousands of workers and managed two large marketing accounts for a European beauty and health company. The employees used marketing account money meant to promote the company’s products on payments to government-employed healthcare professionals and to employees of state-owned retail companies who had influence over purchasing decisions. Cardinal Health received a percentage of profits from sales derived from the improper payments, the SEC charged.
The agency said Cardinal did not do enough to make sure the transactions were executed appropriately.
““Cardinal’s foreign subsidiary hired thousands of employees and maintained financial accounts on behalf of a supplier without implementing anti-bribery controls surrounding these high-risk business practices,” Anita B. Bandy, an associate director in the SEC’s Division of Enforcement, said in February 2020 news release announcing the settlement. “The FCPA is designed to prohibit such conduct, which undermined the integrity of Cardinal’s books and records and heightened the risk that improper payments would go undetected.”
Without admitting or denying wrongdoing, Cardinal Health agreed to pay $5.4 million in disgorgement as well as $2.5 million and $916,887 in pre-judgement interest to the SEC.
More reparations are probable in FY21, as the company was named last July as a defendant in hundreds of product liability lawsuits filed in northern California. The more than 4,200 people lodging the complaints claim they were injured using the Cordis OptEase and TrapEase inferior vena cava filter products—items Cardinal Health inherited with its $1.9 billion purchase of Johnson & Johnson’s Cordis business in 2015. (The company sold the business in March 2021 for approximately $1 billion).
Nearly 40 plaintiffs in jurisdictions outside California have levelled similar accusations about the two Cordis products in 31 additional lawsuits. Cardinal Health expects its legal tab to run as high as $919 million, and has already accrued more than half of it ($468 million as of June 30, 2020).
“These lawsuits seek a variety of remedies, including unspecified monetary damages,” the company said in its FY20 annual report. “We continue to vigorously defend ourselves in these lawsuits and have begun to engage in preliminary resolution discussions with plaintiffs.”