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McKesson Investor/Analyst Day (Part III: Information Solutions)
- 1. Graham King President McKesson Information Solutions
- 2. Agenda n MIS Update n Product Solution Strategies n Outlook . . . Continued Revenue Growth and Margin Expansion 2
- 3. MIS Update Overview Employee Financial Market Solution Employee Financial Market Solution Expertise Strength Presence Portfolio Expertise Strength Presence Portfolio u~$1 Billion u60% of health uMost u6081 Revenues systems comprehensive employees u14.5% of u82% of uBest-of-class u1241 R&D revenue covered lives •Software u848 goes to •Services u Largest / most customer R&D •Outsourcing profitable support investment •Consulting International u481 •Tools HIT business Clinicians •Content •Connectivity 3
- 4. MIS Update Agenda n MIS Update Continued Operational Improvement l Strong Momentum l Improved Financial Performance l 4
- 5. Continued Operational Improvement Category Status Employee Satisfaction Excellent 5
- 6. Continued Operational Improvement Employee Satisfaction . . . Excellent Em 3.80 plo 23 3.75 Mo ye eT nth s C urn 3.66 ov 3.59 on er se Industry Average 3.53 cuti Dow ve nt o Im pro 6.9 % ve me 3.30 nt Q3 FY'00 Q4 FY'00 Q2 FY'01 Q3 FY'02 Q4 FY'02 6
- 7. Continued Operational Improvement Category Status Employee Satisfaction Excellent Customer Support Excellent 7
- 8. Continued Operational Improvement Customer Support . . . Excellent 50% 45% 40% 35% 30% 93% Satisfaction 25% 20% 15% 10% 5% 31,274 Customer 0% Q1 Surveys Q4 Q4 Q1 Q2 Q3 Q4 Q2 Q3 FY'00 FY'01 FY'02 % First call Resolution 8
- 9. Continued Operational Improvement Category Status Employee Satisfaction Excellent Customer Support Excellent Customer Satisfaction Significant Improvement 9
- 10. Continued Operational Improvement Customer Satisfaction . . . Significant Improvement 7 5.55 5.29 5.25 5.02 4.94 0 Q1 Q4 Q2 Q2 Q4 1998 FY'00 FY'01 FY'02 FY'02 * Source: McKesson CIO Survey (CIO Responses 377 2 nd Qtr FY02, 288 4 th Qtr FY02) 10
- 11. Continued Operational Improvement Customer Satisfaction . . . Significant Improvement If Buying, Choose McKesson as Vendor of Choice? 74% 72% 73% 70% Likely 68% 69% 66% Likely 64% 62% 64% Likely 60% 58% FY'01 2Q FY'02 4Q FY'02 * Source: McKesson CIO Survey (665 CIO Survey Responses) 11
- 12. Continued Operational Improvement Category Status Employee Satisfaction Excellent Customer Support Excellent Customer Satisfaction Significant Improvement R&D Key Deliverables on Schedule 12
- 13. Continued Operational Improvement R&D . . . Key Deliverables on Schedule Actual Planned Horizon Clinicals GA Date GA Date Q3 FY01 Q3 FY01 Care Record Q3 FY01 Q3 FY01 Meds Manager Q4 FY01 Q4 FY01 Physician Portal Q4 FY01 Q4 FY01 Surgical Manager Q3 FY02 Q3 FY02 Ambulatory Q3 FY03 On Schedule Expert Orders Beta Q2 FY03 TBD Emergency Dept * Projected 13
- 14. MIS Update Agenda n MIS Update Continued Operational Improvement l Strong Momentum l Improved Financial Performance l 14
- 15. Strong Momentum Category Status Full Year up 37% One-Time Software Bookings 2nd Half up 73% 15
- 16. Strong Momentum Outselling the Competition (in Millions) 500 150% 220% 450 487 400 350 300 322 250 200 219 150 100 McKesson Cerner Eclipsys Comparison of Second Half (Q3 & Q4) reported Bookings 16
- 17. Strong Momentum Category Status Full Year up 37% One-Time Software Bookings 2nd Half up 73% Backlog Up 35% Year to Year 17
- 18. Strong Momentum Category Status Full Year up 37% One-Time Software Bookings 2nd Half up 73% Backlog Up 35% Year to Year Establish Clinical Leadership Excellent Progress 18
- 19. Strong Momentum Clinical Leadership . . . Results FY'02 Clinical Units Sold n Enterprise Solutions • Physician access • Medication safety 495 Mar FY'02 • Evidence- Evidence-based POE • Advanced nursing n Departmental Solutions 233 Dec FY'02 • Ambulatory • Surgery • Laboratory • Emergency • Pharmacy 121 Oct FY'02 75 175 275 375 475 575 Product Units Oct FY'02 Dec FY'02 Mar FY'02 Horizon Clinicals Announced July 2001 19
- 20. Strong Momentum Clinical Leadership . . . Increased Opportunities wth Gro 88% 2 $652 (Millions) $226 Q1 FY'02 Q1 FY'03 Clinical Funnel 20
- 21. MIS Update Agenda n MIS Update Continued Operational Improvement l Strong Momentum l Improved Financial Performance l 21
- 22. Improving Financial Performance Category Status Six Consecutive Quarters of Revenue Year -over -Year Growth 22
- 23. Improving Financial Performance Revenue Growth (in Millions) 9% 1000 997 950 900 915 850 800 750 700 FY'01 FY'02 *Excluding AmiSys 23
- 24. Improving Financial Performance Category Status Six Consecutive Quarters of Revenue Year -over -Year Growth Up 9% Year to Year Four Consecutive Quarters of Margin Expansion 24
- 25. Improving Financial Performance Four Consecutive Quarters of Margin Expansion 6.3% 6.1% 5.7% 0.1 4.3% 0.1 0.0 0.0 0.0 0.0 -2.2% -0.1 4Q01 1Q02 2Q02 3Q02 4Q02 25
- 26. Improving Financial Performance Category Status Six Consecutive Quarters of Revenue Year -over -Year Growth Up 9% Year to Year Four Consecutive Quarters of Margin Expansion Operating Income $56 Million vs. Break Even 26
- 27. MIS Update Summary n Continued Operational Improvement n Established Strong Momentum n Continued Financial Improvement 27
- 28. Agenda n MIS Update n Product Solution Strategies n Outlook . . . Continued Revenue Growth and Margin Expansion 28
- 29. Pamela J. Pure Chief Operating Officer McKesson Information Solutions
- 30. McKesson Strategy n Provide core product capabilities to automate the continuum of care n Leverage existing customer investment n Open, service oriented architecture n Incrementally deploy modular applications n Proven, documented ROI for all major components of the system n Implementation and re- engineering services to assure success 30
- 31. Automating the Continuum of Care Closed Loop Care Distribution Resources Managed Patient Care Path Event Identified Determined Scheduled Care Billing General Analysis Delivered Accounting Eligibility/Authorization Robot Scanning Transaction Hub 31
- 32. Closed Loop Care Clinical Management Distribution Resources Managed Patient Care Path Event Clinical Identified Determined Management Scheduled Horizon Care Clinical Billing General Analysis Expert Management Delivered Accounting Orders Eligibility/Authorization Robot Scanning Transaction Hub 32
- 33. Horizon Distribution Clinicals Resources Managed Patient Clinical Event Identified Management Scheduled Horizon Analysis Care Clinical Billing General Expert Management Delivered Accounting Orders Eligibility/Authorization Robot Scanni ng Hub n Physician Access to Patient Information n Comprehensive Solution for Medication Safety n Closed Loop Medical Imaging Management n Evidence-Based Orders to Reduce Variability of Care 33
- 34. Physician Access to Patient Information n Patient information anywhere, anytime n Access to all relevant patient information • Results • Medications McKesson Solutions: • Problems • Orders HorizonWP Physician Portal Horizon Patient Folder n Cross episodic Horizon Care Record Horizon MobileCare n Access to images n Customized by physician 34
- 35. HorizonWP Physician Portal & Horizon MobileCare Horizon Business Insight Pathways Healthcare Scheduling ALI PACS STAR Horizon Passport Horizon Clinical Doc. Horizon Care Record 35
- 36. Access Anytime, Anywhere McKesson Strategy The Portable Portal •Incrementally deploy modular applications •Open, service oriented n Patient in a pocket architecture l Results l Transcriptions l Medications l Allergies l Vitals, Fluids l Reminders and Alerts n Wired or docked n Palm or PocketPC 36
- 37. Customer Success Physician Access 20,000 Registered Users n Providence Healthcare – Portland, OR Training Time – 10 l 800+ log-ins per day minutes n Northside Hospital – Atlanta, GA l 275 log-ins per day n Memorial University Hospital – Savannah, GA l 600 log-ins per day 37
- 38. Horizon Distribution Clinicals Resources Managed Patient Clinical Event Identified Management Scheduled Horizon Analysis Care Clinical Billing General Expert Management Delivered Accounting Orders Eligibility/Authorization Robot Scanni ng Hub n Physician Access to Patient Information n Comprehensive Solution for Medication Safety n Closed Loop Medical Imaging Management n Evidence-Based Orders to Reduce Variability of Care 38
- 39. Horizon Clinicals Closed Loop Medication Management McKesson Strategy •Incrementally deploy modular applications Solutions At Every documented ROI •Proven, Point of Care McKesson McKesson DISTRIBUTION CONSULTING Distribution Services Consulting Services Product fulfillment Analysis Usage analysis Process Improvement PakPlus-Rx Horizon Horizon Horizon Horizon Care Record Robot-Rx PRESCRIBING: TRANSCRIBING: DISPENSING: ADMINISTERING: MONITORING Expert Orders Meds Manager Horizon Care Alerts Admin-Rx Acu-Dose-Rx 39% of errors 12% of errors 11% of errors 38% of errors Improved Pharmacist Bar-coding Point of Care Quality & Physician Verification Outcomes Robotics Check “5” rights Workflow Intervention Clinical Alerts Centralized & Care Team Clinical tracking Decentralized Communication Longitudinal Screening Dispensing Record 39
- 40. Horizon Distribution Clinicals Resources Managed Patient Clinical Event Identified Management Scheduled Horizon Analysis Care Clinical Billing General Expert Management Delivered Accounting Orders Eligibility/Authorization Robot Scanni ng Hub n Physician Access to Patient Information n Comprehensive Solution for Medication Safety n Closed Loop Medical Imaging Management n Evidence-Based Orders to Reduce Variability of Care 40
- 41. Horizon Clinicals Closed Loop Medical Image Management Today’s Problems: n Cost of Film Management n Elapsed Time Between Order and Result n Incorrect Procedures Ordered n Patient Identification Errors n Fragmented Workflow n Incomplete Patient Record 41
- 42. Closed Loop Medical Image Management Order Entry Scheduling Perform Study Diagnostic Interpretation Improved Maximizing Improved Enhanced Patient patient Patient Safety Diagnostics Preparation Convenience with modality Workflow worklists Interactive Optimized Asset efficiencies clinical decision utilization Enhanced Integrated support scanning Conflict reporting protocols checking Access to Care Team complete Communication medical Increased record operational efficiencies 42
- 43. ALI Provides Diagnostic Interpretation n Expands the Horizon Clinical Solution to include medical imaging n Specialized workflow powered by superior clinical decision support n Augments and complements existing technologies n Tools that improve their workflow! 43
- 44. A.L.I. Technologies Proven, Innovative PACS Provider n Company l Incorporated in 1988 l 260 employees – unparalleled expertise n Sales l US $25.5 million FY’01 revenue l 18% R&D reinvestment n Highlights l 500+ systems installed l Industry leader of ultrasound PACS and enterprise medical imaging l Unmatched customer satisfaction in the industry l Track record for competitive success l Open scalable architecture 44
- 45. Large Market Opportunity n Growing demand for medical imaging 20% Annual growth l $400 million in 2001 to $1.1 billion in 2005 l Over 50 McKesson prospects already identified l n Robust offering will drive incremental sales l 43% of Horizon Clinical opportunities also looking at medical imaging l Creates cross-sell opportunity – i.e., Physician Portal, Patient Folder 45
- 46. Large Market Opportunity n Provides a strong entrée point to non-McKesson customers McKesson’s strong track record of success l – Horizon Meds Manager 36% of FY02 sales to non-McK – Horizon Patient Folder 46% of FY02 sales to non-McK A.L.I. installed at Siemens, Cerner and Eclipsys sites l n Medical imaging is a compelling driver during clinical system selection 46
- 47. Closed Loop Medical Image Management Scheduling Perform Study Diagnostic Information Order Entry Interpretation Distribution Improved Maximizing Improved Enhanced Faster response Patient patient Patient Safety Diagnostics for patient Preparation Convenience with modality treatment Workflow worklists Interactive Optimized Asset efficiencies Improved result clinical decision utilization Enhanced access Integrated support scanning Conflict reporting Longitudinal protocols checking Record Access to Care Team complete Improved Communication medical Quality & Increased record Outcomes operational efficiencies 47
- 48. Closed Loop Medical Image Management The Complete View of the Patient Discrete Data •Lab •Vitals - I&Os Medical Images Documents •History & Physical •Discharge Summary 48
- 49. Closed Loop Medical Image Management Order Entry Scheduling Perform Study Diagnostic Information Horizon Healthcare ALI Physician Modality Interpretation Distribution Expert Orders Scheduling Workstation Portal Interfaces Improved Maximizing Improved Enhanced Faster response Patient patient Patient Safety Diagnostics for patient McKesson Strategy Preparation Convenience with modality treatment Workflow Optimized Asset worklists Interactive efficiencies Improved result •Incrementally deploy Integrated modular clinical decision utilization Enhanced access support scanning Conflict applications reporting Longitudinal protocols checking Record Access to Care Team complete Improved •Automate the continuum of Communication medical Quality & care Increased record Outcomes operational efficiencies •Open, service oriented architecture 49
- 50. Horizon Distribution Clinicals Resources Managed Patient Clinical Event Identified Management Scheduled Horizon Analysis Care Clinical Billing General Expert Management Delivered Accounting Orders Eligibility/Authorization Robot Scanni ng Hub n Physician Access to Patient Information n Comprehensive Solution for Medication Safety n Closed Loop Medical Imaging Management n Evidence-Based Orders to Reduce Variability of Care 50
- 51. Horizon Clinicals Reduce Variability of Care Today’s Problems: n Variations cost $250 billion a year n Care variation is discovered retrospectively n 80% of healthcare dollar determined by care providers at the point of care n 22,000 new journal articles each year n 30+ new prescription drugs each year 51
- 52. Horizon Clinicals Reduce Variability of Care Ø Real time Clinical Decision Support Heads up display l Just in time advisor l Personal Assistant l Vigilant Aid l Ø Horizon Knowledge Center 933 Order Sets l 6,250 Clinical Orderables l All clinical disciplines l 52
- 53. Customer Success Horizon Expert Orders McKesson Strategy •Open, service oriented architecture Vanderbilt University Medical Center •Proven, documented ROI n 15,000+ orders generated per day, 70% by physicians n 600+ treatment advices generated per day with about 25% resulting in a change n $ 5+ million annual reduction in pharmacy costs, excluding the value of ADE prevention n $ 1+ million annual reduction in x-rays n Substantial improvements in compliance and outcomes $ 7+ million annualized bottom line impact 53
- 54. Horizon Clinicals Reduce Variability of Care § Horizon Expert Orders Beta Code Delivered to St. Luke’s Clinical Leadership Program 100% Subscribed Acquired Vanderbilt 74th Integrated Decision Development Customer Visit Support/CPOE Complete To Vanderbilt Mar ‘02 Sept ‘01 Jan ‘02 May ‘02 Sep ‘02 Dec ‘02 54
- 55. Kay Carr Senior Vice-President, CIO St. Luke’s Episcopal Health System Houston, TX
- 56. St. Luke’s Episcopal Health System § Community teaching hospital and tertiary referral center § Affiliated with the Texas Heart Institute § 625 beds in operation: § 30,000 annual admissions § 800 active physicians § 23 clinics - approximately 300 physicians and 1M+ visits § New 80 bed inpatient facility will open in 2003 § Recognitions include: § US News and World Report-Top 10 Cardiovascular Hospital § HCIA-Sachs 100 Top Orthopedic Hospital § Most Wired Hospital § Fortune 100 Best Employers § First ANA Magnet Hospital in Texas 56
- 57. McKesson and St Luke’s n Majority of the mission critical systems acquired over the last 6 years are McKesson including § Patient information, scheduling and accounting § Pharmacy § Materials Management § Home Health § Clinical Documentation and Medication Administration § PACS – Current user of ALI § Over the last 2 years, McKesson has demonstrated a renewed focus on § Retooling and executing their vision to more closely align with customer strategies § Listening and responding to customer concerns and input § Meeting support commitments n During Tropical Storm Allison last June, McKesson went above & beyond to support patient care 57
- 58. Clinical Initiatives n Quality of Care l Support evidence based medicine l Focus on preventing adverse events l Provide a single view of patient care activities n Resource Management l Automate clinical protocols l Reduce redundant or not clinically indicated test/procedures l Integrate information from many clinical systems l Support productivity initiatives n Growth l Control of length of stay l Create increased capacity 58
- 59. Why Horizon Expert Orders? n Physician directive to use automation to address potential patient safety issues n Attempted to do it ourselves and discovered complexity of logic n Strong desire to leveraging existing investment in clinical foundation n Physicians and executive team impressed with Horizon Expert Orders Vanderbilt experience and results from years of physician l participation Intellectual as well as workflow focus l n McKesson’s vision compatible with St. Luke’s 59
- 60. Horizon Expert Orders Current Status n Testing latest version of software, continuing content review and workflows n Implementation plan Product Delivered on Time l – March, 2002 Month 4 – Go live with initial group of orthopedic surgeons l – July, 2002 Month 6 – Train and rollout to entire orthopedic unit l – September, 2002 Month 7 - Implement Interventional Cardiology Unit l – October, 2002 Month 10 – Additional units l – January, 2003 n Plan on schedule – staff enthusiastic 60
- 61. McKesson Customers Clinical Opportunity (Billions) 25% of HIS 75% of HIS Physician Access $0.3 $0.9 Variability of Care $0.6 $1.8 Closed Loop Med. Mgt. $0.4 $1.0 Closed Loop Image Mgt. $0.6 $1.8 Addtl. Clinical Product Units $0.5 $1.6 Total $2.4 $7.1 Opportunity includes S/W, H/W, Services, Maintenance Source: MIS Business Units 61
- 62. Closed Loop Care Revenue Cycle Management Distribution Resources Managed Patient Revenue Care Path Event Identified Cycle Determined Scheduled Horizon Care Revenue Billing General Analysis Expert Delivered Cycle Accounting Orders Eligibility/Authorization Revenue Cycle Robot Scanning Revenue Hub Cycle 62
- 63. Revenue Cycle Management Today’s Problems Problem Areas Lost Revenue Self Pay Bad Debt Bad Debt from Authorization Self Pay $3M 12% $4.2M Denials Denials ELiability $2M 41% ($10.4M) Documentation Errors $1.6M Med Nec $2M Underpayments Underpayments Billing Errors 47% $12M $.6M Average Annual Losses = $25.4 million For a Hospital with a Operating Expense of $200 million Source: Health Care Advisory Board, Zimmerman & Associates, HFMA HFMA and customer experience Based on hospital with average average payor mix 63
- 64. Revenue Cycle Management Account Services Request for Eligibility Passport Patient Resource ADT Outpatient Authorization Data Verification Registration Referrals Service Identification Scheduling Collection of Need Communicates Single Source of Availability of Reduce Reduce Claim Need for Service Patient Appropriate Redundancy Denials Across Enterprise Identification Resources Improve Accuracy Increase Cash Collections Improve Days in A/R 64
- 65. Revenue Cycle Management Claims Management McKesson Strategy •Incrementally deploy modular applications •Proven, documented ROI •Leverage existing investments Compliance Transaction Claim Tracking Payor EC2000 Denial & Contract Denial Claim Rules Payor Analysis Communication Appeal Mgmt. Advisor Solution Hub Management Tracking Identify & Reduce Labor Improve A/R Increase Process Strengthen Payor Reduce Claim Cost Days Efficiency Negotiation Rejection Centralized Facilitate Improve Payor Improve Payor Improve Payor Collections Outcomes Accountability Compliance Connectivity HIPAA Support 65
- 66. Customer Success Revenue Cycle Management n Million Dollar Club l 29 customer have recovered in excess of $1M – Rex Healthcare – Raleigh, NC – Sioux Valley Hospital – Sioux Falls, ND – St. Mary’s Health System – Knoxville, TN – Community Hospital – Munster, IN – Providence Health System – Portland, OR n Wellmont (TN) - Claims Administrator and Contract Management – Reduced DSO by 8 Days – Improved Cash on Hand by $10 million – Recognized $37 million in underpayment recovery 66
- 67. McKesson Customers Revenue Cycle Opportunity (Billions) 25% of HIS 75% of HIS TSH (Eligibility, Referrals & Claims) $0.4 $1.3 EC2000 & Statements $0.06 $0.2 Compliance Advisor $0.1 $0.4 PCON $0.05 $0.1 Legacy Trendstar (Upgrade) $0.06 $0.2 Horizon Business Insight $0.3 $0.8 Total $1.0 $3.0 Opportunity includes S/W, H/W, Services, Maintenance Source: MIS Business Units 67
- 68. Closed Loop Care Resource Management Distribution Resource Management Resources Managed Patient Care Path Event Resource Identified Determined Management Scheduled Horizon Care Billing General Analysis Resource Resource Expert Delivered Management Accounting Mgmt Orders Eligibility/Authorization Robot Scanning Hub 68
- 69. Closed Loop Resource Management McKesson Strategy •Incrementally deploy modular applications •Implementation and reengineering services to assure success Consulting McKesson DISTRIBUTION: CONSULTING: McKesson Distribution Services Services • Analysis • Point of stocking distribution • Procedure-based distribution • Process Management programs • eCrossLink Product Selection / • Horizon Supply •OPTIMA • Horizon Business • PMM Order Logistics: Decision Support: Payment: Intelligence Source •OptiPak • Supply Management • PDS Utilization: Management: • HSM •SupplyScan On-line • Pathways Decision • Horizon BI ••Electronic PMM ••HSM -of-use • New Financial • Support • •Financial & outcome McKesson Consulting Point Data repository • Workflow / • SupplyScan •PMM Solution information linked Services requisitioning inventory mgmt. discrepancy routing • Management reporting • Supply Management • Inventory mgmt. • Contract compliance • Workflow / approvals • eCommerce • Decentralized access On-Line • Demand forecasting • Targeted monitoring • eCommerce • Contract pricing • Data modeling tools • Bar coding & review • Procedure based controls • Product ordering standardization • Product substitution 69
- 70. McKesson Customers Resource Management Opportunity (Billions) 25% of HIS 75% of HIS Legacy Surgical Products (Upgrade) $0.08 $0.2 Horizon/Pathways Surgical Products $0.05 $0.2 Legacy Materials Products (Upgrade) $0.07 $0.2 Horizon/Pathways Materials Products $0.05 $0.1 All Scheduling Products $0.1 $0.3 Total $0.3 $1.0 Opportunity includes S/W, H/W, Services, Maintenance Source: MIS Business Units 70
- 71. Closed Loop Care Distribution Distribution Resource Management Resources Managed Patient Clinical Revenue Event Resource Identified Management Management Cycle Scheduled Horizon Care Clinical Revenue Billing General Resource Analysis Resource Expert Management Delivered Cycle Management Accounting Mgmt Orders Eligibility/Authorization Revenue Cycle Robot Scanning Revenue Hub Cycle 71
- 72. McKesson Strategy ü Provide core product capabilities to automate the continuum of care ü Open, service oriented architecture ü Incrementally deploy modular applications ü Implementation and re- engineering services to assure success ü Proven, documented ROI for all major components of the system ü Leverage existing customer investment 72
- 73. Agenda n MIS Update n Product Solution Strategies n Outlook . . . Continued Revenue Growth and Margin Expansion Market Opportunity l Strategies to Grow Revenue l Strategies to Expand Margin l 73
- 74. Market Opportunity . . . Excellent Growing 9.9% $10.9B 10 9 8 $7.5B Other 7 (Billions) Internet 6 5 Resource Mgt 4 Revenue Cycle 3 Clinicals 2 1 0 FY'02 FY'05 *External IT spending for USA care delivery organizations 74 Source: Gartner Group MIS requested report
- 75. Market Opportunity Largest Customer Base . . . Leader McKesson Siemens–36% of IDNs 60% of IDNs IDX–18% of IDNs Cerner–37% of IDNs Meditech–26% of IDNs Eclipsys–20% of IDNs Note: U.S. Market Only Source: Dorenfest Database - April 2002 75
- 76. Market Opportunity Prestigious/Large Customers . . . Leader MIS Market Bed Size Total Hospitals MIS Hospitals* Presence % 422 265 63% 500+ 46% 200-500 1,278 594 23% <200 2,787 634 Total 4,487 1,493 33% Primary MIS target market = 51% Note: An MIS hospital indicates installed HIS system 76 Source: HCFA and BU managers
- 77. Market Opportunity McKesson Customer Base = Large Opportunity (Billions) 25% of HIS 75% of HIS Clinical $2.4 $7.1 Revenue Cycle $1.0 $3.0 Resource Management $0.3 $1.0 Services $2.0 $5.9 Total $5.7 $17.0 Opportunity includes S/W, H/W, Services, Maintenance Source: MIS Business Units 77
- 78. Agenda n Outlook . . . Continued Revenue Growth and Margin Expansion Market Opportunity l Strategies to Grow Revenue l Strategies to Expand Margin l 78
- 79. Strategies to Grow Revenue Strategy Status 17 Key Announcements for New Product Introductions FY’02 and FY’03 79
- 80. Strategies to Grow Revenue Continue New Product Introductions FY’02 New Products FY’03 Planned GA Products n Horizon Foundation n Horizon Expert Orders n Horizon Medical Imaging n Horizon Physician Portal n Horizon Emergency Care n Horizon Care Record n Horizon Community Portal n Horizon Meds Manager n Horizon Supply Source n WebTREND n Horizon Business Folder n Horizon Surgical Manager n Revenue Cycle Account Services n Home Health Portal l Electronic Eligibility & n STAR and Series Horizon Authorizations Enablers l Credit Checking n Horizon Homecare Advanced Clinicals 80
- 81. Strategies to Grow Revenue Strategy Status 17 Key Announcements for New Product Introductions FY’02 and FY’03 Grow Sales Organization In Process 81
- 82. Strategies to Grow Revenue Grow Size of Sales Organization h owt 1000 l Gr a Tot 33% 800 600 774 Total Sales 651 400 wth Clinical Sales o l Gr 582 nica Cli 200 % 298 182 125 61 0 FY01 FY02 FY03 82
- 83. Strategies to Grow Revenue Strategy Status 17 Key Announcements for New Product Introductions FY’02 and FY’03 Grow Sales Organization In Process Grow Professional Services In Process 83
- 84. Strategies to Grow Revenue Grow Professional Services n Grow Professional Services: l Clinical Implementation Manpower – FY’01 to FY’03 up 100% Consulting Manpower l – FY’01 to FY’03 up 40% 84
- 85. Strategies to Grow Revenue Strategy Status 17 Key Announcements for New Product Introductions FY’02 and FY’03 Grow Sales Organization In Process Grow Professional Services In Process Increase Sales Outside Making Progress McKesson Customer Base 85
- 86. Strategies to Grow Revenue Increase Sales Outside McKesson Customer Base n Increase Sales Teams l Enterprise Systems l Departmental Systems l Total Planned Increase (FY’01 – FY’03) – Manpower FY’01 - 26 – Manpower FY’03 - 70 – Growth – 269% 86
- 87. Strategies to Grow Revenue Increase Sales Outside McKesson Customer Base n Increase Sales Teams l Enterprise Systems l Departmental Systems l Total Planned Increase (FY’01 – FY’03) – Manpower FY’01 - 26 – Manpower FY’03 - 70 – Growth – 269% n Sales Outside McKesson Customer Base (FY’02) l Document Imaging 32% l Pharmacy 36% l Surgical Manager 25% l Homecare 31% l Medical Imaging 40%* *Planned 87
- 88. Agenda n Outlook . . . Continued Revenue Growth and Margin Expansion Market Opportunity l Strategies to Grow Revenue l Strategies to Expand Margin l 88
- 89. Strategies to Expand Margin Strategy Status Improve Revenue Mix Software Sales Growing 89
- 90. Strategies to Expand Margin Improve Revenue Mix . . Software Sales Growing 200 180 FY02 91.5% 180 37% 160 140 44% 120 131.5 (Millions) 100 12.2% 80 FY01 87.8% 60 40 20 0 FY'01 FY'02 8.50% One-Time Software One-Time Software Bookings Percent of Revenue 90
- 91. Strategies to Expand Margin Improve Revenue Mix . . Software Sales Growing 48.0% FY02 91.5% 47.5% 46.0% s 44% 44.0% int Po 12.2% 42.0% is as 41.8% FY01 87.8% 0B 40.0% 57 Up 38.0% FY01 FY02 8.50% Resulting Improvement One-Time Software to Gross Margin Percent of Revenue 91
- 92. Strategies to Expand Margin Strategy Status Improve Revenue Mix Software Sales Growing Leverage Existing Infrastructure Good Progress 92
- 93. Strategies to Expand Margin Leverage Existing Infrastructure . . . Good Progress n Increasing Productivity l Greater Specialization of Sales Organization l Standardize Development Tools, Processes, and Metrics l Support Center Processes, and Methodology 93
- 94. Strategies to Expand Margin Leverage Existing Infrastructure . . . Good Progress n Increasing Productivity l Greater Specialization of Sales Organization l Standardize Development Tools, Processes, and Metrics l Support Center Processes, and Methodology n Greater Use of Technology l PeopleSoft l SAP 94
- 95. Strategies to Expand Margin Leverage Existing Infrastructure . . . Good Progress n Increasing Productivity l Greater Specialization of Sales Organization l Standardize Development Tools, Processes, and Metrics l Support Center Processes, and Methodology n Greater Use of Technology l PeopleSoft l SAP n Shared Services l Payables, Payroll, Expenses l Real Estate l Purchasing 95
- 96. Strategies to Expand Margin Leverage Existing Infrastructure . . . Good Progress Revenue per Employee 200 180 n 8.7% Growth MIS 189 (Thousands) 172 160 n 9.9% Growth W/O 163 Outsourcing 140 150 120 100 FY'01 FY'02 MIS *MIS W/O Outsourcing *Excludes Revenue Cycle Outsourcing, IT Outsourcing, and International Outsourcing 96
- 97. Strategies to Expand Margin Identified Future Opportunities Steps to Leverage (Margin) Infrastructure Future Revenue Mix Improvements Current 97
- 98. Outlook . . .Revenue Growth and Margin Expansion Y Summary IT Progress N U n We are Making Excellent T R l Improving Operations l Establishing O SS PMcKesson as Leader in Clinical Market P E O R T G A l Improving Financial Results O E R R n Opportunity for HIT is Large and Growing P G n McKesson is Uniquely and T EA Well Positioned R n Outlook is for Continued Revenue Growth and Margin Expansion G 98
- 99. Ray Shingler Senior-Vice President, CIO Spartanburg Regional Healthcare System Spartanburg, SC
- 100. Spartanburg Regional Healthcare System Integrated Delivery System composed of: • Three Hospitals • 730 Licensed Beds • Gross Revenue $775M • Level I Trauma Center • Top 100 Heart Center • Cancer Center • 38 Physician Offices • Teaching Hospital • Free Standing ASC
- 101. McKesson Relationship Clinical Revenue Cycle § Care Manager § Star Financials § Clinical Repository § Contract Management § Pharmacy § Financial Management § Radiology § Patient Processing § Homecare § Star Compliance § Medical Records Imaging Resource Management Robotics/Automation § Materials Management § Supply Scan § Resource Scheduling § Rx-Robot Drug Dispensing § Staff Scheduling § Accu-Dose Drug Dispensing § Trendstar 101
- 102. McKesson Corporate Agreement Signed 1999 Information Systems (Clinical and Administrative) Medical /Surgical Distribution Agreement Pharmacy Distribution Agreement Automation Agreement Goal 1: Save $3.5 over 5 years Goal 2: Maintain the same quality of service 102
- 103. Status of Goals Goal 1: Savings to date > $2 million Premier - top 1% of low cost hospitals Goal 2: Top 100 Heart Hospital Cancer Center of Excellence Level I Trauma Center JCAHO surveys (92 – 96 – 98) 103
- 104. New Applications CPOE and Pharmacy In keeping with our Quality Mission of providing the Best of Care, our Medical Staff reviewed, requested and approved the purchase of: Horizon Expert Orders Horizon Med Manager (Pharmacy) Why: To continue the effort to eliminate the opportunity for medical errors. Reasons such as: 1. Manual handwriting 2. Integrating patient specific information such as allergies and home medications. 3. Eliminate variation from standard, accepted protocols 4. Access to global knowledge at treatment time via the Internet 104
- 105. New Applications Picture Archiving Communications System (PACS) SRHS has been investigating the purchase of a foreign (non-McKesson) PACS vendor to integrate with our core McKesson products WHY: McKesson did not have a PACS product With the recent announcement by McKesson to acquire ALI, SRHS is now considering the purchase of the ALI product. WHY ALI: 1. Identified as one of the leaders in PACS technology 2. Customer Services rated #1 3. Single vendor vs. multiple vendor (s) 4. Integration of very complicated information 5. Users are familiar with the required front-end systems 105
- 106. McKesson and Spartanburg The Power of a Partnership n McKesson has moved from being a “vendor” to a “strategic partner” n All patients, whether in-patient or ambulatory, are “touched” by systems, products and processes provided by McKesson n McKesson is participating in the planning stage for the development of our new $40 million Emergency Medicine Pavilion n McKesson is working to make our System better for our patients, care providers and staff of Spartanburg Regional Health System n Spartanburg Regional Healthcare System is recognized as a high quality, cost effective integrated delivery system. McKesson has helped make this possible 106
- 107. 107
- 108. John H. Hammergren President and CEO
- 109. Summary n Financial/Customer Momentum n Positive External & Internal Fundamentals n Execution-Oriented Strategy n Strong Leadership Team Value Creation for Customers and Shareholders 109
- 110. Questions & Answers