McKesson: The healthcare tech giant you’ve probably never heard of by Verne Kopytoff @FortuneMagazine July 27, 2015, 7:07 AM EDT E-mail Tweet Facebook Linkedin Share icons McKesson doesn’t have the name recognition of companies like AT&T, Bank of America, and Walt Disney. But it does beat them on one key point: It’s bigger. McKesson, a pharmaceutical supplier, is a healthcare industry giant with annual sales exceeded by only a handful of U.S. companies. Chances are that if you take prescription pills, McKesson delivered them somewhere along the way. But the company also has a massive technology arm that supplies the healthcare industry with electronic health care records, data analysis and software for managing medical facilities. As technology becomes even more important in the medical field, McKesson MCK hopes to be even more in the mix. John Hammergren, McKesson’s CEO, talked to Fortune about his company’s technology push, the complexities of tech in the healthcare industry and wrinkles keeping electronic medical records from being as helpful as the could be. The following was edited for length and clarity: Fortune: Is there a possible Silicon Valley threat to healthcare and healthcare suppliers? Hammergren: We’re always focused on disrupting ourselves inside of McKesson and in inventing the future for our customers. We have to be aware of the innovation that’s happening around us. The Internet has made a significant impact on healthcare by giving patients access to their medical records and letting doctors and hospitals use that information to do a better job. Most tech companies focus on innovation on a very short-term horizon—as in months. But new health tech can take a decade to catch on because of regulation, the stakes involved, and the costs. How do you deal with that? You have to be in it for the long haul. Through acquisitions, our company has been involved in technology for customers since the 1960s. We’ve been in this business for a long time. As you mentioned, healthcare is difficult because of the complexity. McKesson recently created a venture capital fund. I assume that’s partly to keep up with what’s happening at technology’s grassroots. We established our venture business so we can help drive innovation across all of healthcare. We want to partner with entrepreneurs and other venture capital companies that can help bring new approaches to meet some of the challenges that our customers face. An awareness of emerging innovations can help us understand where healthcare and technology is headed. We can also give our support to those small companies that are trying to get a foothold in a very complex business that has a lot of barriers to entry and a slow adoption curve. McKesson supplies electronic health records to hospitals and doctors. They’ve been in use for a few years now. What have we learned, good and bad, about them over that time? Health records, before we started to automate them, were all handwritten in paper files. Today, they are being automated very rapidly. I think the positive is that the records are available for things like data and analytics, and for sharing. The missing component is that we still have not gotten to the interoperability that we and others desired. I think that remains the biggest challenge left for our industry. Are incumbents trying to keep that from happening? Or is it just a technological problem? There are different vendors with different technology. Some of those vendors may have a point of view about opening their systems up to let information move in and out of them. Frankly, some providers may not have an interest in having their data used by others. They may use patient records as a way for them to put a barrier up departure patients who may choose to go someplace else for their care. Roughly 70% of the hospital IT vendors have been working very closely together through a not-for-profit initiative, CommonWell Health Alliance, that McKesson and others established in 2013. Now we have over 20 partners, and we are actively connecting medical records between us. The answer to your question about whether the technology is the barrier, I think it once was, but it’s no longer. It’s not just electronic health records that are a problem in terms of interoperability. All sorts of medical machines that can’t talk to each other. Pharmacies can’t talk to doctors or hospitals. Those must be big hurdles too. They are large hurdles. But I think CommonWell was really created to help. The question should be, “What should I do to provide the best care?” There’s no technical reason that we can’t connect to pharmacies. For example, CVS Health is a member of CommonWell. I think the most important aspect of CommonWell is for the industry to come together to create standards that allows interoperability to take place. Once that standard is created, there is no longer an excuse for someone to say, “Well, I can’t figure out how to make my system talk to somebody else’s system.” What has Obamacare meant to health technology? Clearly the administration was very supportive of the use of technology. They’ve helped encourage the industry, providers principally — the hospitals and physician offices — to adopt the technology necessary to make connectivity possible. I think what we need now from government is just of couple of things. One that would be to clearly state that we want people to move records in an interoperable way by a certain deadline. They don’t need to get into specifics about how it’s going to be done and who’s going to do it. Just put the objective out there and leave it up to the industry. Data analysis is something else that you provide, correct? We’re probably one of the larger data analytics companies in terms of providing tools our customers can use to query their data. So a hospital would know how successful a certain surgery is based on the data? Or they may learn that an extra pill may not help? Yeah that’s a good example. Our partner physicians use data and analytics to do exactly what you described, which is to determine the best protocol for patient care — disease and tumor-specific — so they don’t over-treat or waste resources. At the same time, they don’t under-treat when they can get a better outcome. Part of this is discovering the best protocol or the best treatment regimen. But the other part of it is getting physicians and nursing staff to follow those protocol completely so we don’t have errors. There’s a lot of talk about pharmacies looking to cut costs by using robots to fill pill bottles. We have several pharmacy automation businesses inside McKesson. Our current pharmacy automation businesses are more software-based. When it actually does include equipment, it’s primarily for large mail-order pharmacies that have big production centers. If you need a refill when you go home at night and to go online and ordered one, in many cases that’s handled by a McKesson customer. We can actually have the prescription filled and waiting for you at the store on your way into work the next morning. You found at the local retail level that there wasn’t much of a demand? What we’re finding is that with the Internet and advanced planning there’s not always an urgent need for refills. That’s why production is often more efficient if it’s done offsite as opposed to taking pharmacist time in the store away from spending time with their patients. Are there other ways to automate healthcare that are interesting to you, say telemedicine? Machines could replace some of what doctors. I would say that using physicians time more effectively and efficiently would certainly make care less expensive and, in many cases, make things more convenient. I can use telemedicine or online tools to help me with my own care rather than having to make a trip to the physician’s office. We are investing in some of those ventures through our McKesson Ventures business. Personalized medicine is a big topic in the medical field as a way to get patients treatment tailored just for them. How far away are we? We help our customers deal with the mountain of information that’s made available to them. They need to develop a care plan that makes sense based on individual characteristics of the patient. Our ability to provide customers with data that is actionable, that is accurate and that is easy to use will be paramount to any kind of adoption of personalized medicine. I just don’t think the providers are going to have the time for several hours worth of research for each patient who they interact with. I think the industry is going to have to automate that. Does the involvement of technology help to bring down the cost of healthcare? To many people, it seems like it simply increases the cost? The only way it’s going to bring down the cost is if it lets providers make better decisions about the care and either improves patient health or keeps them out of the system. Or when I’m in the system, it allows me to get better faster or with less time in more expensive care setting. How will McKesson’s technology efforts look different in five years? McKesson’s technology businesses will continue to grow at or above market levels in most of the categories that we compete in. Giving our technology to our customers in a cloud-based way will reduce their investment in the infrastructure required to run it themselves. Smaller providers like community pharmacies and community physicians will be able to use technology in a way that is just as effective as the larger players because they don’t have to buy the infrastructure to run it. Any last words? If I can leave you with one message: The groundwork has been laid at these mass adoption of electronic health records in both hospitals and doctors’ offices. But it’s not enough. We have to complete this interoperability objective, and McKesson is heavily involved in making it happen today. I’m confident that when you and I speak again in the next 12 to 18 months that this discussion about why do I have to keep filling out the same patient form every time I go to the doctor’s office on a clipboard will be gone.