Straight Talk From Cardinal Health’s George Barrett

Implications: George Barrett, the new CEO of Cardinal Health’s (CAH) Healthcare Supply Chain Services division, was refreshingly blunt in describing the need to “turnaround” the drug distribution business on last Thursday’s earning conference call.  He described the company’s market share challenges with independent pharmacies following the disruption of controlled substances distribution at four locations. It’s encouraging that Mr. Barrett recognizes the challenges of the “enforcement” role that has been thrust upon the company by the DEA.

Analysis:

Among other issues, Cardinal has been dealing with the fallout from controlled substance license suspensions in Washington, Florida, and New Jersey as well as limits on shipments to independents from Stafford, Texas. Last week, Cardinal disclosed that the disruption due to DEA compliance issues cost $15 million in the first calendar quarter of 2008.  See The DEA's Anti-Diversion Strategy (council site) for background on the DEA’s strategy for combating diversion of legitimate controlled substances.

I’ve been critical of the way in which Cardinal handled this situation, especially the apparent lack of due process accorded to pharmacy customers. I highlighted the marketplace impact in Cardinal Health's Customer Problems Deepen (Council site) and have been discussing it privately with my clients for several months.

Here’s Mr. Barrett’s assessment of how Cardinal bungled the customer service aspect of DEA compliance:

“Our early efforts dictated that, at times we use something of a blunt tool to ensure that no diversion was occurring, rather than a precision instrument. We know that this has caused some disruption to our customers, particularly in the retail independent stage."

I can’t yet say whether reality will follow the rhetoric, but he has clearly articulated a genuine issue.