Cardinal Health pulled its drug distribution network right up to the patient's bedside IV bag when it announced plans last week to acquire Alaris Medical Systems, a manufacturer of intravenous medication safety products, in a deal valued at approximately $2 billion.
The acquisition, which is subject to regula-tory approval and expected to close by June 30, arrives at a time when medication errors and patient safety have moved to the top of the national healthcare agenda. Suppliers are under a Food and Drug Administration mandate to bar-code single units of medication by April 2005 and the Joint Commission on Accreditation of Healthcare Organizations is considering a similar mandate for hospitals (April 26, p. 6).
Meanwhile drug distributors, who historically simply moved medications from the manufacturers to hospital loading docks, have been expanding their horizons to the bedside, cashing in on bar-code technology to fatten their thin profit margins (June 16, 2003, p. 6).
The deal stakes out new territory for Cardinal, spinning its drug distribution and management web into IV drug delivery. IV drugs account for roughly 70% of all medications administered to hospital patients, said Jim Mazzola, a Cardinal spokesman. Like other major drug distributors, the Dublin, Ohio-based company already offers bedside safety products on the oral medication side through Pyxis, its robotic automation system. Alaris' substantial involvement in IV drug delivery management at the bedside "enhances our product offering, but more importantly the patient-safety offering for our providers," Mazzola said.
In announcing the deal, officials noted that in addition to its IV systems, Alaris, which is headquartered in San Diego, holds long-term contracts to provide related disposable products that account for nearly two-thirds of Alaris' revenue. Alaris rang up $534 million in sales in 2003-32% of that outside the U.S.
"It's a nice fit for Cardinal," said Mitchell Work, president of the Work Group, a healthcare information technology consulting company. "They will be able to take advantage of the whole patient-safety issue. Not a lot of hospitals have bought these systems, but it looks like they will in the near future."
With news of the pending acquisition, Moody's Investors Service placed Cardinal's credit ratings under review for a possible downgrade and Alaris' under review for a possible upgrade. The rating agency expressed concern that Cardinal seems to be in an acquisition mode, that it operates a complex drug distribution business and that the Securities and Exchange Commission is investigating its accounting practices. Cardinal earlier this month acknowledged the SEC's informal inquiry had become a formal investigation. On the plus side, Moody's said it realized that the acquisition would help diversify Cardinal's business and may help the drug distributor leverage its relationship with hospitals by expanding its management of oral drug administration into IV drugs.
Alaris' signature product is its Medley Medication Safety System, a bedside computer that integrates infusion, patient-monitoring and clinical data collection. The hardware includes Alaris' Guardrails Safety Software, a so-called dose-error-reduction software that alerts the nurse on a computer monitor when the dose goes beyond a prescribed limit, said Claudia Russell, Alaris' vice president of marketing and strategic development. "Sixty-one percent of the most serious and costly errors are from IV medication delivery, so when you talk about trying to impact patient care and reduce harm, you need to start with IV systems," Russell said.
Alaris has sold 150 of its software systems, about half of them using the Medley platform, she said. For a typical 350-bed hospital, a Medley system costs $1 million to $1.5 million.
Alaris owns an estimated one-third of the U.S. market for IV drug delivery systems, sharing it about equally with Baxter International and Hospira, the hospital supply company recently spun off by Abbott Laboratories, according to an Alaris spokesman.
For all companies, integrating bar-code technology into IV systems has been the last piece of the puzzle in managing IV drug administration. Alaris is now testing a bar-code enabled IV system with Cardinal's competitor, McKesson Corp. Officials at all three companies said they did not anticipate that Cardinal's acquisition of Alaris would affect its relationship with McKesson. "Given Alaris' presence at the patient bedside, it makes sense to partner with any and all vendors of patient-safety systems," Cardinal's Mazzola said. "I can't speculate on how it might change in the future, but it's wholly appropriate at this point."
Larry Kurtz, McKesson's vice president of investor relations, said, "We expect that we would continue to bring the product to market."
The pilot project combines McKesson's point-of-care bar-coding technology, which was developed for oral medications, with Alaris' so-called IV smart pumps, said Peg Spisak, director of quality and risk management for 119-bed Ohio Valley General Hospital in McKees Rocks, Pa. The hospital has been testing the product in a 26-bed critical-care suite since last December, she said. The bar-coding piece addresses the issue of getting the right medication to the right patient at the right time.
On the other hand, the smart pumps prevent dispensing a drug too quickly or too slowly-"death by decimal"-by establishing guardrails, she said. "Both products by themselves have limitations, but jointly it closes the loop in medication safety," Spisak said. She added that she knew little about the Alaris deal with Cardinal, but "I can only assume that people will do the right thing and honor the contract."
A mountain of technologies-pharmacy robots, automatic dispensing machines, hand-held units and smart IV pumps-are addressing patient safety, which is at the top of everyone's priority list, said Gina Pugliese, vice president of hospital alliance Premier's Safety Institute. "Any opportunity for companies to collaborate on this technology across this whole spectrum of medication delivery is wonderful for the patient," Pugliese said. "I think the name of the game in medication safety is partnership."