Cardinal Healths announcement last week that it will eliminate 600 jobs and consolidate the Dublin, Ohio-based companys four business units into two primary segments and a third noncore unit should have little to no effect on provider customers, analysts and purchasing experts said.
Its a small trimming on a huge company and probably the right thing to do, said Lee Perlman, president of GNYHA Ventures, the group purchasing organization for the Greater New York Hospital Association. Speaking from the GPO perspective, I expect the relationship between Cardinal and hospitals to be better than ever.
Goldman Sachs analysts said that the restructuring effort, which includes a $63 million charge consisting largely of severance payments to be made in the current fiscal year, should primarily affect reporting and accounting practices. It may also signal future strategic direction of the company by more clearly highlighting the noncore for sale businesses within the portfolio, the analysts said in a research note.
Eighteen months in the making, the plan will reorganize Cardinals distribution and manufacturing businesses into two segments. The pharmaceutical and medical-products distribution businesses will combine to form a new healthcare supply-chain services segment while the clinical and medical-products divisionswhich manufacture infusion, medication-dispensing, respiratory-care and infection-prevention productswill form the new clinical and medical products segment. The effort will also cut 600 of Cardinals 40,000 employees worldwide. About 160 of those cuts will come from unfilled positions that the company will eliminate, according to Cardinal officials.
Cardinal spokesman Jim Mazzola said the job cuts are primarily focused on eliminating duplications that will occur once the business segments are combined. Few of the cuts will come from the manufacturing or distribution areas, he said. Our intent is to not have major changes that affect the customers, he said.
But while the restructuring is expected to have minimal effect on customer service, Goldman Sachs analysts warned that it could have a negative impact on financial-reporting transparency as the combined segments will make it more difficult to identify which areas of the business are earning and which are losing money.
Mazzola said that the company will provide details about how much the company expects to save as a result of the restructuring effort when it releases its 2008 annual report on Aug. 7.
Meanwhile, Sage Software Healthcare, a division of the Sage Group of Newcastle upon Tyne, England, also eliminated positions last week as part of a restructuring plan. Sage laid off 235 employees, or 14% of the workforce of the healthcare unit it acquired when it bought the Emdeon Practice Services division from Emdeon Corp., Elmwood Park, N.J., in 2006.
Tampa, Fla.-based Sage Software Healthcare sells several practice-management software systems for office-based physicians and community health facilities, an electronic health-record system, radiology imaging and reports systems, and a healthcare data analysis software package.
The layoffs were attributed not so much to a tight software market, but to efficiencies created by general economic conditions and a restructuring already under way, according to Sharon Howard, senior vice president of sales and marketing with Sage Software Healthcare.
There are just the standard economic pressures, Howard said. Our expenses are increasing just like any other of our competitors. We had an opportunity to centralize operations within the Sage North American group, so it just made good business sense to do this, Howard said. <<