McKesson Corp.'s third-quarter profit was relatively flat as it announced Wednesday that it will acquire a company that provides electronic prior authorization services.
The San Francisco-based healthcare giant will pay roughly $1.1 billion to acquire privately-held CoverMyMeds, a Columbus, Ohio-based company that automates the prior authorization process for pharmacies, providers, payers and drugmakers. The deal could include an additional maximum $300 million consideration if CoverMyMeds hits certain financial targets.
The deal is subject to customary closing conditions and is expected to close in the first half of fiscal 2018.
The acquisition was announced in McKesson's quarterly earnings report, in which it reported $633 million in profit during the quarter ended December 31, down less than a sixth of a percent from the same time last year. Revenue was up 5% at $50.1 billion, thanks to gains in the company's distribution business.
Drug distribution represents the overwhelming majority of McKesson's business, but the company also offers technology solutions. The bulk of the technology business is expected to soon be merged into a joint venture with Nashville-based Change Healthcare, which will be put up for an initial public offering. McKesson later expects to divest from its portion of the company.
A McKesson spokeswoman confirmed that CoverMyMeds will not be included in the joint venture. McKesson is also retaining its RelayHealth pharmacy connectivity network, which has been a partner of CoverMyMeds since 2010. Also excluded from the venture is a division that offers core hospital information systems, though the company has previously said it's looking to sell the latter.
CoverMyMeds said in a blog post that it will operate as an independent business unit under its existing leadership, co-founders Matt Scantland, the CEO, and Sam Rajan, a sales executive. “We're excited for the future and our ability, now more than ever, to help patients get the medication they need to be well and for CoverMyMeds to be the best place to work in Ohio,” the company said.
CoverMyMeds was ranked No. 11 on Modern Healthcare's Best Places to Work list in 2015.
Revenue from McKesson's distribution segment, which includes its drug distribution business and a much smaller medical-surgical supply business, was $49.4 billion, up 5% from the same time last year. Both North American and International drug distribution revenue increased, but the supply distribution business was down 1%.
Revenues were flat at $0.7 billion from McKesson's technology solutions business, most of which will be placed in the joint venture with Change Healthcare. McKesson attributed the stagnation to an anticipated year-over-year decline in its hospital software business, which it said was offset by growth in other technology businesses.
CEO John Hammergren once again lamented drug pricing trends, noting that both generic and branded pharmaceutical pricing rose less than anticipated. He said the company – which is generally paid a percentage of the drugmaker revenue it handles – is doing somewhat better after setting its generic distribution at a lower level than planned. A lower effective tax rate this quarter also helped offset this problem.
Hammergren also commented on the new presidential administration, noting that, though the company is paying attention to policy developments, it's “extremely difficult” to provide any assessment given the information it has today.
“There are many moving pieces to reform and we will continue to monitor and assess the impacts of any proposals as we receive more information,” Hammergren said.