McKesson Corporation: Improving the Process of Medicine Distribution in Hospitals

The fifth-leading cause of death for Americans—not far behind cancer and heart disease—is medical errors by the U.S. healthcare system. Many of these deaths are due to medication-related issues in hospitals. McKesson Corporation (formerly Automated Healthcare) has developed hardware and software systems that receive, package, distribute and administer bar-coded medications within a hospital, to ensure accuracy and significantly improve patient safety. "McKesson has helped hospitals save lives, improve quality, reduce costs and deal with pharmacy labor shortages," says Rich Lunak, former president of Automated Healthcare, which was acquired by McKesson. "Patient safety is a critical part of what the company is about, and perhaps the most important benefit is the impact it has had on patients and clinicians on a day-to-day basis from a safety perspective."

On the Leading Edge of Innovation
Automated Healthcare was the first company to deploy robotics in the pharmacy and medication dispensing processes in hospitals, according to Lunak. As the company grew, it launched other product lines that helped automate dispensing, administering and inventory control activities. Some nursing applications were developed, too, including tracking and controlling narcotic products and reordering of drug inventory back to wholesalers.

Automated Healthcare was also the first company to widely employ automation and bar coding to track medications. Several years ago, the Food and Drug Administration (FDA) mandated all pharmaceutical manufacturers to bar code medications for safety and tracking. "The company has had a broad impact on the way U.S. hospitals and pharmacies practice today," says Lunak.

From Startup to Booming Business
Automated Healthcare has grown from a three-person operation out of a Pittsburgh apartment to a highly successful company with more than 1,000 employees and revenues over $100 million. According to McKesson's VP of Business Development, Phil Spano, Automated Healthcare survived its early days and is now thriving under the umbrella of its corporate parent by maintaining its culture of innovation and dedication to customer service.

"As an automation engineer, I recognized early on that medication dispensing was a great application to automate," Lunak says. "It's a highly repetitive activity that requires a high degree of accuracy, and it lent itself very well to robotics. But the management team was very young, and we didn't have a track record of successfully launching a business, so when the company tried to secure money from venture capitalists, it was seen as a high-risk endeavor."

Willing to Take the Risk
One organization that was willing to take a risk and make an initial investment in the company was Ben Franklin Technology Partners, and its contribution—both financially and otherwise—helped Automated Healthcare make the transition from a small startup company to a booming business. Ben Franklin made an initial investment of $89,000 in the company, which was used to create a prototype of the product to show other investors.

"At the time, we had a lab at the University of Pittsburgh School of Pharmacy, and we would take prospective investors over and show them the medical center dispensing medications for all the patients on a manual basis—how labor intensive it was, and how it presented a significant opportunity for error," says Lunak. "Then we'd walk them across the street and show them a robot doing the same things. It was very effective." Since then, Ben Franklin has invested additional funds for a total investment of more than $300,000.

The relationship between Automated Healthcare and Ben Franklin was so successful, in fact, that Lunak moved from McKesson to the position of CEO of Ben Franklin's southwestern branch, known as Innovation Works (IW). Today he helps other entrepreneurs fulfill their dreams and make their companies a reality.

"My experience in commercializing high-technology products, raising capital and growing successful management teams is helpful to startup companies," he says. "I have walked in the shoes of the entrepreneurs we support, and I know the challenges they face."

Improving the Health of the Pittsburgh Region
In addition to benefiting numerous Pennsylvania hospitals, including UPMC, Thomas Jefferson University Hospital, the Hospital of the University of Pennsylvania, Geisinger Medical Center, Lehigh Valley Medical Center and more, McKesson has positively affected the Pittsburgh area where it's located.

"When McKesson Corporation acquired the company, rather than relocating it out of the region, they decided to invest in the region," says Lunak, "so they gave us capital to grow and acquired other businesses to relocate to the region." That decision led to more than 1,000 jobs, 120,000 square feet of manufacturing space, 200,000 square feet of office space, a $70 million payroll—and several new technology companies led by former Automated Healthcare executives, including Precision Therapeutics and Aethon, Inc.

"The interesting thing is that these companies are now part of the Ben Franklin portfolio, and we've been an investor in helping those companies get started," Lunak says.