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Irving, Texas-based Novation L.L.C. is a supply chain management organization representing the purchasing interests of more than 2,300 health care organizations. It has agreements with nearly 500 supply and distribution companies, and offers products such as medical/surgical supplies, laboratory products, and pharmaceuticals. Novation formed Jan. 1, 1998, when VHA Inc. and University HealthSystem Consortium (UHC), two national health care alliances, consolidated their supply contracting functions. Through its affiliation with VHA and UHC, Novation represents $19.6 billion in annual purchases. Mark McKenna is president and chief executive officer of Novation. He formerly was senior vice president of operations, responsible for Novation’s major business units and departments. He joined VHA in 1987 and has experience in marketing, as well as in managing VHA’s medical/surgical business. He helped create Novation, serving on the management team that structured the joint venture between VHA and UHC. Prior to joining VHA, McKenna was director of marketing for IMED Corp. of San Diego, a manufacturer of drug delivery systems, and fulfilled sales and marketing assignments with Johnson & Johnson and American Hospital Supply Corp. Veronica Smith Lewis serves as vice president, general counsel and compliance officer for Novation. She bears responsibility for all legal and compliance matters related to Novation and its businesses, and provides legal advice to Novation’s senior management, board of directors and business units. Before going in-house, she was a partner in the Dallas office of Vinson & Elkins, and has experience in cases including patent, trademark and domain name violations, theft of trade secrets, antitrust litigation, and contract and business tort disputes. Texas Lawyer associate editor Anne K. McMillan asked McKenna and Lewis about the many roles Novation’s GC fills, how to prepare for a job in-house and challenges facing the company. Texas Lawyer: How has the focus on corporate governance impacted your company and the role of the general counsel? Mark McKenna, president and chief executive officer, Novation: Our general counsel serves as secretary for Novation’s board of directors. Veronica’s role is very important considering that the members of our board are even more focused on governance. The board members seek Veronica’s counsel on a number of related issues. TL: How have the new realities of corporate America affected your expectations for your general counsel? McKenna: The increased scrutiny placed on corporations has made it even more critical for general counsel to exercise good judgment and be particularly sensitive to the perceptions of Novation’s constituencies, suppliers, member health care organizations and regulators. TL: In this post-Enron era, how is your job more difficult today? McKenna: I wouldn’t say it’s more difficult. The structure of our business is such that the health care providers we serve own us. We are ultimately accountable to them, and our ability to continue to meet their expectations is rewarded by their business. TL: What challenge facing your company today concerns you the most? McKenna: Related to my answer above, we must continue to provide value to the member hospitals we serve in an increasingly competitive marketplace. Member margins are declining, and we must constantly ask ourselves how we can give them more value in terms of supply cost savings and revenue management. TL: What characteristics did you look for in hiring a general counsel? What characteristics are most important? McKenna: I looked for someone with a broad legal background and breadth of experience. It was particularly important for this person to have strong business acumen and a practical approach to business issues. TL: What role does the general counsel play in key business decisions? McKenna: Veronica serves in a dual capacity as general counsel and compliance officer for Novation, so she generally keeps us out of harm’s way by raising any issue that could potentially be a legal, ethical or compliance problem. This is especially challenging considering our numerous constituencies. Additionally, she provides a lot of practical implementation advice. TL: What kinds of issues have you faced at Novation? Are any issues in health law particularly pertinent to your roles as legal and business adviser? Veronica Smith Lewis, vice president, general counsel and compliance officer, Novation: We’ve dealt with an ongoing examination of our industry by the government and others, antitrust and anti-competition issues. We have also been involved in litigation. TL: What has been the greatest legal challenge facing Novation during your tenure? Lewis: I would say our greatest challenge is ensuring we meet the broad spectrum of legal needs across the enterprise. We assist with the implementation and management of a very broad contract portfolio, consult on the development of new business products, processes and portfolios, manage outside litigation, ensure compliance with regulatory and legal requirements, and deal with the myriad other issues that come up on a day-to-day basis. The greatest challenge we face is ensuring all the competing priorities are efficiently addressed. TL: What special challenges do you face, and what new expertise have you had to develop in your in-house role at a health care supply and distribution company? Lewis: As a relative newcomer to Novation (less than a year), I’ve had to learn the company’s business, the health care group purchasing industry. TL: What is the size of your in-house legal staff? Lewis: Our legal staff of five is comprised of four lawyers and one administrative assistant. TL: Have you increased the size of your legal department because of new/more legal challenges for your company? McKenna: We have added only one additional person to the legal department’s head count; however, the department has been restructured and refocused over the past year to better meet our needs. TL: Has Novation always had a general counsel? What advantages do you see a GC providing for your company? McKenna: Yes, we have had a general counsel since we were formed in 1998. We rely on our general counsel to identify potential legal and regulatory issues, protect the company’s interests, and ensure operations are conducted in a manner that minimizes risk.

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