AS YOU MIGHT expect, all the trench warfare over health-care reform in Washington has given CEOs of medical companies a headache or two. And as the leader of one of the largest players, George Barrett, 54, certainly has his share. It s an extraordinary time, he says at Cardinal Health headquarters in

Dublin, Ohio. Only in Barrett s case, it s not just Congress that s keeping him up at nights. His concern? Bulk shipments.

At a time when the health care industry has to deal with huge challenges, the way companies address smaller issues could determine which ones emerge the strongest. Enter Cardinal Health, perhaps one of the biggest health care giants you ve never heard of. It s a vital cog in the nation s drug-delivery system: It makes some 40,000 deliveries a day to hospitals, pharmacies, doctors offices and other health care providers.

For Barrett, who was named Cardinal s CEO in September, the challenge is getting back in the good graces of Wall Street. Once a darling of investors Cardinal shares rose 15-fold from 1990 to 2004 the stock has been in the doldrums in recent years, as the company has struggled with weak profit margins. And interestingly enough, the problem has more to do with operations than anything else. Some analysts say Cardinal was slow to adapt as drug companies made it harder for distributors to stock up on inventory ahead of drug-price increases a strategy distributors had used to boost profits. By focusing on bulk shipments to big customers, critics say, Cardinal missed out on higher-margin business opportunities with smaller pharmacies. They were operating with the old model in the new environment, says Ross Muken, an analyst at Deutsche Bank Securities.

Barrett arrived at Cardinal in 2007 after three years as CEO of the North American arm of Teva Pharmaceutical Industries. Taking the helm as Cardinal CEO in the midst of what many see as a health care crisis, he has already renewed contracts with some major customers and paid down $1.2 billion in debt with cash raised from spinning off the company s medical-device business. Barrett is also working to shrink the number of Cardinal s generic-drug suppliers and simplify the order process for customers.

But the work has just begun. Turning around a $99 billion battleship won t happen overnight, says Muken. And then there s the small matter of change from Washington. Barrett, a former professional singer, sat down with SMARTMONEY at the company s headquarters to explain how he hopes to get Cardinal in tune with the times.

Let s get a big issue out of the way: What s your view of health care reform?

One of the things the administration has to watch for is the law of unintended consequences. The danger is that we squeeze down on one part of the balloon only to find another has popped up. When you have legislation moving very quickly, you have to have some concerns that you ll have some of these distorting features.

You ve described this as a transition period for Cardinal. Why?

We ve worked very hard to bring energy and growth back to our business in community pharmacies and in pharmacies in nursing homes and acute care centers. They have a different set of dilemmas than a major-chain pharmacy does. We really free them up to do patient care by doing inventory management and sorting through complex reimbursement issues. We will even set up a diabetes center within the pharmacy. At the same time, it s important to get a very high percentage of their generic-drug purchases. That means having the right mix of pricing and products and the right training of our salespeople.

A lot of big drugs will lose their patent protection soon.

Exactly. It s a good time to get better.

What are you doing to improve profit margins?

Throughout the organization, when we look at performance metrics, margin is a part of everybody s equation. But when you look at our total margin, it s influenced by our mix of businesses, and that sometimes gets lost. So for example, if a large percentage of our business is what we call bulk customers shipping large quantities to warehouses of our major customers that tends to be at a lower margin versus business where we re a full-service supplier to a pharmacy.

What else are you doing?

We re also doing major investment in our business, primarily in information technology. The goal of that work is really to improve the experiences customers have with us. Hospitals are incredibly busy, and they need to work with a company that is very, very easy to do business with.

It seems like you ve been telling investors to be patient.

I have asked our shareholders for their support. This is a transition year, but we re feeling encouraged about the progress. During the course of 2010, I would expect we would have transitioned fully to what I think is a more attractive and sustainable model for sourcing products, including cutting our suppliers from more than 100 to less than 50.

Why did Cardinal spin off the CareFusion medical-device business?

It was a fantastic opportunity to reinvigorate this business, to bring us back to a core purpose, which is about improving the cost effectiveness of the health system. We had so many activities that perhaps we lost a little focus.

Any surprises amid all the changes?

I expected resistance, but the people here are really helping. Part of it is, this is a company that s had a couple of rough years. So I think people were kind of ready to feel it again.

Do you see a connection between music and business?

In my life as a leader, I sometimes hear the music behind the music. I think leading has a lot to do with having insights that maybe other people don t.