Reassessing the pharmacy supply chain for a healthier bottom line
As hospitals are changing the way they do business to meet pay-for-performance requirements, the role of process improvement has also shifted from strategic to critical.
The unpredictable and shrinking reimbursement landscape requires these organizations to reassess expenses and processes—especially within the supply chain—across all facilities and departments to determine cost-effective operational strategies.
One critical but often overlooked area of a hospital's supply chain is the pharmacy and its medication inventory processes —a significant cost center that can make up 10 percent or more of a health system's operating expense. While a common goal of increased merger activity between healthcare organizations is to grow, scale and streamline operational expenses, it is not uncommon for pharmacies within individual hospitals and clinics across a health system to operate in silos, each managing its own medication inventory. While operating under corporate, GPO agreements this approach still encourages each hospital or clinic to purchase full units of medication quantities offered by wholesalers or manufacturers, often resulting in excess and waste.
While automation technology in the pharmacy provides opportunities to streamline processes, the focus has primarily been on maximizing patient safety, improving narcotics security, ensuring charge capture and achieving high service levels for nursing. These areas are a good start, but hospitals and health systems are leaving money on the table if they stop there. Supply chain executives must partner with pharmacy leaders to address broader opportunities to improve efficiencies in medication inventory management across the entire system.
Historically, the pharmacy's approach to medication management has been centered on the "five rights" of medication administration—the right patient, the right drug, the right dose, the right route and the right time. While it's a crucial strategy to ensure the highest level of patient safety, this approach does not take into account the need for the right amount, and as such, hospitals can mistake excess for improved efficiency.
As hospitals and health systems consider effective ways to streamline pharmacy budgets, many are finding there is little left to cut in labor-related costs such as staff and salaries. Most pharmacies already operate under lean staffing models, and heightened quality expectations are raising the bar on how pharmaceutical resources are allocated to promote the highest level of patient care. The focus needs to shift toward non-labor expense.
System-wide inventory standardization has already proven its worth as a cost management strategy in areas such as medical or surgical supplies; formulary standardization has been occurring, but is a more difficult task as it is limited by therapeutic class and patient-specific attributes. Further limiting options for standard medications requires a significant behavior change, and is often less effective if taken as a first step to managing inventory.
Focusing on medication management can be a better use of hospital resources, as it is completely within the control of the pharmacy and offers equally advantageous cost-savings. Many hospitals have made initial point-of-care pharmacy automation investments such as medication dispensing cabinets and bar code scanning, and some have advanced to effective utilization of carousels and robot technology in centralized pharmacy operations. The next important step is to pursue centralized inventory management.
Leveraging Perpetual Inventory Strategies
Implementing the most effective and efficient pharmacy supply chain strategy begins with a perpetual supply chain model—one that is built on an infrastructure of automation to centralize inventory management and provide greater visibility into medications across a health system.
The majority of hospitals and health systems have been building a base of pharmacy automation for years, and many already have many pieces of the perpetual inventory puzzle in place. The next step is bringing all the discrete pieces together, filling in the gaps and taking automation to the next level by enabling a single view of inventory across an enterprise.
When a hospital or health system achieves a centralized view of medication inventory, it can aggregate demand across departments or facilities and maximize purchasing. As such, these organizations can more strategically and effectively reallocate surplus inventory, address urgent medication needs across the enterprise and mitigate medication shortages or recalls. This approach applies to both large and small enterprises, as small organizations can experience incremental benefits throughout the process by starting with certain areas like high-cost, low-use medications. Consider that a single hospital may have to purchase a full unit of a slow-moving, expensive medication, only to watch the majority of it go to waste once the product expires. When a hospital can manage inventory centrally, and distribute it across numerous departments and facilities as needed, waste is minimized.
The next logical extension and opportunity is to physically centralize appropriate storage and distribution tasks for a system. Many health systems have or are in the process of establishing consolidated distribution centers to service many aspects of their supply chain, and pharmacy should not be overlooked as one of these services. Whether through barcode packaging, IV production and recall or shortage and surplus management, these organizations have opportunities to experience significant savings to non-labor expense. With this consolidated approach, they can reduce waste due to expiration and redundant, safety-stock inventory levels, standardize purchasing behavior and deploy the cost-effective products across the system.
Building a Better Medication Supply Chain
Getting buy-in from the C-suite is the first step toward developing a foundation to reinforce perpetual supply chain strategies. Top-down support for more innovative drug inventory and distribution models must exist for the hospital to realize the full value of consolidation to reduce redundancies.
Once a hospital obtains C-level support, supply chain executives must collaborate with the pharmacy department to determine how best to move forward. For instance, if there are efforts underway to centralize and consolidate other areas of a health system's supply chain, there may be a way for pharmacy to piggy-back on those initiatives.
When choosing vendor products to lay the best technological infrastructure for a single enterprise view of inventory, executives should consider how the solution can integrate both central pharmacy and point of care automation in place. The comprehensive nature and flexibility of a solution should also rank high as it will need to address inventory management from multiple avenues – relying on a data-driven model to support the free movement of items through the supply chain.
Making Process Improvement a Priority
Process improvement across the full enterprise will continue to be a critical component to success in the new risk-bearing landscape for the foreseeable future, and pharmacy supply chains will play a big part in this. Moving toward perpetual inventory strategies that support centralized and consolidated medication inventories will help hospital executives optimize their pharmacies in this way and stay ahead of the curve.
Cary Piotrowski is vice president, enterprise solutions at Aesynt.
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