Due to the sheer dollar impact on the bottom line, the pharmacy supply chain is an obvious starting point for process improvement. As medication prices continue to soar, healthcare organizations need to find proactive methods for managing medication supply and demand. By increasing the value of pharmacy dollars spent in tandem with enhanced patient safety and outcomes, health systems can thrive in a quality-driven landscape.
As such, many forward-looking organizations are leveraging a data-driven approach to supply chain management by investing in infrastructures that provide greater visibility into medication inventory. Ohio-based Aultman Hospital, an early adopter of enterprise-wide medication management processes, is already reaping the benefits of this approach. After gaining real-time insight into inventory across the enterprise, the health system not only realized a hard-dollar return on investment (ROI) in just over a year, a total savings of more than $430,000 to date, but also notably improved patient safety and staff efficiency.
Aultman’s pharmacy supply chain achieved this goal through consolidated purchasing and smarter medication distribution. As a result, the organization is better positioned to meet the expectations of evolving value-based care models. This drastic ROI, secured within a relatively short window, seeks to present the C-suite with an efficient and reliable means of cost containment and opportunity.
The challenge of limited visibility
In 2015, Aultman set a lofty goal of cutting $40 million from an organizational budget that covers a 680-bed hospital, a critical access hospital (CAH), two ambulatory surgery centers and 30-40 physician practices. Pharmacy was naturally a focal point of this effort, since medication spend runs second only to staff costs.
As executives grappled with how to improve inventory management, however, it became apparent that lack of visibility into existing medications and utilization trends hindered the ability to optimize distribution methods. Rising drug costs and drug shortages further exacerbated the challenge. Consider the impact on the pharmacy budget when, for example, a recent request required the purchase of a $22,000 unit dose for a single patient.
It’s a fact that when high-cost, slow-moving medications are purchased separately by all facilities in a health system, many of them end up sitting on shelves until they expire. Yet drug shortages also create urgent needs across an enterprise. It’s fairly typical for 80 percent of medication spend to come from 20 percent of the drugs. Thus, the capacity to balance drug purchases against supply and demand is paramount to streamlining costs.
All of these factors have become such significant issues in today’s market that Aultman employs a professional for the sole purpose of researching drug alternatives and less-costly products. Still, for inventory management decisions to be fully informed, pharmacy supply chain professionals must have access to data.
Enterprise medication management—A better supply chain strategy
Ultimately, the right technological infrastructure is crucial to getting the visibility required to drive down costs and improve medication management and distribution. Aultman currently leverages a medication management solution that provides full insight into medications across the entire organization. In essence, it allows supply chain managers to decide how best to move needed medications across an entire system.
A real-time dashboard provides information regarding inventory turns and doses shipped from the pharmacy to various locations. This data allows Aultman to optimize the value of its medications by focusing distribution around high utilization; in other words, to ensure the proper medications are in the right place at the right time. When shortages create urgent needs, medications can then be moved as needed.
When inventory is held for long periods of time, hospitals and health systems also end up with stagnant cash sitting on shelves. One of Aultman’s goals, therefore, was to increase inventory turns. Within a year of implementing enterprise-wide medication management processes, Aultman has been able to increase inventory turns from 11.8 to 13.72 annually. At the same time, it has reduced inventory by approximately 15 percent and days on hand from 30.74 days to just over 26.
The new processes have produced especially significant benefits for Aultman’s CAH, where demand for certain medications was much lower than that of the primary medical center. Before the enterprise-wide effort was initiated, the facility was holding on average $150,000 in inventory; now that number has dropped to $50,000.
Since supply chain is now managed centrally, CAH staff no longer have to validate every order, freeing time for more top-of-license use of pharmacy resources. One of the main contributors to readmissions is patients’ lack of understanding about their medications. So CAH pharmacists are now more involved in direct clinical care, completing medication education consultations on 100 percent of patients. Not only does this heighten patient safety, but it also addresses core measures performance and quality metrics.
On the journey to success
A system of enterprise-wide medication management has provided Aultman the visibility needed to assist physicians and clinical staff in making best possible decisions for both patients and organization. As the health system considers its future positioning, it is apparent that an enhanced pharmacy supply chain will facilitate delivery of the highest level of value to the patients and communities it serves.
The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker’s Hospital Review/Becker’s Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
