Top leaders in pharmacy gather to address major issues facing IDNs in 2018

Visante’s Business of Pharmacy™ Forum launches to spur pharmacy forward

No question that healthcare today is experiencing challenges and a pace of change never before seen. Patient access and service demands, rising costs, decreasing reimbursement and quality/safety improvement demands are all converging to create a “perfect storm” for healthcare leaders. Healthcare leaders might be wise in taking a page from one of America’s most successful investors, Warren Buffet. Mr. Buffet believes in long term value investing because he understands the power of exponential growth. Companies with sustainable profits can pay and grow their dividends. He regards down markets as an opportunity to buy good companies at reasonable prices. 

Instead of selling or holding in a bear market, Mr. Buffet uses the opportunity to invest to drive more long-term value.

We recently had the opportunity to host the first Business of Pharmacy™ Forum where we brought together 20 Chief Pharmacy Officers from leading IDNs and health systems to spend a day interacting and discussing the challenges and opportunities that the current market presents. The clear message from this session was that for too many organizations, pharmacy is an undervalued and underutilized resource. Using the Warren Buffet approach we believe that pharmacy services represent a “value buy” for health systems and now is a perfect time to invest in the business of pharmacy to drive long-term value for the organization. Consider the following elements and pharmacy impact:
• Quality = Medications are the primary treatment modality for over 85% of patients in any hospital or health system
• Safety = Medications are the number one source of medical error
• Revenue = Medications represent a primary source of revenue for all hospitals and health systems and in the outpatient area represent one of the only “dollar for dollar” revenue opportunities in healthcare
• Expense = Medications are the fastest rising healthcare expense
• Compliance = Medications are a major element of virtually all regulatory bodies

Reviewing the top concerns noted in the Deloitte 2017 Survey of hospital CEOs where 20 CEOs from leading US health systems were interviewed the C-Suite list and the pharmacy discussions were very well coordinated.1 CEOs were concerned about the following:
• Preparing for potentially changing reimbursement models and other policy issues
• Implementing population health and value-based care
• Maintaining or improving margins
• Recruiting and retaining top talent, including health care leaders
• Keeping up with evolving technology
• Adapting to changing consumer demands and expectations
• Integrating business vertically
• Triaging patients to direct them to the appropriate level of care
• Reducing cost and inefficiencies across the system

In terms of margin improvement it was surprising to learn that many organizations do not effectively segregate their inpatient and outpatient approach to drug costs. Organizations are combining these budgets and then benchmarking the total and are concerned that their drug costs are rising too fast. These must be two separate budgets. With capitation, the inpatient drug budget demands a cost focus and organizations would want this as low as possible. However, on the outpatient side this is a revenue/margin driven business and organizations should want this drug spend and subsequently the associated revenue growing as much as possible. Maximizing each budget element requires significantly different strategies.

It was also surprising to see how poorly resourced most pharmacy operations were in terms of analytics and metrics. For large health systems the combined expense and revenue for the pharmacy service line may exceed a billion dollars annually. This would be comparable to a mid-size US corporation and no successful business runs without an effective structure to analyze and understand its operations and outputs. Yet for most pharmacy operations the metrics did not connect inputs with clinical and financial outcomes. Too many organizations are simply “counting widgets” and not getting to what really drives value.

With the shift to population health strategies and models such as ACO’s often the pharmaceutical management of these patients is underappreciated. Winning in this environment means keeping the patient out of more expensive levels of care like the hospital or ED. With medications as the primary treatment modality for the majority of chronic disease patients leveraging the expertise of clinical pharmacists in these models can create significant value. Using technology to identify the cohort of patients most at risk of a hospital or ED admission and then focusing care on this 10-15% cohort that drives 80% of modifiable risk is an effective solution to reducing cost and improving patient satisfaction. The Community Care of North Carolina project is the classic example.2 Focusing on North Carolina Medicaid patients using this model they were able to reduce the cost of care by $382M with the following results:

• Increased primary care practitioner utilization by 24%
• Increased Rx utilization by 21%
• Decreased total hospital admissions by 47%
• Decreased avoidable hospital admissions by 35%
• Decreased avoidable hospital readmissions by 35%
• Decreased ED visits by 16%

Transitions of care and the ability to seamlessly provide care for patients across the health system and to retain the patient in the system is a major opportunity to impact quality and margin. Medication reconciliation on admission is a primary driver of medication errors, which contribute to increased inpatient costs. For too many organizations this is a shared responsibility between providers, nursing, admissions and pharmacy and as a result is not done well. No discipline can do this as well as pharmacy and moving this function to pharmacy has proven to be an effective solution. On the discharge process 26% of hospital 30-day readmissions (with some sites reporting up to 35%) have been shown to be medication related and totally preventable if a better job of medication reconciliation and prescription capture and fulfillment by the hospital based retail pharmacy is done.3 Combining medication reconciliation with a discharge prescription capture and fulfillment program can help retain patients and improve satisfaction while also adding new revenue. The average hospital without a formal capture strategy generally operates in the 15-20% capture range but highly successful programs have attained a 70-80% rate.

Infusion services represented another potential opportunity. For 2018 the major payer strategy to reduce cost is to aggressively shift site of service from more expensive hospital based programs to lower cost sites of care. Chief Pharmacy Officers reported examining their current infusion business contracts and beginning to develop alternative strategies such as home infusion services, non HOPD infusion centers or market sensitive pricing options for infusions to be able to retain as much of this business as possible.

Establishing retail and specialty pharmacy services represents a very significant quality and financial opportunity. Eliminating fragmentation of care around medicines for these patients can help improve outcomes and the revenue can also be substantial. Whether these services are done solely hospital based or in conjunction with a commercial partner every hospital and health system should have an effective strategy developed. Specialty medications are growing significantly faster than the general prescription drug cost increase annually with 2018 projections over 17%.4 In the next several years specialty pharmaceuticals will comprise 50% of the total US prescription drug spend. That fact alone should be enough to catalyze organizations to create a strategy. However, looking at financial outcomes, done well some systems are now generating over a billion dollars in pharmacy revenue from their retail/specialty programs and many others are generating hundred of millions.

Bottom line from the messaging provided by the Chief Pharmacy Officers, they have solutions to many of the C-Suite challenges and they are ready and willing to step up and be accountable for new ideas and improved outcomes. Now is the time to invest in the business of pharmacy as a value buy!

References

1. Deloitte 2017 survey of US health system CEOs: Moving forward in an uncertain environment, https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/health-system-ceos.html, accessed 5/9/2018.
2. Milliman Analysis of Community Care of North Carolina Cost Savings, https://www.communitycarenc.org/media/related-downloads/milliman-cost-savings-study.pdf, accessed 5/9/2018.
3. Vaidya A. 26% of readmissions are medication related, study shows, Becker’s August 21, 2017, https://www.beckershospitalreview.com/quality/26-of-readmissions-are-medication-related-study-shows.html, accessed 5/9/2018
4. McCann D. Specialty Drug Costs to Soar Again in 2018, CFO Newsletters, September 22, 2017, http://ww2.cfo.com/healthbenefits/2017/09/specialty-drug-costs-soar-2018/, accessed 5/9/2018

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