Key drivers of pharmacy spend and how to control it: 7 experts discuss

Hospital drug spending jumped 18.5 percent between 2015 and 2017, a rate which generated about $1.8 million in new costs for the average hospital. This comes on top of a 38 percent increase in inpatient drug spending per admission that health systems saw between 2013 and 2015.

Even more worrisome is that this trend, as drug prices continue to rise and critical drug shortages persist, shows no signs of slowing. As a result, pharmacy leaders are feeling more pressure than ever before to reduce costs while still ensuring patient safety.

During a Feb. 26 webinar hosted by Becker's Hospital Review and sponsored by LogicStream Health, seven industry experts discussed the main drivers of hospital pharmacy spend and offered several cost-containment strategies.

Panelists included:

  • Neil Bulich, PharmD, vice president of pharmacy at AdventHealth West Florida Division (Tampa)
  • Ping Du, PharmD, vice president of outpatient pharmacy at Baylor Scott & White Health (Dallas)
  • Randy Knoebel, PharmD, senior manager of pharmacy health analytics and drug policy at University of Chicago Medicine
  • Brad Myers, PharmD, executive director, pharmacy and laboratory services at University of Missouri Health Care (Columbia)
  • Matthew Pond, PharmD, network vice president of pharmacy services HonorHealth (Scottsdale, Ariz.)
  • Terry Web, PharmD, system pharmacy executive, care delivery at Adventist Health (Roseville, Calif.)
  • Patrick Yoder, PharmD, CEO LogicStream Health (Minneapolis)

The main drivers of pharmacy spend

Hospital pharmacy spend is increasing significantly; however, there are key differences between what drives costs up on the inpatient side versus the outpatient side, explained Dr. Myers.

On the inpatient side, one key cost driver is generic drug shortages. As critical generic drugs become harder to find, health systems are often forced to purchase alternatives or use the expensive brand-name products.

"One of the huge [cost] drivers we see is with old, key injectable generic drugs ... [which are] now high dollar branded products," Dr. Myers explained.

On the ambulatory side, specialty drugs used to treat complex, chronic conditions — such as cancer, rheumatoid arthritis or multiple sclerosis — are driving spending growth. While these new therapies offer patients new, promising treatments, they also come with a steep price tag.  

The spending on high-cost specialty drugs is particularly challenging for academic medical centers as they often attract medically complex patients, Dr. Knoebel explained.

"We're attracting medically complex patients, which means we [use a lot] of new therapies that were just FDA approved," Dr. Knoebel said. "CAR-T has been a big thing for us … and as these new leukemia drugs get approved [managing the costs associated with them] is something we need to figure out in terms of utilization management strategy."

Another cost driver is not ensuring uniform, formulary adherence, according to Dr. Web, whose health system is currently working to standardize the pharmacy formulary and adherence protocols across all of its 20 hospitals.

At Adventist Health, Dr. Web said leaders found "the variations of formulary adherence facility-to-facility added a lot of unnecessary costs."

Dr. Du agreed, adding that while sometimes prescribing physicians have preferences or veer from the formulary, it is important to work to ensure compliance.

So, what are the solutions?

Managing pharmacy spend in this new era of technology and innovation requires moving beyond the fundamentals, explained Dr. Pond.

Many organizations have deployed new clinical programs in the pharmacy, established a pharmacy and therapeutics committee to set systemwide formularies and leveraged 80/20 reports, which provide insights into the drugs that drive 80 percent of the dollar spend in a system to help manage costs and utilization.

However, as Dr. Pond explained, leading health systems are "ushering in a new age that will require a new wave of thinking," which includes "understanding our data with robust data and IT infrastructure."

Dr. Bulich agreed, adding that advanced analytics and data are key to unveiling saving opportunities.

"Analytics are key to know where and what you are spending," Dr. Burlich said. "The better data you have the more you can focus your attention and know your risks."

Dr. Du shared several cost-containment strategies currently implemented by Baylor Scott & White Health. These strategies include finding insights into cost structures and reimbursement levels, placing restrictions on the system formulary, switching to biosimilar drugs and improving contracts for large-spend specialty drugs as well as generics.  

"We are working to get large-spend specialty drugs at a better price point," Dr. Du said, adding that his organization has also been able to drive substantial savings by negotiating generic drug contracts with wholesalers. "Generics are cheaper, but that's where the wholesalers make the biggest margin from, and [negotiating is] one area we found can drive substantial savings for our health system."

Dr. Du also explained that if your health system is struggling to get prescribing physicians to comply with the formulary, one thing that worked for Baylor Scott & White was establishing a system where physicians were ranked based on compliance.

"Physicians don't want to be in bottom quartile … so when you show them their prescribing patterns or behavior, it really helps them stay in line," he said.

Dr. Web explained how Adventist Health's efforts to standardize the pharmacy formulary and adherence protocols across all of its 20 hospitals has been beneficial in terms of cost containment as well.

To reduce unnecessary costs due to formulary inconsistencies, Dr. Web explained that his 20-hospital system came together to do evidence-based formulary management. Before using this approach, formulary management was independently run by each facility and usually was based on staff impressions, desires and opinions rather than the hard evidence of a drug or device efficacy.  

One specific solution LogicStream Health recently launched to help pharmacies control drug costs through better managing critical drug shortages is the Drug Shortage App.

The app tackles drug shortages in several ways, according to Dr. Yoder. It determines "how to identify them as soon as possible, provides an early warning system and how much of an impact it may have."

Specifically, the app, which deploys machine learning and has ingrained algorithms, alerts providers to new drug shortages, explores potential alternatives and helps determine if a provider should change EHR workflows to help control the demand of the drug.

Overall, pharmaceutical spending is increasing due to generic drug shortages, the introduction of high-cost specialty drugs and prescriber's noncompliance with formularies. However, the new era of technology will provide solutions to help providers identify cost saving opportunities.

To listen to the webinar, click here

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