The average hospital today is operating at a margin less than three percent1. Whether above or below this average, most hospital executives are exploring unique sources of revenues, cost reduction and methods to improve patient outcomes.
An often-missing piece in this effort is consideration of the pharmacy department as a key component of an organization’s strategy. The pharmacy, with certain exceptions, has gained little momentum in the last 10 years in being viewed as an integral part of a health system’s patient-focused approach. However, with the persistence of low hospital margins, the pharmacy is starting to be seen by some hospital executives as an alternative source to further reduce costs, increase hospital revenues and improve patient outcomes.
The pharmacy department has typically played a more transactional role in hospitals and health systems but with recent pharmaceutical breakthroughs, medication management is becoming even more of a critical driver of patient outcomes. The FDA has been approving more biologics and biosimilars than ever before, and with changes in FDA regulations of drug approvals, the rate of medication approvals per year will continue to rise. These medications are likely to improve patient outcomes, yet at the same time they could increase costs.
There are significant cost savings, revenue generation and patient outcome improvement opportunities that lie in the pharmacy department. However, when attempting to leverage the pharmacy and realize these opportunities, hospital executives often encounter obstacles. Here are the top three challenges hospitals face and possible solutions to overcome them:
1. Medication cost reduction efforts aren’t adopted by all physicians
An example of this is the use of IV acetaminophen in pre- and post-surgical areas. Despite many independent evidence-based studies showing non-superiority of IV acetaminophen to oral acetaminophen and a cost difference of over $200 per dose, many hospitals continue to struggle to bring down IV acetaminophen utilization.
There are hundreds of other examples of treatments that hospital pharmacists will say are cheaper and clinically equivalent, yet many community hospitals struggle to change their formularies and physician preferences for these medications. Conversely, some of the top academic medical centers in the country have brought about these changes far more easily. Whether due to cultural or organizational differences, it’s often the financially struggling community hospitals that are unable to capitalize on these opportunities.
To resolve this challenge, hospital executives must look to the larger issue of governance and decision making when it comes to the hospital Pharmacy & Therapeutics Committee. Hospitals need an incredibly strong P&T Committee that is chaired and actively attended by physician leaders that are open to accepting and promoting change to their colleagues. A small 200-bed community hospital can easily spend between $300,000 and $400,000 on IV acetaminophen. Leveraging a strong P&T Committee could drive these costs down to less than $50,000 per year, with cost savings being used to advance patient care in other more effective ways. With new therapies becoming
rapidly available, strategic decisions need to be made on how to handle additions of novel therapies to the hospital formulary while ensuring the existing formulary remains financially and clinically optimal.
2. High pharmacy labor costs and a lack of clarity on pharmacy productivity
Behind physicians, pharmacists are the second highest paid professionals. Hospital executives often see the high labor costs of the pharmacy department yet are unaware of how effective or productive the pharmacy department truly is. Hospitals continue to struggle to measure pharmacy productivity in a uniform manner due to a variety of factors, such as patient population complexity or the extent of decentralized pharmacy services. Many times, there are similar-sized hospitals with pharmacy staffing that is vastly different due to this lack of uniformity or clarity on pharmacy productivity.
Hospital executives should consider taking a closer look at the pharmacy department to understand how their department compares with a large group of similar-sized hospitals. Another effective way to increase productivity and impact is to consider implementing a centralized pharmacist order verification model. Particularly in multi-hospital systems, this model not only promotes improved productivity, but it also leverages decentralized clinical pharmacists to provide clinical care that leads to better patient outcomes such as medication reconciliation, discharge counseling and antimicrobial stewardship. Other areas of potential labor opportunity include overstaffing due to lack of automation within the pharmacy and significant wasteful activities not leading to impactful work.
3. A lack of clarity on the financial and patient outcome improvement opportunities that lie within the pharmacy department
With significant costs associated with outpatient infusions and chemotherapy, pharmacy leaders can identify and convey opportunities to increase revenue capture associated with infusion patients and specialty clinics such as oncology, rheumatology, neurology, cardiology, gastrointestinal and others. However, this is often met with an uncertainty within the finance department due a growing accounts receivable and a lack of clarity on reconciling medication costs with revenues. Health systems need to ensure revenue integrity in outpatient infusion medications and focus on capturing specialty medications through their outpatient retail or specialty pharmacy. Many who have done this successfully have realized contributions from outpatient specialty medications to the hospital bottom line.
Hospital executives should leverage the clinical outcomes that can result from keeping the care within their system by providing outpatient medications through the hospital-owned pharmacy. This can achieve superior efficiency, customer service, medication adherence and patient outcomes compared to patients going to chain retail pharmacies. These measures of efficiency and adherence need to be made trackable to contend with Pharmacy Benefit Management-owned pharmacies that will surely continue to compete to serve hospital patients and employees in the future.
Conclusion: Leveraging Pharmacy as a strategy for hospitals and health systems
Hospital leaders should incorporate pharmacy within their organizational strategy to reduce costs, drive financial performance and improve patient outcomes. Pharmacy remains an untapped source of significant clinical and financial opportunity that hospitals of all sizes can capitalize on using these guidelines.
Jigar Thakkar, PharmD is a Managing Director within FTI Consulting’s Health Solutions practice, specializing in hospital pharmacy performance improvement and business development. Jigar has spent most of his career focused on healthcare services and pharmacy, including leadership roles at several hospitals within the Chicago market.
The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
References:
1 Moody's Investor Report: FY 2017 US NFP hospital medians edge lower on revenue, expense pressure