How to reduce specialty pharma inventory costs, boost visibility with a consignment model

Specialty pharmaceutical growth poses unique challenges for hospital pharmacies. Effectively managing these high-cost therapies that often have unpredictable demand requires a different inventory management strategy than traditional pharmaceuticals. Therefore, many health systems are turning to a consignment model, to better manage specialty drug products, which also offers opportunities to improve care and reduce costs.

In an Oct. 18 webinar sponsored by Dublin, Ohio-based Cardinal Health, two industry experts from the company's Specialty Solutions team discussed why health systems are consigning their specialty products and how a radio-frequency identification (RFID)-enabled consignment solution can help reduce waste and increase staff productivity.

John Kilgour, national vice president of sales and marketing for specialty pharmaceutical distribution, detailed industry trends and specialty pharmaceuticals' implications for hospital pharmacies. James Roof, national director of consignment and technology programs, described how a consignment model can improve inventory efficiencies.

Specialty products are driving market growth

The healthcare industry is seeing a shift in drug spending, with specialty pharmaceuticals outpacing traditional pharmaceutical growth.

By 2021, the specialty market is expected to make up 50 percent of total pharmaceutical spend, or $285 billion. In comparison, the market accounted for only 28 percent of pharmaceutical spend in 2011 and 39 percent in 2016, according to a Drug Channels report.

"Although they are used for very small and targeted patient populations, the specialty market is driving industry growth due to advances in innovation," said Mr. Kilgour.

There are currently more than 2,000 novel drugs in the late phase development pipeline, of which specialty medications comprise about 40 percent. The industry expects to see more than 100 new specialty drugs hit the market in the next five years.

Specialty drugs create unique challenges for hospital pharmacies

"Specialty pharmaceuticals pose unique challenges in terms of usage, cost and storage conditions," said Mr. Kilgour. Hospital pharmacies must often stock lower volumes of the drugs and respond to unpredictable demand for the medications, which are often more expensive than traditional pharmaceuticals.

Specialty drugs represent 60 percent of invoice spending and 2.3 percent of standard unit volumes in nonretail settings, according to a IQVIA Institute for Human Data Science report. With a higher invoice cost comes higher inventory carrying costs, and hospital pharmacies cannot afford to let specialty drugs expire. Some medications may also be cold chain products requiring refrigeration, so pharmacies must plan for proper storage to avoid waste.

While hospitals face pressure to reduce costs, specialty pharmaceuticals may increase  inventory spending for hospitals, according to Mr. Kilgour.

"Given that the pharmacy's inventory is its single largest investment and represents the majority of its budget, greater inventory control and visibility will be required to manage specialty pharmaceuticals," he said.

Hospitals must adopt more sophisticated approaches to streamline and automate inventory management processes for specialty pharmaceuticals, which will only grow more specialized. Traditional manual counting will not be sustainable, and the current ownership model may not be an effective inventory management strategy going forward, according to Mr. Kilgour.

A consignment strategy to support budget control

High-value products with unpredictable demand, like specialty pharmaceuticals, are ideal for consignment. A consignment model reduces carrying costs, since hospitals can store products in their pharmacies and pay for them only when they are used.

"If you buy too much, you could risk waste due to expiration. If you buy too little, you could risk not having a product for a patient," said Mr. Roof. "Consignment ensures you have the products you need at the right time, without incurring costs due to waste."

The Cardinal Health Consignment Program uses RFID technology to monitor inventory in real time, set par levels based on actual pharmacy usage and send alerts for recalled products. Consigned inventory can be tracked and traced within a cloud-based platform, which allows health systems to gain real-time visibility into inventory levels from anywhere. If there are multiple facilities in a network, consigned products can be transferred within the network.

Products arrive pre-tagged with an RFID tag that contains all of the information about the product. Pharmacists simply open the refrigerator using a secure access badge, add or remove the drug and close the door. Inventory levels are automatically updated in the cloud-based platform, and if a par level falls below its minimum threshold, the system will automatically issue a re-order.

"We will also proactively send you new products if the products on your shelf are approaching their expiration date," said Mr. Roof.

RFID-enabled cabinets allow pharmacists to automate nonclinical processes so they can focus on patient care. Products stored in the RFID unit are monitored 24/7 to ensure product integrity. "Best of all, all of the product information that's stored in the RFID cabinet lives within the cloud-based platform," said Mr. Roof.

Access the webinar recording here.

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