Subrata Behera Chris Beuning Jim Grubel Steve McDonald Medical Informatics: Health Care Operations...

Outsourcing Pharmacy Services: Analysis & Recommendations

Subrata BeheraChris Beuning

Jim GrubelSteve McDonald

Medical Informatics: Health Care Operations 404August 10, 2011

County Hospital Background

Rural Midwestern town Population 50,000 Licensed for 250 beds but operations 150 Not for profit Medical staff of more than 50 active

physicians Specialties include orthopedic surgery,

gastroenterology, gynecology, urology, ophthalmology, general surgery, podiatry, nephrology, otolaryngology and general medicine

Payer Mix

30% Medicare 20% Medicaid 40% Commercial 10% Self pay (uninsured)

Financial Situation

$1.5 M deficit fiscal year 2009 Near $2.5 M deficit in year 2010 Reduction in Federal grants spending

which reduces recovered money and strains cost for facilities and administration

Uncompensated care hurts profit margin Performance Management team created

Rationale for Outsourcing Pharmacy Services

A pharmacy is an essential component in the operations of the healthcare organization. The pharmacies of today are being challenged by the changes in the structure and financing of the healthcare industry in order to reduce costs and improve performance. It is getting tougher on the part of the healthcare organization to maintain a fully fledged pharmacy and many of them are using pharmacy outsourcing in one way or the other.

Benefits of Outsourcing Pharmacy Services

It is easy to consolidate pharmacy services in large integrated health systems.

• Helps reducing the operational issues by improving the medication distribution system, designing new pharmacy workspaces, reducing medication dispensing and administration errors and improving information systems

• Enable the organization to acquire additional resources and expertise to carry out other changes

• Provide educational programs for patients and their families and for health care staff

• Help the organization to staff hard-to-fill pharmacy positions

• Allow the organization to reach optimal staffing levels for achieving productivity targets

Cost Consideration

Helps in reducing the operational cost for the organization. • Control and reduce labor rated costs by shifting the cost of

employees, benefits, and liabilities to a contractor. • Enable the healthcare organization to share the risks associated

with the operation of the pharmaceutical services. • Avoid the cost of purchasing and maintaining costly pharmacy

equipment. It will help the healthcare organization focus on activities that is more critical than operation of the pharmacy.

• Avoid the cost of physical remodeling of the office space and the cost associated.

• Increase the organization’s financial operating margin by allowing the organization to purchase drugs in bulk quantities, use group purchasing contracts, decrease lost charges, improve billing accuracy, decrease drug diversion and pilferage, improve drug formularies, and transfer drug inventory, equipment, and supply activities to a contractor.

Quality Impact

• Enable the organization to maintain or improve the quality of patient care by expanding clinical services and pharmaceutical care, establishing new services, and obtaining specialized expertise in pharmaceutical care.

• Provide support for the medical and nursing staffs and improve physician–nursing–pharmacy collaboration.

• Correct regulatory and accreditation problems relating to pharmaceutical services

• Ensure continuing compliance with accreditation and certification standards

• Allow the organization to gain an edge on competitors through improvements in service, quality, or price.

Outsourcing Options

All Pharmacy Services Pharmacy Third Shift Pharmacy Management Pharmacy Medication Procurement &

Inventory Management

Outsource All Pharmacy Operations

Current State Personnel


Responsibilities Order Management Sterile Products


Inventory Management Drug Locations Number of Turns


N.P.M. Proposal Personnel Become N.P.M Employees Impact on Salaries


N.P.M. Proposal, continued No New Equipment Needed Cost Savings Inventory Management

Outsource Night Shift Pharmacy Services

Current State Staffing Responsibilities


N.P.M. Proposal Shift Coverage Cost Benefits


N.P.M. Proposal, continued Medication Required Equipment

Outsource Pharmacy Management

Maintain current management positions

New team to fill those positions

Utilize N.P.M. personnel to fill these positions


Cost Savings Initiatives Utilize Lean methodology Previously Identified Opportunities

Switch to generic anti-emetics Implement IV to PO conversion Implement shorter acting erythropoietic agent


Cost Savings Initiatives – Additional Opportunities Formulary limitation by more aggressive

therapeutic interchange process Antibiotic Stewardship

Minimize adverse events Optimize antimicrobial agents De-escalate antibiotic to oral therapy when

appropriate Discontinue therapy when complete


Cost Savings Initiatives N.P.M. Management team reporting

Community Hospital Board of Directors

N.P.M. Management and administration to track progress and offer resources and guidance

Outsource Pharmacy Medication Procurement & inventory Management

Potential areas of benefit Enrolling in 340b pricing program

Inventory management – just in time


340b Pricing Program Determine if any subset of Community

Hospital patients meet criteria for 340b pricing

Tracking required

Rigorous record keeping


Inventory Management Lower inventory levels

Increase number of inventory turns

Establishment of minimum and maximum levels


Technology options Automated system for inventory tracking (i.e.,

Talyst) Real time inventory tracking

Refill of automated dispensing cabinets (i.e., Pyxis)

Electronic purchase request submitted to vendor

Fill floor stock medication requests


Sterile compounded product outsourcing N.P.M. Compounding facility

Labor and time intensive to prepare on site N.P.M. facility meets criteria to allow longer

dating than on site Reduced wastage

Parenteral nutrition orders (TPN) Automated download from pharmacy system Remote preparation and deliver


Technology options – implications Free up technician time with automated

functions

Technicians could be deployed to some of the current, non-clinical pharmacists functions

Pharmacist time could be moved to focus on cost savings initiatives


Point of care antibiotic assembly Antibiotic vial-bag-pin assembly Lest wastage

N.P.M. Support Expert support personnel for training and

trouble shooting Established policies and procedures for

validation and adoption

Recommendation for Consideration

The Pharmacy Review Group has brought forth a recommendation for a combination of two outsourcing options as a recommendation for major cost savings initiatives. The proposal includes a combination of outsourcing pharmacy management and pharmacy medication procurement and inventory management.

Business Plan for Recommended Solution

Demand Present Economy


Cost Salaries


Human Resources Reorganization


Output and Productivity More Inventory Turns Staff Engagement Sterile Products


Quality Outcomes Clinical Initiatives Formulary Review Med Accessibility


Processing Quality Patient Satisfaction Physician Satisfaction

Considerations – Impact to HCO Mission

Community Hospital Mission – provide quality patient care and patient satisfaction while delivering exceptional medical care

Any solution must support this mission Each of the solutions presented will be

measured against this mission

Considerations – Community Reaction

A Health Care Organization becomes a part of the community it serves

Challenges faced by the HCO impact or reflect on the community

Community Involvement on the Board of Directors is important

Considerations – Impact to HCO Competitive Position

Financial instability can impact the organization’s competitive position

This needs to be considered with any changes implemented

Rural setting limits competition Viability still at risk

Subrata Behera Chris Beuning Jim Grubel Steve McDonald Medical Informatics: Health Care Operations...

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