Outsourcing Pharmacy Services: Analysis & Recommendations

1. Outsourcing Pharmacy Services: Analysis & Recommendations Subrata Behera Chris Beuning Jim Grubel Steve McDonald Medical Informatics: Health Care Operations 404 August 10, 2011

2. 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

3. Payer Mix • 30% Medicare • 20% Medicaid • 40% Commercial • 10% Self pay (uninsured)

4. 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

5. 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.

6. 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

7. 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.

8. 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.

9. Outsourcing Options • All Pharmacy Services • Pharmacy Third Shift • Pharmacy Management • Pharmacy Medication Procurement & Inventory Management

10. Outsource All Pharmacy Operations • Current State • Personnel

11. Outsource All Pharmacy Operations • Responsibilities • Order Management • Sterile Products

12. Outsource All Pharmacy Operations • Inventory Management • Drug Locations • Number of Turns

13. Outsource All Pharmacy Operations • N.P.M. Proposal • Personnel • Become N.P.M Employees • Impact on Salaries

14. Outsource All Pharmacy Operations • N.P.M. Proposal, continued • No New Equipment Needed • Cost Savings • Inventory Management

15. Outsource Night Shift Pharmacy Services • Current State • Staffing • Responsibilities

16. Outsource Night Shift Pharmacy Services • N.P.M. Proposal • Shift Coverage • Cost Benefits

17. Outsource Night Shift Pharmacy Services • N.P.M. Proposal, continued • Medication • Required Equipment

18. Outsource Pharmacy Management • Maintain current management positions • New team to fill those positions • Utilize N.P.M. personnel to fill these positions

19. Outsource Pharmacy Management • Cost Savings Initiatives • Utilize Lean methodology • Previously Identified Opportunities • Switch to generic anti-emetics • Implement IV to PO conversion • Implement shorter acting erythropoietic agent

20. Outsource Pharmacy Management • 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

21. Outsource Pharmacy Management • 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

22. Outsource Pharmacy Medication Procurement & inventory Management • Potential areas of benefit • Enrolling in 340b pricing program • Inventory management – just in time

23. Outsource Pharmacy Medication Procurement & inventory Management • 340b Pricing Program • Determine if any subset of Community Hospital patients meet criteria for 340b pricing • Tracking required • Rigorous record keeping

24. Outsource Pharmacy Medication Procurement & inventory Management • Inventory Management • Lower inventory levels • Increase number of inventory turns • Establishment of minimum and maximum levels

25. Outsource Pharmacy Medication Procurement & inventory Management • 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

26. Outsource Pharmacy Medication Procurement & inventory Management • 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

27. Outsource Pharmacy Medication Procurement & inventory Management • 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

28. Outsource Pharmacy Medication Procurement & inventory Management • 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

29. 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.

30. Business Plan for Recommended Solution • Demand • Present Economy

31. Business Plan for Recommended Solution • Cost • Salaries

32. Business Plan for Recommended Solution • Human Resources • Reorganization

33. Business Plan for Recommended Solution • Output and Productivity • More Inventory Turns • Staff Engagement • Sterile Products

34. Business Plan for Recommended Solution • Quality Outcomes • Clinical Initiatives • Formulary Review • Med Accessibility

35. Business Plan for Recommended Solution • Processing Quality • Patient Satisfaction • Physician Satisfaction

36. 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

37. 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

38. 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