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Closing the Gap Between Drugs Purchased and Drugs Charged

Health systems concerned about the financial impact of COVID-19 are strategizing recovery options that may include rapid margin improvement or a shift toward more value-based payment models. Key to recovery will be tactics that do not just reduce expenses, but also grow revenue.

A health system’s pharmacy is ripe with these types of opportunities. Patient drug charge validation is a great starting point.

Charging for medications in a hospital has always been complicated. Multiple interfaces from pharmacy information systems to revenue codes and credits for drugs sent to patients but not used, all lend to this complex task. Responsibility for these processes is divided between multiple individuals in the pharmacy department, while the duty of charge capture often falls outside of the pharmacy departments’ zone of responsibility in patient care areas.

The effort to scrutinize the processes used in pharmacy charge capture must span departments and sites of care. Many successful sites have a pharmacy revenue working group to handle issues that arise in the pharmacy revenue systems. Pharmacy, IT, automated dispensing cabinet maintenance personnel, pharmacy purchasers, pharmacy business managers, the pharmacy leadership and the revenue cycle department should all participate in the successful review of patient charge reconciliation.

It is important to review all systems used to generate charges, especially in areas recently established for patient care.

During the pandemic, providers stood up or transformed various sites of care such as pop-up treatment areas and emergency departments that hold patients for longer intervals of care. These, along with tele-pharmacy and pop-up outpatient treatment areas, have made the management of patient charging both more complex and more critical. If new clinics must rely on manual medication dispensing, a process to charge patients must be implemented as well. Oncology and medication infusion locations are particularly important since medications given in these locations are separately reimbursed, meaning these areas have the potential to realize significant revenue for the health system.

If your facility is a 340B Disproportionate Share Hospital (DSH) entity, additional complexity arises as charges flow to your split-billing software that allows accumulations in your 340B, wholesale acquisition cost (WAC) and non-340B, non-WAC accounts. Drugs that are not charged or improperly charged may result in excess WAC accumulations. Consequently, providers will spend more on these drugs than necessary.

Purchasing data has always been the gold standard for pharmacy expense management.

To overcome these challenges, from the various site of care to billing complications and the diversity of parties involved, providers need strong, reliable purchasing data and regular pharmacy audit processes.

As a basic measure, pharmacy team members should pose the following question to themselves: Did I charge for all the units of medication that I purchased? This query may seem simple, but it can be difficult to validate. To delve into the intricacy behind this question, much more detail is necessary:

  • Was the correct drug and unit of use charged?
  • Does the amount of the charge match the number of doses purchased?
  • How are floor stock and emergency medications charged?
  • Are medications expiring due to increased inventory levels?
  • Is diversion occurring? Are some medications intended for patient use being used by staff members for personal use?
  • Are doses being prepared and then wasted as the patient medications are discontinued or changed?
  • Is waste being charged for, where appropriate?

If charging is not occurring consistently, recognizing this fact is the first step in correcting errors. By reviewing medication purchases and charges, pharmacy leaders will know where practitioners are administering individual medications.

Close the gaps between drugs purchased and drugs charged in three steps.

Ensuring proper charging for drugs is an ongoing process that requires alignment between pharmacy and the revenue cycle department. Premier’s experts often help health systems realize financial opportunity in three steps:

  1. Develop a plan to review individual medications in a systematic fashion. Start with medications that represent top-dollar spend or those that are known to be historically subject to diversion or waste.
  2. Review several medications each month to assess for undercharging. If undercharging is identified, pharmacy leaders should look for the root cause of the issue, quantify the opportunity and alter processes to correct the charging. For example, if manual charging is not occurring for clinic administered vaccines, pharmacy leaders could establish a process for vaccine replacement to require that charges be returned to the pharmacy in order to obtain additional vaccine doses.
  3. Continue this review to ensure the facility charges for all medications correctly. A regular cadence of audits will help verify that the provider is reimbursed for all the billable medications it is administering to patients.

As healthcare organizations emerge from the crisis, it will be important to review and bolster operational procedures that prevent loss of inventory and maximize revenue.

Industry experts can help speed up the review process. In a recent health system audit that Premier led within a 340B eligible outpatient clinic, we found that the clinic was not charging for 340B-eligible medication devices. When this charging was corrected, the clinic reduced its medication expense by more than half and increased its revenue for these services by 100 percent.

Validation and audits of patient drug charges should continue routinely, as part of normal pharmacy audit processes, but COVID-19 may have turned providers’ routine checks upside down. Clinically appropriate patient care will take place in alternative settings, which may not have traditionally provided medications to patients. As health systems settle into post-crisis operations and providers prescribe more medications in the outpatient setting, which is separately billable, pharmacy is quickly becoming a lever providers can pull as they consider revenue generation and margin improvement activities. Just managing cost is no longer enough in these unprecedented times.

Contact us to learn how we can help maximize your pharmacy revenue.

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