Uncover the Hidden Pharmacy Supply Expenses

Rigorous purchasing surveillance in a health system’s pharmacy department can recover major expenses and improve margin. However, as many contemporary pharmacies focus on the delivery of complex clinical services, tasks like identifying contract price discrepancies and filing claims for recovery can fall to the backburner.

And yet, pharmacy surveillance activity can return significant revenue that’s often undetected within the pharmacy supply expense. For example, when Premier analyzed credits for inaccurate invoice prices for 39 member hospitals with an annual drug spend ranging from $5 million to $650 million, we found providers could recoup an average of 0.19 percent of the total cost of drugs in returned credits.

As the expense of pharmaceuticals grows to account for a larger percentage of total healthcare costs, providers should reinforce surveillance of pharmacy purchasing as a sizable margin opportunity.

How to Analyze – and Close – Gaps in Pharmacy Surveillance

Analyzing each of these areas will help the pharmacy team understand gaps in their supply chain reconciliation process and identify key opportunities for revenue enhancement.

Pharmacy leaders should ask themselves whether they are:

• Buying on the best contract. The best way for providers to research this is with access to surveillance reports that illuminate on- and off-contract spend, as an analysis can illuminate opportunities to reduce overall supply cost. There are multiple reports that can indicate for pharmacy leadership when off-contract spend is trending toward an unacceptable level, including off-contract spend reports, best contract spend reports, trending analysis for spend categories and price parity reports. With regular reviews of these reports – we recommend monthly – pharmacy leaders can make rapid corrections around purchasing decisions to assure best practices stay in place.
• Buying on the best contract tier. Supplier-driven agreements for pharmaceuticals change over time, and a provider’s contract compliance can affect the pricing tier that the pharmacy receives. Consistent review of supplier tier performance is important to obtain the best price for expensive drugs.
• Tracking and collecting rebates that are due. If providers maintain performance within the negotiated agreement with suppliers, drug rebates can lower the overall cost of drugs significantly. Monitoring receipt of the rebates for drug purchases, however, can be complex. Providers should be sure to diligently monitor the intake of rebates to ensure the rebates total the amount expected, as outlined in the supplier contract.
• Identifying whether wholesalers have loaded pricing accurately. Tracking price accuracy for contract load price at the wholesaler is intricate, and a full-time job if performed manually. Formal and automated audit programs are an efficient way to monitor thousands of lines in a spreadsheet – and detect every discrepancy in price – without adding labor.
• Following established ordering procedures. Leadership should provide guidance to purchasing staff on the appropriate par and maximum inventory levels for all inventory items. When standards are in place and communicated widely, providers circumvent costly emergency ordering when drugs are in short supply. Don’t forget that inventory levels should not be considered static, as they fluctuate with market dynamics; leading pharmacy teams ensure they review these detailed processes routinely for drug supply changes in the marketplace.
• Interpreting supply chain dynamics to mitigate drug shortages. With wide-ranging effects on patient care, drug shortages can add time and expense as providers search for therapeutic alternatives and manage supplies. Checking in with distributors on allocations and alternative products can help alleviate shortages and higher costs, but providers should also partner with a sourcing program that actively combats shortages and reserves stock for its members. Premier’s ProvideGx program identifies safe, high-quality supply sources for drugs that are or may be at risk of being added to the national drug shortage list, and works with manufacturers to ensure a stable supply of these critical drugs. Even during COVID-19, Premier was able to maintain 100 percent fill rates despite surge demand of 10 critical drugs.
• Maintaining relationships with suppliers’ contracting departments. Direct contracts with suppliers can help ensure access to products that are in short supply. Pharmacy leaders can work with an industry partner that maintains relationships with these suppliers, which can help avoid the need for providers to purchase more expensive alternatives or gray market items.

Pharmacy surveillance and data audits prevent wasted dollars and boost margin.

If you mentally walked through the questions above, you likely found there’s at least one opportunity that you’re not maximizing to ensure dollars are not left on the table. To assess expense-reduction opportunities within the pharmacy, leaders need to regularly monitor multiple facets of their pharmaceutical supply chain.

In Premier’s work with hospitals and health systems to create a healthy pharmacy supply chain margin, we’ve seen that maximizing all of these opportunity areas is often understood by leaders – but slips to the bottom of the priority list. Premier can help pharmacies find the lost dollars and recoup savings. We leverage our relationships with pharmaceutical manufacturers, provide state-of-the-art surveillance reports and interpret supply chain dynamics that result in drug savings and a boost to the bottom line.

Margin improvement post-pandemic does not have to require a magic wand (although it helps to know the secret ingredient). Contact us today to assess your pharmacy, eliminate waste and safeguard revenue.

Further reading:

• Why Almost Every U.S. Hospital Is Building Safety Stock of Critical Pandemic Medications
• Closing the Gap Between Drugs Purchased and Drugs Charged
• Five Keys to Maximizing a Medication Assistance Program