Drug-spend trend management helps boost hospital pharmacy's ROI

April 15, 2011

During a recent webinar presented by Pharmacy OneSource, Michael R. McDaniel, RPh, MBA, FASHP, showed how use of data can help identify appropriate cost-containment measures and justify necessary staffing.

Key Points

Effective use of drug-spend trend-management tools helps demonstrate that pharmacy services are a good return on investment (ROI), according to Michael R. McDaniel, RPh, MBA, FASHP, director of pharmacy services at Huntsville Hospital, Huntsville, Ala. "Pharmacy departments are typically considered cost centers," he said.

During a recent webinar presented by Pharmacy OneSource, McDaniel showed how use of data can help identify appropriate cost-containment measures and justify necessary staffing.

In examining data from such sources as purchasing and clinical systems, McDaniel relies on a number of software tools to address 2 basic budget questions:

McDaniel regularly tracks such items as staffing trends (including workload considerations) and trends in drug spending (including net drug spend, drug expense per adjusted discharge, and inpatient versus outpatient cost).

Pinpointing trends and identifying costs enables McDaniel to determine an effective strategy to boost the department's ROI. The more one refines and analyzes the data, he said, the clearer the strategy should become on better use of resources and dollars.

For example, data from the Huntsville facility showed that outpatient costs (as opposed to inpatient costs) were increasing. The numbers showed that the average drug expense for an inpatient (in hospital for 4.7 days) totaled $511, or $4.53 per hour. Meanwhile, the average outpatient costs (in hospital for about 3 hours) totaled $115 or $38 per hour.

Cost of goods sold

Even though Huntsville's pharmacy department lacks a true drug-cost accounting system, McDaniel was able to arrive at these figures using a cost of goods sold (COGS) formula.

"The basic formula is cost of goods divided by revenue," said McDaniel. "The departmental average COGS is applied to our inpatient and outpatient revenues to estimate the cost associated with both."

McDaniel used a separate report based on charges by patient type to identify drugs that were more than 70% outpatient focused and to adjust the inpatient and outpatient sides accordingly.

Patient volume and changing patterns of drug use also play a significant role in drug-spend trends.

"At Huntsville, our data showed a dramatic shift in the number of intravenous immune globulin (IVIG) patients seeking care," McDaniel said. "That resulted in a relatively small shift in volume, accompanied by a large amount of dollars." Physicians received a lower reimbursement rate for IVIG patients seeking care in their offices, so these patients are now being referred to the Huntsville facility as outpatients.

McDaniel believes that this trend reflects an opportunity for the pharmacy to have a greater role in outpatient environments. "The data revealed cost drivers, including specific therapies and workload units per staff," he said. "This information was used to create strategies targeting cost control and optimizing opportunities."

Healthcare teams

Key initiatives implemented under the strategy included the addition of pharmacy staff to existing interdepartmental teams.

"These teams now include pharmacy staff members (pharmacists or technicians) who already are involved with the affected departments, such as OR, plus any other pharmacy staff members whose expertise would help address the issue at hand," said McDaniel. He cited examples of OR teams collaborating on issues of vendor selection and waste avoidance through vial-size selection, and anesthesia teams determining to use more sevoflurane and less desflurane.

Over the past year, the Huntsville initiatives resulted in overall net savings of $3.6 million, McDaniel said. And the data gave him a clearer picture of the growth process, permitting better deployment of resources.

Among other results, clinical pharmacists were added to help optimize inpatient medication regimens, serve as drug information resources, perform discharge medication reconciliation, and provide discharge medication education. Over time, the department added a total of 35 new pharmacists.

Angela Watkins is a freelance writer in Massillon, Ohio.