Top Data to Track for Hospital Pharmacy Procurement Savings
Drug spend is one of the largest cost centers for a hospital, and it’s getting tougher to track and manage as the number of new drugs continues to increase, contract terms grow more complex, and price changes continue to occur rapidly. Identifying areas for drug spend savings is no easy feat. Knowing what areas to watch and potential vulnerabilities in traditional savings approaches to pharmacy procurement can yield many valuable insights.
Data Hospitals Should Understand to Recognize Drug Spend Savings Opportunities
What data is most useful when you’re trying to recognize savings opportunities with your drug spend? Typically, pharmacy teams will track the following core data:
Spend tells the pharmacy team the quantity of each drug the hospital is buying right now across all the different indices that might be equivalent, including generics.
Distribution reflects how spend is divided between inpatient and outpatient or uncategorized wholesale acquisition cost (WAC), as drug pricing will vary considerably by type.
Data around pricing shows how much the organization will need to pay for all equivalent products across inpatient, outpatient, and WAC areas. Tracking pricing involves managing a constant influx of data from wholesalers and distributors on pricing, discounting (e.g., 340B drug pricing, GPO optimization), packaging, and monitoring the impact of contract adherence.
Utilization reflects how much of the drug is currently being used and the ongoing trends that are likely to impact demand going forward, such as anticipated changes in the organization’s service mix, and patient population, among others.
It can be challenging for hospital pharmacy teams to quickly identify and prioritize savings given so many variables and the complexity involved in calculating opportunities as these variables shift. Drug price changes occur daily, and numerous drugs will experience changes throughout the year. Hospitals without automation or limited automation simply can’t keep up with the amount of change and impact.
2 Mistakes When Traditionally Identifying Pharmacy Procurement Savings
Trying to keep up with such substantial changes happening so rapidly, hospital pharmacy teams often need to make the best decisions they can with the information they can reasonably manage. Many teams have traditionally pursued one of two philosophies around drug savings initiatives to maintain their focus on pharmacy procurement savings, but each has flaws you should know about.
1) "We look at the top 20% of drugs with highest spend.”
There are so many data points to cover to determine the best possible price for a drug, from weighing possible discounts from a GPO and other suppliers to examining competing pricing from alternate therapeutics or new drug competitors to keeping an eye on 340B drug pricing impact. As a result, most pharmacy teams can only do so much review with reasonable frequency without automation. Focus naturally shifts to where teams expect to have the greatest dollar impact, mistakenly assuming this will always be on highest spend drugs.
The challenge with this approach is that the hospital often ends up reviewing the same drugs repeatedly while ignoring much of the formulary. The organization will miss many “easy buckets” on small spend, such as changes in high-frequency but low-spend drugs, such as Zofran. Even if the hospital is paying less than $1 a vial for Zofran, a savings of half given the high quantities typically stocked can easily mean a savings difference of upward of $20,000. Simply put: A lot of opportunity can be missed in the other 80% of the formulary that isn’t reviewed with the same depth and frequency. Out of 40,000 items on a hospital’s formulary, it’s typical to see teams examine less than 3,000 monthly.
2) “We take sort of a “shotgun approach” to pharmacy procurement.
With this approach, every time the hospital’s buyers run the shelves, they essentially pick through the order and look for some alternatives. This random sampling treats all drugs as having equal savings opportunity, with the mindset that the approach is fairer in its potential to touch across the entire formulary.
The challenge with this approach is that the hospital lacks a strategic direction for its purchasing. It is not leveraging data that can provide insight into the savings opportunities that exist and which ones make the most sense to prioritize. Without such data, a hospital will lack the ability to achieve GPO optimization and/or pursue other discounts since visibility is limited.
In addition, the shotgun approach can lead to a chaotic EHR due to the frequent changing of SKUs. The approach also creates an operational burden. The pharmacy may wind up with several brands of the same drug in a closet or drawer together, which isn’t an efficient or effective way to purchase and stock medications.
Automated Drug-Spend Analysis
With the aid of automation, pharmacy procurement can be faster, less vulnerable to the influences discussed, and more effective at identifying savings.
With the right technology, teams can receive a unified view of your pharmacy procurement opportunities in real time. Automation can bring together detailed information on pricing and spend that makes it possible to look across the entire formulary for savings and prioritize by the amount of potential savings, rather than relying on limited views or random sampling for discovery.
What’s more, pharmacy procurement teams can act on these data insights more meaningfully as technology makes it easy to conduct historical analysis, examine purchase trends at the facility and organization level, and provide levels of reporting by user need. The burden of maintaining contract terms and identifying potential areas of non-compliance also is eased.
While technology on its own can deliver significant cost savings opportunities and insight into drug spend, the value of technology is greatly enhanced when it is supported by pharmacy procurement experts. Such experts, acting as an extension of a hospital’s procurement team, further enhance the value of the technology.
How? For example, one hospital manager described the expert support provided by the QuicksortRx team as follows: “[Their] at-the-elbow support is a huge strength. Their willingness to go the extra mile and put us in contact with people who can help us out is above and beyond. The vendor’s adaptability to any new reports or features that we want to see is incredible.”
Selecting the Right Pharmacy Procurement Technology
The complexity and constant changes in drug pricing and contract terms make it challenging for hospital pharmacy teams to keep up without automation. By embracing advanced technology, and partnering with pharmacy procurement experts, hospital pharmacy teams can gain control over their spend and become more strategic with pharmacy procurement efforts. The right automation technology coupled with the right expertise is revolutionizing pharmacy procurement by streamlining data management and analysis, empowering pharmacy teams to drive down costs and maximize efficiency in new ways.
With QuicksortRx, your team can be equipped with the real time data and analysis needed to keep ahead of the curve and lower your pharmacy spend efficiently. Schedule your demo now.