It’s clear that hospital leaders are faced with some serious challenges to keep their organisations financially viable while also improving quality of care and safety outcomes. It is also clear that organisations will have to undergo transformational change to meet these challenges. A “business as usual” mindset will only result in continued regression relative to the accelerating overall pace of change in the market. Incremental change built around process modification may help in the short term but will no longer be a successful strategy for the long term. Changing processes and systems such as informatics can help improve outcomes to a point but to achieve breakthrough or transformational results, organisations must change the way they think and behave to be successful in the future environment.
A major opportunity to support required transformational change is to focus on the business of pharmacy, an often overlooked and underutilised area of opportunity. Pharmacy is most often managed as a commodity with pharmacy leadership isolated from high-level strategic decision making. It is viewed as an ancillary service with the primary administrative emphasis on drug cost. The clinical impact of pharmacy is often undervalued and many organisations are unaware of the opportunities pharmacy presents.
When considering finances, patient safety, and clinical care it is evident that pharmacy is integral to the success of an organisation. Financially, medicines are among the fastest growing expense lines for any healthcare organisation and are generally one of the top sources of revenue. From a safety perspective, the impact of medicines errors can be devastating. In terms of clinical care, the primary treatment modality for over 80% of patients is medicines therapy.
Considering these elements together, there is a growing trend to consider “the Business of Pharmacy” operating as a business within the larger hospital and health-system business. There are numerous opportunities in pharmacy departments to support organisational efforts for financial and clinical improvement. Each organisation should be asking itself the following seven questions:
1. Are we buying medicines at the best possible advantage?
2. Are sound business principles and practises being applied to all elements of the pharmacy enterprise and is pharmacy being approached as the large business it has become?
3. Are patient billing and revenue processes for pharmacy sound and routinely monitored?
4. Is the organisation maximising all current sources of pharmacy revenue or are there leaks in the system?
5. Are pharmacy resources including medicines, supplies and manpower properly controlled and managed?
6. Are patient outcomes and medicines safety concerns properly balanced with financial considerations in the pharmacy department?
7. Are all pharmacy entrepreneurial opportunities identified, explored, and pursued when appropriate?
An example of a transformational pharmacy business model is the Integrated Pharmacy Supply Chain Initiative put together with Cardinal Health Solutions for a major U.S. health system. A new model of shared risk was created to better align client and partner goals and objectives. A detailed assessment around the seven questions was performed. From the assessment, 33 separate projects were designed to reduce cost, improve quality, maximise existing revenue sources and create new revenue sources. These projects were built around detailed statements of work (SOW), which provided specific timelines, responsibilities, and outcome metrics. Over the course of 36 months the program resulted in:
• Reduced cost of goods
• Improved utilization
• Reduced readmissions
• Improved clinical outcomes
• Improved revenue (Outpatient Rx capture and clinic infusion revenue)
The ultimate financial bottom line improvement was a net enhancement in operating margin of over $30M, all of which was verified by the client’s finance department as appearing on the operating statement or balance sheet.
No two organisations or pharmacy businesses present exactly the same profile or opportunity. But, given the clinical and business combination present in pharmacy the potential to materially assist senior leadership to address financial and quality issues is definitely available. It is time for organisations to maximise the full potential of the business of pharmacy to generate the transformational changes needed to survive and thrive in years to come.