Control the flow of drug expenditures
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©2018 Advisory Board • All Rights Reserved • 36549 Pharmacy Executive Forum Action for leaders: Examine your organization’s unique needs, goals, and constraints to select the best model for you. Get the tools you need to manage drug costs and improve revenue at your organization advisory.com/pef Control the flow of drug expenditures Prescription drug expenditures are the fastest growing component of health care spending, putting pressure on health systems’ inpatient margins while also creating new revenue opportunities in the outpatient setting. For most health systems grappling with accelerating drug spend, reducing unwarranted prescribing variation will offer the single biggest improvement opportunity. That said, there are several other near-term chances to reduce spending and grow revenues. It’s critical to understand—and use—available controls to manage spend, capture revenue, and position for growth. Total Medicare Drug Spend Compared to Inpatient Spend, 2015 Hospital Inpatient Services Drug Spend Medicare Part D drug spend for CY 2015 Medicare Part B drug spend for CY 2015 $137.4B $145B $24.6B Health systems that successfully manage their employees’ pharmacy benefits can leverage that expertise to improve performance under risk-based contracts— or even to develop a pharmacy benefit manager (PBM) product. Reduce spending on health system employees’ prescription benefits Trends in Employee Health Benefit Spend Action for leaders: Partner pharmacists with benefit teams to help optimize the formulary, improve benefit design, inform pharmacy benefit manager contracting, and develop clinical services for the highest-risk employees. Pharmacy Benefit Cost Total Health Benefit Cost +2.6% +7.2% 31% of employers cite specialty pharmacy as the #1 driver of their employee health care costs 25% attributed to prescription drug costs Improve revenue capture for infused and injectable drugs Due to cost-plus reimbursement, infused or injectable drugs generate significant revenue. As prices rise, payers are increasing prior authorization and documentation requirements to demonstrate medical necessity. Action for leaders: Dedicate prior authorization staff and begin quarterly reports on outpatient drug denials to enable appeals and avoid future billing errors. Typical Health System Drug Spend • Increased outpatient drug spend means increased revenues • Most health systems have few utilization controls for outpatient drugs 50% goes to infusion center or outpatient drugs Off-Site Warehouse Off-site facilities can be quite large and advanced, utilizing repackaging robots and offering many specialized services. These are typically best for larger systems. Centralize select pharmacy services and drug inventory Centralizing drug purchasing, inventory, and compounding creates opportunities to negotiate lower prices, reduce inventory, and mitigate effects of drug shortages. Different Ways Centralized Inventory Can Work On-Site Expansion Expansion of an existing hospital pharmacy allows for centralized inventory and some specialized services. These are often best for smaller systems. Capture outpatient growth opportunities Managing overall drug spending—particularly on specialty drugs—will be essential to future financial sustainability. Establishing health system-owned retail and specialty pharmacies can help systems manage drug spending and optimize patient outcomes. Action for leaders: Use our Outpatient Pharmacy Pro Forma to determine your savings opportunity and calculate a five-year net present value for a retail pharmacy investment. Four Opportunities Driving Investment Profits 340B-covered hospitals can capture significant margins Patient Outcomes Improve medication management and clinical quality Cost Savings Save for health system plan beneficiaries and at-risk patients Patient Experience Enhance patient satisfaction with care experience Partner with physicians to reduce unwarranted prescribing variation This is the single most powerful lever for managing rising drug spend, but it isn’t easy. It requires an organization-wide commitment and a major investment of physician and staff time. Action for leaders: Establish a standard of care and corresponding implementation infrastructure for common and high-cost conditions to guide prescribers to the best drug choice. Care Variation Quality
Transcript of Control the flow of drug expenditures
©2018 Advisory Board • All Rights Reserved • 36549
Pharmacy Executive Forum
Action for leaders: Examine your organization’s unique needs, goals, and constraints to select the best model for you.
Get the tools you need to manage drug costs and improve revenue at your organization
advisory.com/pef
Control the flow of drug expendituresPrescription drug expenditures are the fastest growing component of health care spending, putting pressure on health systems’ inpatient margins while also creating new revenue opportunities in the outpatient setting.
For most health systems grappling with accelerating drug spend, reducing unwarranted prescribing variation will offer the single biggest improvement opportunity. That said, there are several other near-term chances to reduce spending and grow revenues.
It’s critical to understand—and use—available controls to manage spend, capture revenue, and position for growth.
Total Medicare Drug Spend Compared to Inpatient Spend, 2015
Hospital InpatientServices
Drug Spend
Medicare Part D drug spend for CY 2015
Medicare Part B drug spend for CY 2015
$137.4B
$145B
$24.6B
Health systems that successfully manage their employees’ pharmacy benefits can leverage that expertise to improve performance under risk-based contracts—or even to develop a pharmacy benefit manager (PBM) product.
Reduce spending on health system employees’ prescription benefits
Trends in Employee Health Benefit SpendAction for leaders: Partner pharmacists with benefit teams to help optimize the formulary, improve benefit design, inform pharmacy benefit manager contracting, and develop clinical services for the highest-risk employees. Pharmacy
Benefit CostTotal HealthBenefit Cost
+2.6%
+7.2% 31% of employers cite specialty pharmacy as the #1 driver of their employee health care costs
25% attributed to prescription drug costs
Improve revenue capture for infused and injectable drugs
Due to cost-plus reimbursement, infused or injectable drugs generate significant revenue. As prices rise, payers are increasing prior authorization and documentation requirements to demonstrate medical necessity.
Action for leaders: Dedicate prior authorization staff and begin quarterly reports on outpatient drug denials to enable appeals and avoid future billing errors.
Typical Health System Drug Spend
• Increased outpatient drug spend means increased revenues
• Most health systems have few utilization controls for outpatient drugs
50% goes to infusion center or outpatient drugs
Off-Site Warehouse
Off-site facilities can be quite large and advanced, utilizing repackaging robots and offering many specialized services. These are typically best for larger systems.
Centralize select pharmacy services and drug inventory
Centralizing drug purchasing, inventory, and compounding creates opportunities to negotiate lower prices, reduce inventory, and mitigate effects of drug shortages.
Different Ways Centralized Inventory Can Work
On-Site Expansion
Expansion of an existing hospital pharmacy allows for centralized inventory and some specialized services. These are often best for smaller systems.
Capture outpatient growth opportunities
Managing overall drug spending—particularly on specialty drugs—will be essential to future financial sustainability. Establishing health system-owned retail and specialty pharmacies can help systems manage drug spending and optimize patient outcomes.
Action for leaders: Use our Outpatient Pharmacy Pro Forma to determine your savings opportunity and calculate a five-year net present value for a retail pharmacy investment.
Four Opportunities Driving Investment
Profits 340B-covered hospitals can capture significant margins
Patient Outcomes Improve medication management and clinical quality
Cost Savings Save for health system plan beneficiaries and at-risk patients
Patient Experience Enhance patient satisfaction with care experience
Partner with physicians to reduce unwarranted prescribing variation
This is the single most powerful lever for managing rising drug spend, but it isn’t easy. It requires an organization-wide commitment and a major investment of physician and staff time.
Action for leaders:Establish a standard of care and corresponding implementation infrastructure for common and high-cost conditions to guide prescribers to the best drug choice.
Care Variation Quality
