When evaluating the most cost-effective, time-efficient method of acquiring quality unit-dose medications, facilities must carefully balance the overall costs versus the quality of the product and the timeliness of the services delivered. Parallon Supply Chain Services (Richmond, Virginia), a division of HCA that comprises 17 acute care facilities, with 3700 licensed beds providing care to patients in four states, provides unit dose medications to 13 facilities. After repackaging unit-dose medications in-house for many years, in 2003 HCA began shifting its focus to outsourcing packaging requirements. By 2005, more than half of these products were being outsourced; this number rose to 85% by 2006. Since then, all of HCA’s repackaging needs in Richmond have been provided by outsourced services.
Both operational and financial reasons drove the switch from in-house to outsourced repackaging. Insourcing these processes consumed significant pharmacist and technician labor, driving up costs and creating substantial space issues inside our facility, as our labor-intensive process required extensive equipment and physical space due to its large scale. Because we supplied medications to more than a dozen facilities, the logistical challenge of ensuring that all hospitals received medications in a timely manner grew progressively more complex. Inconsistencies in the amount of time required to repackage, ship, and distribute medications caused delays for customers and resulted in dissatisfaction with the repackaging method.
In an effort to simplify the procedure, reduce staff time spent repackaging, and ensure just-in-time delivery of medications to all facilities, it became evident that outsourcing our unit-dose packaging needs and then distributing the bar coded products through a centralized, consolidated service center was the soundest option. The goals of the project were to ensure patient safety by using bar code point-of-care scanning, maximize the amount of bar coded products purchased from manufacturers or GMP repackagers, and minimize the amount of pharmacy labor, equipment, and costs dedicated to repackaging medications.
To obtain the lowest pricing on high-quality medications, pharmacy buyers and managers compare contract pricing to ensure the best product is selected based on standard criteria. We compare all contracted products (if available) in bulk, lower priced 500 or 1000 count bottles, against our division usage, to determine optimal quantities based on expiration dating, as most repackaged products are given a beyond-use date of 12 months. The pricing analysis for purchasing unit dose versus bulk must include the repackaging costs associated with the different packaging options, including unit dose, over-wrap, or robot-ready. We also review the applicable rebates and factor discounts into the cost of each option. (To view our packaging decision-making process, see Figure 1.)
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The consolidated service center approach allows our facility to take advantage of various discounts. Large quantity repackaging provides more opportunities for negotiating discounts and furthermore, lot fees often charged for smaller quantity runs can be avoided. Not only do the medications cost less when purchased in bulk, but the per unit cost to repackage them decreases as the size of the repackaging run increases. HCA receives run-size discounts when ordering 30 to 45 days’ worth of product with a single lot expiration date, as well as aggregate volume discounts by combining each facility’s volume under the consolidated service center. When the savings threshold for bulk versus unit dose reaches 8% to 10%, we buy in bulk and have the product repackaged at our outsourced vendor. There are also opportunities to review your pharmacy distributor for service fee discounts, which may provide additional savings.
Our consolidated service center determines the best package size for redistribution to all our facilities. For convenience and to lower costs, we typically package in the same quantity supplied by the manufacturer, but for some of our smaller facilities we have to repackage smaller quantities. Our goal is to purchase the largest quantity possible without wasting expired product.
Orders are submitted by our division pharmacy inventory and procurement analyst, who in turn places weekly orders to maximize the service fee discount with the distributor. Orders are reviewed to determine if increasing the suggested order quantity will meet the minimum required to avoid lot fees by the repackager.
In recent years there have been a few changes in our unit dose requirements. While the volume of drugs required has largely remained the same, fewer manufacturers provide unit-of-use liquid medications, making it necessary for our consolidated service center to manage the repackaging of liquids more often. In addition, scanning failures with some branded medications have become more common, so purchasing these products in bulk and having them repackaged with bar codes that are compatible with our system ensures consistency. Recently we have noticed a larger gap between the costs of purchasing the manufacturer’s unit dose product versus buying in bulk and outsourcing the repackaging process with some products. As the threshold becomes larger, purchasing in bulk and utilizing an outsourcer for repackaging has become a more cost effective option.
Repackaging Supply Chain
The goal of the consolidated services center is to ensure timely, next-day delivery of unit dose medications to all 13 facilities. To this end, we work to maintain 30 to 45 days’ worth of medications in the warehouse, allowing items to be shipped immediately upon order. To maintain this stock, minimum and maximum quantities are established in our warehouse management system, and the wholesaler ships directly to the repackager using a single lot number per medication to be repackaged and bar coded. After the medications have been repackaged and delivered to the consolidated service center they are added to a designated pharmacy par sheet and packed in the warehouse until ordered. Upon receipt of a facility’s order, the warehouse staff picks the correct items, which are then delivered directly to the pharmacy department. The majority of medications are sent by courier to the ordering facility the next day.
Upon receipt of the first shipment, the bar code of the alternative product is scanned to ensure its compatibility with our system. If the bar code does not scan, the product is quarantined until we can ensure it will scan correctly. At this point, the scanning verification steps are repeated at each hospital to ensure compatibility. Only after the bar code has been verified at each facility is the product placed into stock and available for order.
Before utilizing the consolidated service center model, it would take up to six days for facilities to receive their ordered medications. The current method has significantly shortened wait time, as the majority of medications are delivered next day. All stakeholders have been extremely satisfied with the shortened turnaround time, as well as the quality of the bar codes.
Because the consolidated services center provides unit dose medications to multiple facilities, it was necessary from an efficiency perspective to standardize the formulary throughout the entire health system. Pharmacy leaders from all 13 hospitals met to evaluate contracts, drug utilization, and the available literature to determine the medications in each drug class that would best suit our needs as a whole and standardize the formulary throughout HCA. The process for ordering medications was simplified as a result, as, for example, each facility can now only order one drug from each class. Although it took about 12 months to review and standardize each drug class, contract compliance and formulary adherence have improved as a result of moving to the consolidated distribution model.
Drug Shortage Management
Clearly, drug shortages are a growing challenge that all pharmacy leaders must navigate. The consolidated services center model enables HCA to weather short-term shortages successfully, as our warehouse stores 30 to 45 days’ inventory; however, long-term product shortages raise more difficult issues. HCA’s pharmacy analyst is tasked with keeping abreast of impending shortages by researching the ASHP and FDA Web sites on a daily basis. This data is reviewed against stock levels in the warehouse. If a longer-term shortage is a possibility, pharmacy will investigate alternative products. Once identified, the selected alternative product’s NDC code and pricing is added to our systems and the substitution is communicated to all of HCA’s facilities.
The central warehouse stores 226 SKUs as stock items. Weekly orders are placed to the repackager, consisting of 25 to 50 lines. Facilities order medications three to four times weekly, comprising on average 10 to 20 lines per order. Since we began using the consolidated distribution method, 28 items have been either deleted from the formulary, produced by outsourced contractors, or discontinued by the manufacturer. Approximately 70 items are in process to be added, and the warehouse has the capacity to house up to a total of 1000 SKUs. HCA Capital Division has been able to transition to the consolidated model without adding warehouse staff, so there has been no impact to the overall warehouse budget.
Benefits of Using a Consolidated Distribution Model
Pharmacy leaders, physicians, and administration have been equally satisfied with the consolidated distribution center model’s success at HCA health system. By carefully evaluating and purchasing compatible medications, the average medication scan rate is now 96.7% across all facilities. Evaluating usage, pricing structure, and packaging fees have enabled HCA to select optimum products at the lowest possible price. Because the warehouse receives shipments weekly, additional funds are saved through the reduction of overnight shipping charges. Our ordering policy and par levels allow us to maintain a 30- to 45-day medication inventory in our warehouse, which enables all of our facilities to ride out short-term drug shortages and out-of-stocks at the distributor.
The consolidated service center model also eliminates invoicing orders with the distributor and process invoices for both the distributor and repackager, significantly cutting down on the volume of accounts payable paperwork. In addition, the shift to consolidated inventory management has improved HCA’s stocking requirements by making it unnecessary to stock larger quantities on the shelf at individual facilities; shipping these smaller package sizes is also more cost-effective.
Clearly, no single process provides the perfect solution and fully satisfies every need of all facilities. After wrestling with imperfect solutions for our unit dose packaging requirements for many years, HCA is confident that distributing medications through the consolidated service center best satisfies our facilities’ operational needs, administration’s bottom line concerns, and, most importantly, the medication requirements of patients.
Noel Hodges, RPh, MBA, is the division director, pharmacy services for Parallon Supply Chain Solutions in Richmond, Virginia. He is responsible for pharmacy supply chain operations, including identifying and executing continuous improvement opportunities. Noel received a pharmacy degree from Purdue University and a masters of business administration from Strayer University.