Improve Services by Outsourcing Pharmacy Management

November 2012 - Vol.9 No. 11 - Page #70
Category: Outsourced Pharmacy Management

In response to pressures to reduce costs and improve performance in the pharmacy, some hospitals are opting to contract with an external organization to manage some or all of their pharmacy operations. Outsourcing pharmacy management is a viable option for hospitals to confront issues within its pharmacy operations, staffing, finances and cost control, quality, governmental and regulatory compliance, or improve their competitive profile in the marketplace. Hospitals stand to realize benefits in any or all of these areas, provided their goals are clear, the contractor is carefully selected, and the hospital-contractor relationship is well managed.

The Hospital of Saint Raphael, a 511-bed community teaching hospital, is the fourth largest hospital in the state of Connecticut. Thirteen years ago, the pharmacy was in a dire situation with pharmacy drug purchase costs escalating at 15% per year—three times the Producer Price Index (PPI). Moreover, the pharmacy had interim leadership, inventory management was not optimal, computer systems were outdated and not integrated with the hospital’s operating system, and pharmacist turnover was high. 

To confront the many complex issues at stake, The Hospital of Saint Raphael contracted with an outside company in 2000 to provide comprehensive management of the pharmacy department. Thirteen years later, the hospital’s original goals have been met, and the pharmacy continues to grow in scope of services. Pharmacy drug costs are in line with and often exceed budget expectations, and the relationship between the pharmacy and hospital senior leadership is healthy. 

Implementing New Management
When new management is introduced to assume leadership of an entire department, one might reasonably anticipate that pharmacy staff would be less than welcoming to an outside director brought in to solve pervasive challenges. Upon arrival at Saint Raphael in 2000, I found that employee attitudes paralleled my experiences in other organizations. Staff showed apprehension in the early stages, and also experienced frustration in the face of many of the changes that needed to be implemented to improve pharmacy operations. As the new director, one of the most important responsibilities was to build a strong relationship between pharmacy leadership, senior leadership, and the pharmacy staff; this effort began immediately.

To investigate staff attitudes, our first step was to administer an employee satisfaction survey. This information is essential to gain staff perspective. Review of the surveys revealed negative attitudes rooted in two areas: one was the pharmacy’s escalating costs and resulting staff reductions, and the second was overall job satisfaction. Previously, in order to address and reverse rising costs, senior leadership had enlisted consultants who attempted to resolve the pharmacy’s fiscal problems. Their narrow focus on the financial bottom line, and disinterest in the reasons behind the numbers, resulted in department consolidation. This consolidation further weakened pharmacy’s relationship with senior leadership and lowered employee morale. Review of the employee satisfaction surveys also uncovered that pharmacy staff believed senior leaders were not concerned with the pharmacy’s needs. However, upon investigation, it became clear that the problem was that senior leaders knew little about the pharmacy because there had been no consistent leadership for an extended period of time. One of the main leadership roles of the pharmacy director is to serve as the champion of the department—a very specialized area of the hospital that few outside of the department understand. Without stable leadership in place, it is not surprising that miscommunication between pharmacy and senior leadership had resulted in lack of understanding between these two groups.

Goals for Change
The initial goals set to improve pharmacy operations were to gain control of finances, stabilize staff, and update automation.

Fiscal Management 
One of the most effective means of containing drug costs is looking at how drugs are approved for use in the hospital. A review of the structure and function of the hospital pharmacy and therapeutics (P&T) committee was performed. A decision was made to restructure the committee to include subcommittees representing core business areas of the hospital and areas that represented key cost drivers. In the first year, the P&T committee was restructured to include seven subcommittees: oncology, cardiology, infectious disease, anesthesia, nephrology, radiology, and emergency medicine. Each subcommittee was comprised of physician specialists in the areas of interest, as well as pharmacy, nursing, quality improvement, and representation. The subcommittees now meet quarterly and report all decisions to the P&T committee for final approval. Our goal is to have providers in their respective specialty evaluate medication use in their specific areas. This evaluation process includes safety, efficacy and cost considerations for all medications utilized in their specialty. Having providers involved in the quarterly financial management of medications used in their respective areas has shown to be an effective method of containing costs.

Staff Stabilization
Another challenge was that pharmacy had many open positions and was having a difficult time recruiting and retaining pharmacy staff. The hospital is a leader in cardiology services and cancer care, and administration wanted to develop clinical programs around these two core business areas. Administrators believed that a high-functioning pharmacy, with robust clinical services, could be the hallmark of a highly sought-after residency or fellowship program and would thus help recruit superior physicians. Outstanding clinical services also would help Saint Raphael retain pharmacy staff and become a more attractive employer in the marketplace, as pharmacists’ skill sets would be more appropriately utilized with the expanded programming.

To set the process of creating quality clinical pharmacy services in motion, pharmacy and senior leadership had lengthy, detailed conversations identifying needs and expectations. These conversations marked a new approach to healthier relationships between pharmacy and administration, as well as other hospital departments. This information was then used to develop a vision for clinical services and to make the necessary adjustments to fulfill it. The results were as administrators intended—the expanded programming made the hospital and pharmacy more attractive to potential employees.

New Automation
A thorough evaluation of pharmacy technology needs and a rigorous comparison with best practices helped identify specific solutions for updating  pharmacy automation, and the improved communication between pharmacy and administration enabled timely approval of funding for these projects. Today, the hospital technology supports a decentralized drug distribution model, utilizing computerized provider order entry (CPOE), automated dispensing cabinets (ADCs), and automated carousel technology. 

Relying on External Expertise 
One of the benefits of outsourcing pharmacy management is ready access to the partner’s resources, tools, content experts, and experience. Our outsourced partner provided The Hospital of Saint Raphael with staff training to impart best practices developed as a result of experience managing hundreds of hospital pharmacies. In addition, its regulatory compliance experts are available for survey preparation and other experts can attend P&T committee meetings to aid in the process of adopting new initiatives.

Work at The Hospital of Saint Raphael began with an operations audit—a gap analysis to identify the hospital’s regulatory proficiencies and needs. It also benchmarked our hospital’s performance in key areas against best practices in pharmacy services from other hospitals. Our outsourcing partner also offers drug purchasing information, with benchmarking data to provide comparisons with peer hospitals of similar sizes. Another important metric was to benchmark The Hospital of Saint Raphael against itself to uncover areas of potential cost savings in each drug class. These tools enabled measurement of progress toward goals over time, and by tracking drug use regularly we were able to eliminate the 15% drug cost increase the hospital had been experiencing annually. Over the past seven years the pharmacy drug cost increase has been at or below the PPI. 

Another resource our partner provides is an econo-therapeutics program, which uses monthly pharmacy purchasing data to calculate costs per adjusted patient day for each drug or drug category and enables month-to-month comparisons. This permits review of data in the middle of each month to assess whether any increases were caused by higher utilization, higher prices, or another factor. By the end of the month, this data is tabulated and delineated to the hospital; a cumulative report, detailing pharmacy performance month-to-month, can be run at any time. Adjusted patient days, drug expenses, labor costs, number of pharmacy interventions, and the number of medication variances are reported monthly. Comparing the data month-to-month allows assessment of whether costs are within budget, and if not, to quantify the variance. In addition, our performance is also trended and compared annually. Use of this tool has proved invaluable in uncovering reasons for spiking costs and creating a plan to address these concerns. These reports are also valuable to assist administration in managing budgets. For example, if costs rise or decrease due to release of a generic medication, both the exact dollar amount and the explanation are readily available.

The initial three years of this pharmacy management undertaking proved challenging, but the results realized since that time—and throughout the past decade as we continuously improve—have been gratifying. Instituting successful pharmacy leadership has not only lowered costs at The Hospital of Saint Raphael, it has enhanced professional relationships between pharmacy and senior leadership, thereby fostering an environment of mutual respect, and ultimately improved patient care. The outsourced pharmacy project has illustrated that gaining support for pharmacy is largely a matter of effective communication. After the required automation and technology solutions were implemented, reporting results to administration became straightforward, enhanced transparency, and built trust.

Effective pharmacy leadership has improved staff morale exponentially, decreased turnover, as well as led to successful recruitment of qualified staff, including clinical pharmacists and pharmacy specialists. Currently, few open positions remain, and American Society of Health-System Pharmacy–accredited PGY1 and PGY2 residency programs have been developed. The majority of staff that was with Saint Raphael in 2000 when pharmacy management was outsourced remains with the hospital today.  

Shortly after realizing the three-year mark of initiating outsourced pharmacy management, the vice president of the hospital visited the pharmacy to praise the staff, which had never been done previously. This milestone, and our hospital’s improvements, were a direct result of implementing qualified, experienced leadership that enabled reduced costs and enhanced communication.

Janet M. Kozakiewicz, MS, PharmD, FASHP, serves as director of pharmacy services with Cardinal Health Pharmacy Solutions and works at the Yale-New Haven Hospital, Saint Raphael Campus, (formerly The Hospital of Saint Raphael) in New Haven, Connecticut. She is also a preceptor for the PGY1 Leadership/Management experiential rotation, primary preceptor for the longitudinal Pharmacist-in-Charge/Staffing rotation, and the PGY2 Health-System Pharmacy Administration residency director. Janet received her BS in pharmacy from the University of Connecticut in Storrs, her doctor of pharmacy from Massachusetts College of Pharmacy and Health Sciences in Boston, and her MS in health care administration from Rensselaer Polytechnic Institute.


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