Operations Analysis for Outsourcing Parenteral Nutrition

June 2013 - Vol.10 No. 6 - Page #12
Category: Enteral Feeding Products

Health-system pharmacies are constantly engaged in initiatives to reduce costs and improve efficiencies, and in recent years, the outsourcing of pharmaceutical services has become a common option to help hospital pharmacies meet these initiatives. While ever mindful of the recent issues associated with contaminated outsourced products, outsourcing the preparation of certain therapeutic products remains necessary for some health care facilities to maintain their standards of therapeutic care.

Outsourcing the preparation of parenteral nutrition (PN) is a specialty service available to many hospital pharmacies, but it is a process that requires due diligence before making a decision. In order to gauge the financial impact of outsourcing versus preparing PN in-house, a thorough analysis of the cost differential (both fixed and variable) must be performed, and the facility must have a clear understanding of its in-house capabilities and protocols, including adherence to USP <797> and the allocation of adequate space and staffing to prepare PN solutions in a timely and efficient manner. Many facilities that are capable of compounding PN solutions continue to face restricted budgets, increased operating and drug costs, and an increased emphasis on measuring performance in terms of staffing and costs.1 From a more universal standpoint, the large number of drug shortages in recent years have included components necessary to compounding PN solutions, creating additional pressures.

Evaluate Options and Perform Due Diligence
Allegheny General—a 764-bed academic, tertiary care hospital—is one of seven hospitals in the Allegheny Health Network of western Pennsylvania. When we began examining the options of producing PN in-house versus procuring it from an outsourcer, we had to take into account the challenged efficiencies in our workflow process as a result of decreased staffing, an increase in requested pharmaceutical services, and the mounting concern over drug and drug product shortages. The investigation into outsourcing PN solutions was therefore deemed a viable option in helping us address these challenges, although we needed to perform a comprehensive comparison of the two processes to ensure we chose the right option for our facility.  

Drawing proper comparisons between in-house and outsourced PN preparation requires a detailed understanding of how the processes will be performed in either setting. When researching potential outsourced sterile products services, the pharmacy manager should make every effort to thoroughly validate the operation for regulatory compliance, quality, and safety standards. Site visits are more important than ever, as gaining first-hand insight into the practices of any existing or potential outsourcing partners—whether it be for compounding, environmental monitoring, cleaning and disinfecting, etc—should be a priority for pharmacy management. It is further recommended that an on-site visit to the compounding pharmacy be conducted to review all licenses, policies and procedures, staff training materials, cleanliness, and compliance with USP <797>.1

While site visits to all compounders under consideration may not be easily facilitated, a potential outsourcing supplier should be able to provide detailed compliance, safety, and quality data establishing a history of a high level of service; a lack of such records should be seen as a significant red flag. Thus, be sure to request such documentation from all compounders under consideration, and if the decision is made to move forward with outsourcing, a concerted effort must be made to perform a site visit to the final choice prior to signing a contract. Beyond these investigations of potential outsourcing partners, a thorough, internal cost/benefit analysis should be performed to provide the justification necessary for outsourcing.

Fixed PN Production Costs 
To enable our cost analysis, we measured fixed PN production costs by establishing the time pharmacy staff spent assembling and disassembling a PN compounder, as well as the time a pharmacist spent verifying proper assembly of the compounder and the quality and accuracy of each final PN preparation. The cost of compounder license fees, supplies, wasted product (the remaining product left in the compounder at the end of the day that is discarded), as well as USP <797> compliance-related costs (eg, record keeping, product and environmental testing, and education and training costs), and equipment maintenance costs (eg, calibration of scales, hood certification) were estimated per day and extrapolated over one year. 

Variable PN Production Costs 
To calculate variable costs, we included the valuation of daily compounder product costs and PN waste (ie, doses admixed but never administered to a patient). Likewise, potential PN waste savings were calculated by annualizing the PN waste numbers from several PN waste audits that were conducted each quarter for a two-year period leading up to this decision. At the end of each audit, waste numbers and associated costs were calculated and annualized. As noted, waste should be a factor in both fixed and variable cost analyses—fixed waste being that which is produced during the PN production process and variable waste consisting of wasted (unused) doses.

Cost Analysis Results
The results of our analysis indicated fixed labor cost savings of 10 hours (0.25 FTE) per week of pharmacist time and 20 hours (0.5 FTE) per week of technician time with outsourcing. Additional fixed cost savings were realized as a result of the elimination of compounding licensing and preparation set-up fees ($32.97/bag), USP <797>-compliance fees ($0.93/bag), compounding waste ($4.91/bag), and indirect costs ($2.12/bag). The total fixed cost of in-house PN preparation was $40.93/bag.

The analysis also indicated a variable cost savings as a result of economies of scale from the outsourced supplier resulting in decreased preparation costs. Since compounding pharmacies prepare a large number of PN solutions per day, they can do so at a lower cost. This is a result of increased purchasing power and decreased waste, and their savings result in lower pricing to the hospital. We determined our variable costs associated with in-house PN preparation to be approximately $36.05. Combining variable and fixed costs (for a total of $76.98) for in-house compounding and comparing it to the set $64.89 cost per bag for outsourcing, the total savings per bag equates to $12.09 (see Figure 1). The total annual cost savings of outsourcing PN preparation as compared to in-house preparation was determined to be $30,890.

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Taking the analysis a step further, we were able to determine the volume of PN bags wasted per year prior to outsourcing and then compared that to the number of PN bags wasted post-outsourcing (see Figure 2). The initial audit (2008-2011) identified that prior to outsourcing the admixing of PN, our facility wasted approximately 140 PN solutions each year at a cost of $14,100. The post-outsourcing audit (2012) indicated that the outsourcing of PN admixing has been associated with a decrease in product waste to approximately 52 bags per year at a cost of $5,200. The overall savings from the decrease in wasted bags per year is calculated at $8,900. Combining these factors, the overall cost savings from outsourcing our PN preparation was determined to be $39,790 per year.

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Practical Considerations
Once we determined that outsourcing PN preparation was fiscally and operationally beneficial for our facility, the next step was to address logistical elements. An initial step was to establish order cutoff and delivery times that are mutually agreeable for the prescriber, the facility’s pharmacy, and the outsourced compounder. At Allegheny General, we established a PN order cutoff time of 3pm and a delivery time of 6pm; our PN hang times are scheduled for 8pm. This schedule, and its success, is based in part on the fact that the compounding facility and our hospital are located in the same city. However, even with this convenience, there was a learning curve for the physicians and the pharmacy staff as to the new cutoff time. While this process works well for us the majority of the time, it is important for your compounding pharmacy to be able to prepare and deliver PN solutions after scheduled times. Although after-hours requests for preparations should generally be avoided, there are times when they may be necessary. In these cases, be prepared to pay an additional fee for such a service.  

Backup procedures are necessary to address after-hour orders and to establish operating procedures in the event of a disruption in services. In our case, if PN solutions are ordered after the cutoff, the physician is notified to determine whether an alternate solution can be hung (eg, 10% dextrose in water). If the preparation cannot be made by the compounding pharmacy as a late delivery, or if there is an unforeseen disruption in service, then having a backup, in-house process for compounding PN is vital.

Among the necessary capabilities of an outsourced compounding facility is the accommodation of PN order sets established by the hospital. Transfer of physician orders should be seamless, and a process needs to be established to validate that the PN solution received by the hospital is accurate compared to the physician’s order. Any errors in compounding should be immediately reported to the compounding pharmacy and an agreement to receive a corrected product should be built into the contract. 

At Allegheny General, pharmacists verify the physician’s orders in our CPOE system and then enter the PN orders into the compounding pharmacy’s software interface. The sterile-products pharmacist double-checks the order entry prior to submitting it to the compounding pharmacy for preparation and delivery. Once the PN order is delivered, a pharmacist then rechecks the original order against the product received. The sterile products pharmacist is responsible for addressing any delivery or other quality issues encountered with PN solutions after they are received.

Challenges should always be expected when making an operational shift such as switching from in-sourcing to outsourcing PN preparation, and some of the initial hurdles we encountered included establishing the order cutoff and delivery times, standardizing the outsourcing process among the hospitals in our system, and seeing through the licensing fees in place for existing compounders. Previously established licensing fees for automated compounders are often not reversible and therefore need to be considered in the overall cost analysis. 

Before selecting an outsourced sterile products service, the pharmacy manager needs to thoroughly validate the company for regulatory compliance, quality, and safety standards. If the decision is made to move forward with outsourcing the admixing of PN, a range of variables need to be considered, including fixed costs (eg, license fees, labor cost, compliance fees) as well as variable costs (eg, preparation costs, PN product waste). Outsourcing PN admixing may help nursing and pharmacy staff practice waste avoidance by evaluating each PN patient’s IV access, discharge time, and discontinuation of therapy. We anticipate a further decrease in PN waste numbers as our hospital staff adjusts to the outsourcing program and the process is streamlined. 

As a result of PN outsourcing at Allegheny General, we were able to reallocate labor resources to help expand sterile product services, including compounding sterile ophthalmic eye products, to our outpatient surgery center. This enabled greater compliance with USP <797> and The Joint Commission regulations regarding nursing preparation of non-emergent sterile products. Moving forward, we have recently been able to outsource adult and neonatal PN solutions at a second hospital and we are looking to expand the outsourcing of PN admixing to additional hospitals within our health system.


  1. American Society of Health-System Pharmacists. ASHP guidelines on outsourcing sterile compounding services. Am J Health Syst Pharm. 2010;67(9):757-765.

Terri Albarano, PharmD, MS, is the operations manager of the inpatient pharmacy department at Allegheny General Hospital in Pittsburgh, Pennsylvania. She received both her PharmD and MS in pharmacy administration from the University of Pittsburgh.

David Cecere, PharmD, MBA, is the system director for the pharmaceutical supply chain at West Penn Allegheny Health System. He also serves as a preceptor for supply chain management at Duquesne University and as an adjunct professor at the University of Pittsburgh.


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