Multidisciplinary Drug Cost Management Strategies

July 2013 - Vol. 10 No. 7 - Page #2

A range of drug cost management strategies exists within hospitals and health systems, including price, inventory, and utilization optimization. While some initiatives can be implemented within the pharmacy department and require little external collaboration, other initiatives are more complex, requiring extensive collaboration and high-level strategic planning throughout the hospital and health system. 

Riverside Health System (RHS) is an integrated health delivery network located in southeastern Virginia with pharmacy services managed by a third-party pharmacy management company. In addition to five acute care hospitals, the organization includes eight oncology infusion centers, a 500-member medical group, and a lifelong health division with 800 post-acute care beds, home-based services, and six Programs of All-inclusive Care for the Elderly (PACEs). Riverside has nearly 9,000 employees, and is self-insured for health care coverage. With such a diverse organization, many opportunities exist for controlling drug costs, yet implementing such programs can be challenging given the differing needs of various patient populations. Thus, RHS has developed a systematized road map for continuous improvement in pharmaceutical cost containment. The road map focuses on leveraging data to understand drug expenditures and utilization patterns, and then developing specific goals and outcome measures to monitor progress. 

Utilizing a System-wide P&T Committee 
The starting point at Riverside for interdisciplinary cost management activities is the health system pharmacy and therapeutics (P&T) committee. While each hospital has historically had a P&T committee, Riverside moved to a single health system P&T committee several years ago (see the March 2012 PP&P article Creating a System-wide Formulary and P&T Committee at: A single P&T committee helps enable standardization and consistency in medication use throughout our acute care facilities. This standardization is important at Riverside to support a shared CPOE and pharmacy information system. It also supports after-hours order validation for the smaller, non–24-hour facilities within the organization. 

Formulary Management
Solid formulary management that focuses on a medication’s efficacy, safety, and cost impact is the basis for multidisciplinary cost management activities. Table 1 describes the key aspects of formulary management at Riverside. Like most hospital organizations, we utilize a therapeutic interchange process to drive standardization and cost control within drug classes. This concept has now been expanded to our Lifelong Health division in both the long-term care and PACE organizations. We also leverage acute care formulary management best practices to the post-acute segment of the health system to ensure the most cost-efficient, safe, and effective pharmaceutical care.

The P&T committee, as well as the physician advisory committee (PAC) for CPOE initiatives, are actively involved in the development of guidelines for the appropriate use of medications. Some of these guidelines include restriction of drug utilization to a specific physician, diagnosis, or patient type. The development of these guidelines is based on efficacy, safety, and cost, and incorporates the most current clinical practice guidelines. Not all guidelines or restrictions are cost focused (eg, anticoagulation), but all are monitored by pharmacy for compliance.

Utilization Management
Riverside has focused on managing the utilization of medications for many years. Starting in 2004, we began measuring and trending the use of drugs by drug-related groups (DRGs) on a monthly basis. We benchmark our utilization within the health system as well as to similar outside organizations through relationships with our pharmacy management and data analytics vendors. A drug cost opportunity analytics tool is employed to allow the pharmacy leadership team to drill down within a DRG to the primary drug cost drivers, as well as to the physician involved in the care; the data can be analyzed by patient day or by discharge. By evaluating drug cost by DRG by discharge, the pharmacy can align with the hospital’s goal of appropriately decreasing cost per hospital stay, since that is the typical reimbursement model for most acute care payers. Pharmacy leadership then provides an analysis of drug cost opportunities on a monthly basis to the administrative team, including opportunities related to length of stay versus benchmark, and potential opportunities as to how the patient DRG was coded based on the drugs administered. 

In addition to tracking and trending drug cost per DRG, the pharmacy trends the following data monthly against established goals:

  • Inpatient and outpatient drug cost
  • Inpatient and outpatient drug cost volume adjusted (per patient day or adjusted patient day)
  • Drug cost by therapy type (eg, anti-infective), volume adjusted 
  • Top drug cost drivers, both inpatient and outpatient, volume adjusted (eg, catheterization laboratory drugs/interventional catheterization laboratory procedure)

Riverside also actively monitors for compliance with protocol-driven or restricted-use medications. The decentralized clinical pharmacy team is key to concurrently monitoring for compliance. There also is a high level of integration between medication initiatives and CPOE to drive compliance with restricted-use medications; for example, we developed and implemented a diagnosis-based IV immune globulin (IVIG) order set in CPOE. The only method for IVIG to be ordered within CPOE is through this diagnosis-based order set. This process is used for other medications, and in some cases limits access to the drug to specific medical specialties based on P&T committee-approved restrictions. Clinical pharmacy leadership tracks and trends compliance on a monthly basis and provides reports to both the P&T committee and hospital leadership. This not only ensures compliance with the restrictions in place, but also ensures that order sets implemented within CPOE are working as intended. In the case of IVIG, the implementation of the diagnosis-based order set has resulted in 100% compliance with the P&T committee use restrictions. 

Charging and Reimbursement
The pharmacy department impacts organizational revenue and as such should play an integral role in ensuring that medications are charged appropriately. This includes robust management of the pharmacy charge master to confirm that all required information is incorporated and up-to-date, including:

  • National Drug Code (NDC)
  • CMS Healthcare Common Procedure Coding System (HCPCS) code (eg, J-codes)
  • Billing units match payer requirements (eg, CMS J-code billing)
  • Waste code billing
  • Maintenance of drug pricing per facility policy

As a tangential component of drug cost management, pharmacy leadership is responsible for making sure the organization charges for medications in a way that meets regulatory requirements and ensures appropriate reimbursement. Therefore, the pharmacy team reviews medication charges on a daily basis to identify potential charge description master set-up opportunities or pharmacy operations opportunities related to charge capture, which includes review for both over- and under-billing, with a focused emphasis on J-code outpatient billing. Pharmacy evaluates purchases versus utilization on a monthly basis, producing data that can be used as another indicator for charge capture accuracy. Analysis of this information also can serve as an indicator of purchasing and inventory management effectiveness.

Additional Opportunities for Drug Cost Control
As part of an integrated health system, our pharmacy leadership is becoming further involved in other areas related to drug cost control, including employee prescription drug costs. Pharmacy leadership has been involved in managing these expenditures for almost five years, and was involved in the decision to change pharmacy benefit management (PBM) providers several years ago to increase transparency of employee drug costs. The pharmacy also is involved in quarterly updates with the PBM that delineate drug cost drivers within the employee plan and provides guidance on plan changes, including tier pricing within therapeutic classes. Through this collaboration, a specialty drug task force was formed to focus on spend by employees and their dependents, resulting in more than $300,000 in cost savings in 2012. Other areas of focus are shifting medications currently provided under the medical benefit to the pharmacy benefit when feasible. A new initiative within the health plan partners pharmacists with other care providers to evaluate opportunities in population health management, with an initial focus on diabetes. 

Pharmacy also is involved in accountable care organization conversations between Riverside and commercial payers. Pharmacy leadership provides input on the targets for cost containment with retail prescription medications (eg, targets for generic drug percentage within drug classes). We also are establishing a medical home model, which will include pharmacists as partners in medication therapy management.

Using a Systematic Approach 
With so many opportunities within the organization to control drug costs, it is imperative that a structure be in place to systematically identify, prioritize, and implement cost control strategies; at Riverside, the value analysis team (VAT) provides this structure. The team was formed in 2010 as the result of a consulting engagement aimed at reducing organizational costs. Three teams are included within the VAT structure: clinical, non-clinical, and pharmacy. The pharmacy team is lead by the system director of pharmacy and utilizes the system-wide P&T committee as the steering group for the team. While initially focused in the acute care area, the VAT now also includes a focus on cost control in our lifelong health division.

Within the VAT structure, data is analyzed for opportunities, including identification of baseline spend, potential savings, and barriers to implementation. This methodology assists in the prioritization of initiatives so that the most cost-beneficial opportunities, requiring the least amount of effort, are elucidated; some of these initiatives include therapeutic interchange, generic conversion, review of GPO pricing, and restricted use guidelines. Each team is given an annualized savings goal. The VAT steering group meets monthly, and is chaired by the health system chief financial officer, with executive leadership involvement from all areas of the organization. Each VAT chair compiles a formalized report after each monthly meeting that summarizes opportunities identified, both in-process and completed. Any barriers to implementation also are discussed so that senior leadership can support the team leaders in meeting goals. This structured approach has proven successful in sustaining momentum in the area of cost containment, which is easily lost over time when attention wanes.

With an ongoing focus on effective drug cost management within health care organizations, the pharmacy department—as well as all other departments utilizing medications—are facing close fiscal scrutiny. Working collaboratively with all departments within the organization will best ensure effective drug cost control. With the implementation of a systemized approach to identify, prioritize, and implement drug cost control strategies aimed at purchasing, inventory control, and utilization, pharmacy leadership is in a position to bring sustained drug cost savings to the organization.

Cindy Williams, RPh, received her BS in pharmacy from Virginia Commonwealth University and has completed the executive management program for pharmacy leaders at the Wharton School and The Pharmacy Leadership Institute at Boston University. Since 2001, Cindy has served as system director of pharmacy for Cardinal Health, supporting Riverside Health System in Newport News, Virginia.


This article is part two of a two-part case study addressing drug cost control at the Riverside Health System. 
(see part one at: part one discussed pharmacy-directed drug cost containment, part two discusses multidisciplinary drug cost management strategies.


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