Optimizing Medication Inventory through Consolidation

May 2014 - Vol. 11 No. 5 - Page #8

In today’s health care climate, hospital pharmacies both large and small face unprecedented pressure to work more efficiently under greater expectations for quality performance. While increasingly sophisticated pharmacy resources are needed to sustain top-of-license clinical activity and ensure the best patient outcomes, as one of the highest hospital cost centers, the pharmacy department remains a primary focal point for cost reduction. Therefore, as the C-suite seeks new ways to tighten the budget belt, pharmacy directors must continually analyze resource allocation to deliver strategic responses that improve medication distribution efficiency and lower costs. This can be a challenging proposition; existing staffing models within most pharmacy departments already are lean and consequently provide little opportunity to improve the state of the bottom line. Hence, new ideas for creating cost efficiencies must evolve from other areas of the pharmacy budget. 

Recognized as one of the nation’s top integrated health systems, Intermountain Healthcare recently confronted these very challenges by looking to its pharmacy supply chain as a primary candidate for streamlining processes and reducing waste. The concept started with a comprehensive assessment of pharmacy inventory workflows and ended with a consolidated service center supporting a completely centralized approach to pharmacy operations. The health system now leverages a tactical combination of governance, logistics, and technology to optimize medication inventory management across all 25 community pharmacies and 22 hospital inpatient pharmacies. The goal: A reduction in the health system’s $17 million annual medication inventory budget. Ultimately, we aim to achieve a 30 percent reduction in medication inventory and a 25 percent reduction in expired medications through the initiative. Although this project is still relatively novel, Intermountain Healthcare already is benefiting from lower costs associated with reduced waste, more proactive management of medication shortages, and new staff allocation that strategically aligns with clinical care initiatives.

Pharmacy Inventory Management Challenges
At Intermountain Healthcare, medication inventory costs consume 60-70 percent of pharmacy department budgets. As such, the lack of collaboration that previously existed between the various pharmacy departments within the health system resulted in higher costs, as there was little potential for reducing waste through shared inventory.

Located in Salt Lake City, Intermountain Healthcare is the largest healthcare provider in the region commonly referred to as the Intermountain West, serving populations in Utah and southeastern Idaho. The health system comprises 22 hospitals and 25 outpatient community pharmacies, creating a complex ecosystem of pharmacy departments. Further complicating Intermountain Healthcare’s attempt at refined pharmacy inventory management was the diverse make-up of facilities within the health system family. Nearly half of the hospitals have fewer than 50 beds, whereas the other half consists of medium-sized facilities and three large hospitals with between 300 and 450 beds. Given the varied volumes and types of medications required at each facility, inventory needs differed widely across the health system’s smaller rural hospitals, specialty hospitals, and larger acute-care organizations. Inventory turns at these facilities should have averaged 12 per year, but because many of the rural hospitals experienced low product use, the organization averaged only eight turns annually, thus creating significant excess inventory.  

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To illustrate this issue, consider that historically, each of Intermountain Healthcare’s pharmacies managed its own drug acquisition and purchased its own bulk medications. As such, it was common for a smaller pharmacy within the network to only use five or 10 tablets from a 100-pill bottle before the medication expired. Each pharmacy also individually managed expensive, specialized drugs stocked for emergency situations and rare conditions, which generated additional waste when those products expired due to non-use. 

Exacerbating our inventory management challenges were the manual, human-factor-based (and therefore inefficient) systems and processes practiced within the pharmacies. For example, a typical ordering process at an Intermountain Healthcare pharmacy involved an inventory specialist conducting a walk-through of shelves to manually count medications. Furthermore, three separate locations were repackaging four million doses per year to be robot- or bedside-ready. These doses were stored in and distributed via six dispensing robots at six different hospital pharmacies, each requiring separate inventory protocols, thereby prolonging set-up times.

Following an analysis of inventory management processes across the health system, Intermountain Healthcare determined that substantial cost reductions could result from a single medication inventory spanning the system, allowing for sharing and better management of medications among all of its facilities.

A Better Inventory Management System
For the pharmacy departments, the results of this analysis meant the timing was right to consider the potential benefits of a centralized system. In fact, efforts already were underway on the corporate level to build a centralized supply hub, as Intermountain Healthcare had just constructed the Kem C. Gardner Supply Chain Center (SCC), which was intended to house medical/surgical supplies, transportation, information technology assets management, and more, in an effort to reduce costs across many departments within the health system. With the SCC in place, the pharmacy department was well positioned to present its case to be included in the new model.

Although the management of pharmacy resources was not part of the foundational plan for the SCC, pharmacy leadership acted quickly when health system executives sought to add a strip of ancillary services to the occupancy plan for the center. Drawing on the expertise of IT specialists, facilities management, and the existing transportation/logistics operation, the pharmacy team worked diligently to develop a proposal that detailed every advantage of a centralized pharmacy supply chain—including proposed savings, shortages management, and refined inventory, packaging, and logistics operations. Revealing obvious workflow and financial gains, senior leadership confidently accepted the final proposal.

It quickly became apparent that the pharmacy strategy would require solid governance processes, a well-considered plan for logistics across the health system’s geography, and an advanced technology infrastructure capable of supporting automated processes and achieving a single view of medication inventory across the entire health system. Bringing the vision of the Intermountain Healthcare approach to fruition first required the organization to leverage the expertise of strong vendor partners. To do this, Intermountain Healthcare partnered with a provider of integrated pharmacy automation solutions to address the nuances of centralizing the pharmacy supply chain within a larger health system. The end result was a software solution designed to help manage medication delivery through the centralized stocking location at the SCC.

Specifically, the initiative called for unit dose packaging in the SCC using system-wide inventory management software, cabinet replenishment, and order fulfillment. The software would provide a bird’s-eye view of medication inventory across all Intermountain Healthcare pharmacies, enabling consolidation and promoting the standardization of best practices.

Adjusting to Change
While the business case for centralized pharmacy inventory operations was embraced by the C-suite, there was some pushback within the individual hospitals. Change is never easy, and pharmacists across the system—many having been employed at their respective facilities for a number of years—were used to controlling their own inventory processes. Naturally, there was some skepticism about the new inventory workflow and worry that a centralized system might leave some pharmacies without the products necessary for optimal patient care.

To be successful, the change management strategy had to engage all stakeholders within the pharmacy inventory management process. A system guidance team was created with a representative from many of the pharmacies to help prioritize the proposed initiatives. Communication to all pharmacies and leadership was accomplished through newsletters, emails, and shared support documents. Equally important, the health system also established and administered processes and procedures governing the new pharmacy inventory management model. Ordering, dispensing, returning, and cycle count processes were written formally to give front line staff needed guidance.

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Advantages of Centralized Inventory
Today, the pharmacy inventories of many Intermountain Healthcare hospitals and all of its clinics is aggregated at the SCC Pharmacy, allowing the health system to purchase more medications in bulk while centralizing the stock of high-value emergency medications and antidotes. The SCC Pharmacy automatically tracks medication use within each pharmacy with inventory management software; when a pharmacy staff member takes a product off the shelf at any of the 22 inpatient pharmacies, the transaction is stored and when a product inventory count drops to a designated point, a reorder message is triggered instantly and sent back to either the wholesaler for full packs or the SCC Pharmacy for partial packages. Having an advanced technological infrastructure allows health system pharmacy operations to perform at high levels by providing a synchronized system for ordering and fulfillment that ensures no order is overlooked. 

The three locations that used to house medication packaging operations for the health system’s six pharmacy robots have been consolidated into the one location at the SCC Pharmacy, requiring fewer staff resources to manually manage inventory. Because the system supports package sharing, Intermountain Healthcare can now store bulk medications centrally and dispense precise amounts according to each pharmacy’s individual needs. For smaller hospitals that may use only a handful of pills before a medication bottle expires, the system distributes smaller quantities—five to 10 tablets at a time—so that inventory is no longer sitting on shelves gathering dust. 

Having a single system-wide view of all pharmacy inventory provides a better understanding of quantity needs by location. Although not all medications are issued centrally, the new process better positions the pharmacy department to manage quantities more effectively. Essentially, if an item can be sent to an individual facility’s pharmacy as a full case, it will be sent directly there from the wholesaler. However, if the product is to be sent as a partial package (shared), then it is sent directly to the SCC pharmacy to be distributed. Other examples of items issued directly from the SCC pharmacy include items purchased in large quantities at a discount or items that are unavailable from the wholesaler because of a shortage.

With the centralized hub in place, another goal is to begin managing seasonal variances of medications more effectively, including the utilization of antivenom or antidotes. While rattlesnake bite victims may not present on a daily basis in the health system’s emergency departments, they do tend to spike in the spring and summer months, and require a patient to be treated immediately. Each pharmacy within the health system must therefore stock the first dose of the medication. However, with the centralized hub in place, instead of stocking multiple doses, the health system can now logistically coordinate to have the next dose delivered within the required time frame. With more than $40,000 worth of anti-venom sitting on the shelves at any given time, this coordinated effort now allows inventory of an expensive medication to be maximized to its fullest. 

Maximize Supplier Efficiency
Implementing a centralized pharmacy hub created the opportunity to streamline the logistical relationship with suppliers by directing all shipments to a single location instead of the previous 20+ locations. All shipments are now sent to the SCC and the individual inventories are then piggybacked on existing delivery efforts through an Intermountain Healthcare transportation operation that provides regular courier service from the SCC to each hospital and clinic. This scenario offers an additional opportunity for pharmacy to expand cost savings by negotiating better contracts with suppliers. Costs formerly associated with the transportation of products to multiple facilities across a wide geographical span have now been eliminated from contract negotiations. 

Better Shortage Management
One of the biggest clinical advantages to result from the single view of pharmacy inventory is the ability to quickly identify and aggressively address medication shortages across the health system. Pharmacists at the SCC now can easily pinpoint where medication needs exist within the centralized pharmacy or participating hospital pharmacies and allocate medications accordingly. Furthermore, it is expected that as staff time is freed through streamlined workflow processes, pharmacy resources can be better allocated to more top-of-license clinical activity—a focal point of any health system trying to achieve the quality metric expectations of the evolving regulatory landscape. 

Building Models for the Future
While Intermountain Healthcare is still in the early stages of maximizing its consolidated service center and centralized pharmacy within the SCC, the organization continues to identify opportunities for improvement. Many lessons have been learned along the way, and the organization continues to tweak and fine-tune its processes to best position pharmacy assets for the future. 

As with any organization introducing new workflow models, Intermountain Healthcare has found that all staff members have a distinct learning curve. The time required to perform operational tasks in an automated environment often increases at first, until those tasks become comfortable and routine. Therefore, it is important for health systems looking to centralize pharmacy operations to consider human factors as a large part of their strategies. Even when it is difficult to see beyond the day-to-day frustrations of implementing a new process, staff must be educated continuously on the end-goal benefits a centralized system can bring in terms of workflow efficiencies and cost savings.

Intermountain Healthcare is at the leading edge of the health care trend to centralize health system pharmacy operations—a model many organizations are expected to pursue within the next five years or so. Moving forward, it will be imperative that large health systems become purposeful about effectively and efficiently managing drug inventory, finding the right balance between minimizing waste and having enough medication stocked to take the best possible care of their patients.

Dallas Moore, MS, RPh, is the regional director of pharmacy services at Intermountain Healthcare Urban South Region including American Fork Hospital, Orem Community Hospital, and Utah Valley Regional Medical Center. Dallas received his Bachelor’s Degree in Pharmacy from the University of Utah and his Master’s Degree in Healthcare Informatics from Arizona School of Health Sciences. 


Specs of the Supply Chain Center Pharmacy

  • Approximate total area of the SCC pharmacy: 50,000 sq ft
  • Approximate monthly doses that pass through the SCC: 500,000
  • Approximate number of doses repackaged monthly: 350,000
  • Number of staff working in the SCC pharmacy: 26 total; 10 dedicated to inpatient support 


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