Aligning Health System Formularies for Cost Savings

November 2015 - Vol.12 No. 11 - Page #4

As independent hospitals consolidate into larger health systems, the resultant need to reduce costs is revitalizing the importance of formulary management. Certainly, the greater the number of facilities being consolidated, the greater the opportunities for operational and financial gains. With proper execution, ongoing cost savings and efficiencies can be leveraged as the system continues to expand.

University Hospitals (UH) is an integrated network comprising 15 hospitals (ranging in size from 25 to 350 beds), 28 outpatient health centers, and primary care physician offices in 15 counties in and around Cleveland, Ohio. At the core of the $3.5 billion health system is UH Case Medical Center. For UH, the origin of the system-wide formulary dates back to UH’s launch of a new system-wide electronic medical record (EMR) and computerized prescriber order entry (CPOE) system. The original impetus for a system-wide formulary was to minimize the complications inherent in incorporating six different formularies into a CPOE program.

After multiple meetings involving pharmacists, physicians, information technology specialists, and nurse leaders, a health system-wide formulary was created along with a system-wide medication safety and therapeutics (MS&T) committee, to function as the pharmacy and therapeutics (P&T) committee. Subsequently, the goals of the MS&T committee were more clearly defined to specify its authority over the medication management policy and formulary process throughout the health system.

Defining Structure and Process
UH’s system-level MS&T committee is comprehensive and inclusive, with representation from all member hospitals. A committee of this size and scope could not function efficiently without a number of subcommittees. The formulary subcommittee is the core committee, responsible for reviewing all new medications, with the exception of specialty medications (see FIGURE 1). More specialized medication reviews are performed by the anti-infective, babies/children, cancer care, and medication safety subcommittees. The subcommittees are tasked with building consensus among key stakeholders prior to presenting their findings at health system-level MS&T committee meetings.

Each hospital is represented on the system MS&T committee through their local level chair and one physician-at-large member. Pharmacy team members manage the evaluative and preparatory work at the subcommittee level, yet pharmacy maintains only one voting member, the vice president of system pharmacy services. This one pharmacy vote is largely symbolic, as the physician leaders are the ultimate decision makers; however, the entire pharmacy team is engaged in the process and presents the information with recommendations. Although voting membership is limited and a three-quarters majority is required to pass a vote, many additional stakeholders fuel honest and influential conversation about the topics presented for approval (see FIGURE 2).

Using a system-wide formulary and MS&T structure delivers significant improvements in operational efficiency. System resources and expertise are pooled and leveraged, and redundant work is minimized; formulary maintenance, new medication reviews, medication restrictions, medication safety concerns, and therapeutic substitutions no longer are performed by each member hospital, but are addressed at a health system level. Additionally, the information technology team has a clear and singular queue for new medication-related tasks in the EMR. Financially, aligning member hospitals and pooling purchase volume creates favorable leverage with contractors and facilitates the efficient tracking of contract performance.

Centralization also streamlines the education and orientation process for prescribers, nurses, and pharmacy staff by detailing the organization’s formulary, restrictions, and guidelines. As health systems continue to grow, prescribers, nurses, and pharmacists increasingly float between multiple locations; as such, a singular formulary is easier for staff to manage. Because  the EMR and CPOE systems limit medication selection options to approved formulary items, the frequent medication changes patients previously experienced when transferred between member hospitals is averted.

In less than a year and a half, UH added three additional community hospitals to the system. Having a system formulary structure in place simplified the integration of these additional facilities, a benefit that was noted and appreciated by senior leadership. These three facilities voluntarily aligned with system-level formulary decisions even before their membership in the committee structure became official. This collaborative spirit enabled significant cost savings, but also called into question the role of the local level MS&T committees. For all UH hospitals, the system formulary applies, but local level MS&T committees have the option to be more—but not less—restrictive with formulary policy. Such local level restrictions are reviewed regularly for incorporation into the system-wide formulary policy. For example, if a new medication is added to the system formulary, one hospital might choose to restrict the medication to a certain area or procedure. Some hospitals have performed extensive drug utilization reviews and have removed a formulary medication from local stock, which then prompted a system-wide review and system-wide removal of the drug. Reviewing formulary drugs for appropriateness is no longer solely for medications with serious safety risks, but also for medications that may have a significant financial impact on patients. With more patients on high-deductible health plans, health systems must pay careful attention to medications that are significantly more expensive than reasonable alternatives.

Cost Savings
In recent years, pharmacists have grappled with drug shortages and the rising cost of generic medications. A single, system-wide formulary allows for rapid alteration of medication policy in response to either a national drug shortage or a sudden increase in drug price. Although UH’s current savings is not as dramatic as the savings experienced during the initial consolidation, the nimbleness of the structure ensures that opportunities for significant medication cost reductions will endure.

System-wide pharmacy cost savings totaled $5.4 million in 2013, $9.7 million in 2014, and $5.7 million in 2015 (projected) (see FIGURE 3). The year-to-year variation is due to the cessation of cost-tracking in 2015 for a significant number of new contracts and initiatives that continued from 2013 into 2014. In all, the 3-year savings will exceed $20 million. For 2015, cost savings is derived from three categories: product conversion (70% of total savings), contracts (21%), and waste reduction (9%). While waste reduction accounts for the smallest portion of the total savings, it has a positive impact on the environment, complements the hospital’s sustainability efforts, and may reduce hazardous medication disposal costs.

When hospitals function as a system, a cost-savings idea developed at one hospital can quickly be applied to all. As such, the system-wide formulary structure allows for the rapid sharing of pharmacy innovation and acceleration of cost-savings initiatives. At UH, the largest cost savings resulted from committing to market share or other contract agreements with drug companies. Contract savings for market share agreements occurred because of the tight control of medications available in the CPOE system, as well as the growing size and purchasing volume of the health system. In addition, all of the hospitals in the system became engaged in building UH’s therapeutic interchange policy and restrictions. These new policies and restrictions involved drug classes, such as inhaled steroids, combination inhalers, and various classes of eye drops, as well as individual agents, such as levalbuterol, topical acyclovir, and topical thrombin. In total, UH has implemented more than 40 therapeutic interchanges that impact over 300 orderable medications.

Particularly with the three facilities new to UH, the formulary integration process has offered new opportunities for savings. Early in the integration process, the three local formularies were reviewed and compared against the UH system formulary. Differences were identified, and cost-savings opportunities were calculated and sorted from high to low value. Long before the policies were approved, UH officially placed the facilities under the authority of the system MS&T committee, and formulary changes were voluntarily passed to begin the alignment process. The first two facilities began this process with an average daily census of between 150 and 200 patients per day and currently are on track to achieve between $200,000 and $300,000 in annualized formulary cost savings. The third hospital, with an average daily census of between 50 and 100 patients, is on track to achieve $100,000 in annualized savings.

The largest source of the savings is derived from the system-wide restriction and/or elimination of intravenous acetaminophen (see FIGURE 4) and liposomal bupivacaine (see FIGURE 5), which began on July 1st, 2015. Prior to eliminating IV acetaminophen from the adult formulary, it was subject to a restriction of only one dose in the perioperative space, which was implemented after a 4-dose restriction failed to curb inappropriate use. Liposomal bupivacaine was eliminated from the UH adult formulary in July after two hospitals  removed it from their formularies. In addition, a pharmacy resident’s medication utilization evaluation involving approximately 60 patients showed that the agent failed to provide substantial benefit over traditional multimodal pain management.

With the growing trend of community hospitals leveraging their value by joining large hospital systems, a centralized approach to medication management policy and the formulary process has proven beneficial. It is important for pharmacy leaders to work with senior leadership at both the health system and the individual facilities to engender an enterprise-wide approach to operating the P&T committee. Having an efficient, system-wide medication management infrastructure, with the authority to make policy decisions on behalf of all member hospitals, has proven to provide a scalable, effective framework with measurable cost-savings results. Once proper authority is established, collaborating with local level MS&T committees, building consensus prior to system-level decision-making, having a pharmacy leadership team that is on board, and tracking progress all are keys to the successful integration and alignment of a health-system formulary.

Jason Glowczewski, PharmD, MBA, director of pharmacy services for UH Community Hospitals in Cleveland, is responsible for new program implementation, strategic planning, process integration, and pharmacy service line development across eight community hospitals. Previously, he was the manager of pharmacy and oncology at UH Geauga Medical Center, where he opened new medical radiation oncology service lines, an outpatient clinic, initiated PGY1 and PGY2 pharmacy residency training programs, and served as the PGY1 pharmacy residency director. Jason received his PharmD from the University of Toledo, an MBA from Indiana Wesleyan University in Marion, Indiana, and most recently completed a Lean health care certification from Kent State University in Ohio.

Shawn M. Osborne, PharmD, MBA, is vice president of system pharmacy services at University Hospitals Health System in Cleveland. He is responsible for pharmacy operations, practice model advancement, and enterprise strategy. Most recently, he established a system-wide drug policy governance model and formulary process. Shawn earned a BS Pharm from the Ohio State University, an MBA from Xavier University, and a PharmD from the University of Cincinnati.


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