Create an RFP to Evaluate Outsourced Repackagers

February 2010 - Vol.7 No. 2

Like many facilities implementing BCMA, Hospital Corporation of America (HCA) in Richmond, Virginia, set a goal of bar coding 100% of medications going to the floor. After taking several approaches to repackaging over the years, HCA ultimately decided to outsource for all of our repackaging needs. The HCA Capital Division health system comprises 15 acute care facilities for a total of approximately 3,700 licensed beds, and had an average daily census of 1,630 in 2009. That same year, we administered 12,268,590 doses via BCMA, with an average medication scan rate of 97.10%. Of those doses administered, approximately 25% required repackaging.

To conduct a comprehensive evaluation of the outsourced vendors, we chose a request for proposal (RFP) approach. Developing and using an RFP creates a standardized process and assures quality results. Conducting this formal, written process forces you to clearly define your objectives and identify your criteria for decision making (see Figure1). The resulting submissions will allow for a true side-by-side comparison of the vendors under consideration.


Developing an Effective RFP
Keep in mind that the RFP process requires a significant time investment, and developing the standardized template is a resource intensive process. It is also important to budget sufficient time for the extensive analysis that will be required once the vendors submit their proposals. If you are new to the RFP process, consider hiring a consultant with experience in developing RFP templates and analyzing the resultant data. Knowing what will be expected from start to finish can save time and instill confidence that you are proceeding properly and efficiently.
Because the RFP approach can be a lengthy process, it is best suited for large or complex projects where multiple vendors are under consideration. If you are reviewing two vendors for the provision of a small order of oral syringes, a formal RFP process is probably not a good use of your resources. However, if you plan to outsource a significant amount of repackaging and are seeking quotes from multiple vendors, an RFP will simplify the process of analyzing their proposals and help you make the best choice.

The first step is to establish who will evaluate the RFP and the responses. The evaluation committee should comprise the staff members best suited to choose the outsourced repackager; in addition to the pharmacy director, consider materials management or supply chain staff and representatives of the financial department. In our case, we include the pharmacy director, a pharmacy buyer, and either the controller or chief financial officer. In addition, we rely on our materials manager to serve as the contracting expert. Consider including a representative from the quality assurance department as an ad hoc member to review any related regulatory issues.

The second step requires a review of your current process to identify where your opportunities are. At this point, it also is important to conduct an assessment of your inventory to determine the percentage that is currently bar coded and identify what products require bar coding (i.e., liquids vs. capsules). Then, translate your needs into a written document that clearly states your objectives, criteria, and any other information you want the vendor to provide, such as company background, leadership, financial performance, MWBE status (minority- and women-owned business enterprise), and years of experience. Once you identify the vendors under consideration, send the RFP out with a deadline for responding.

When the results come back, assign a point person to analyze the submissions and make recommendations to the committee. In our organization, the director of pharmacy serves in this role. Following the initial analysis, you should begin to pare down the list of vendors according to the selection criteria. With a limited number of qualified vendors, you can begin to identify negotiation opportunities.


Negotiation Points
Upon receipt of the RFPs from the vendors, look for variances among them, as these may be points of negotiation. For example, if you receive three RFPs for the repackaging of oral syringes and two of the vendors submit a price that is half of the third vendor’s price, determine what is driving this price difference, as it may be a point to negotiate on.

Additional opportunities for negotiation can be created by building efficiencies into the system. Remember that a single, large run is more efficient than several smaller runs and if the process is more efficient for the repackager, they may give you better pricing. For example, in our health system we have a group of facilities that use a centralized ordering, receiving, and distribution system whereby a single order is placed for several facilities. That order is shipped to a central location where we manage the internal distribution, thus simplifying the process for the vendor and lowering our costs. Consider requesting a full four-week supply at one time rather than sending the product to be repackaged on a weekly basis, if this approach will result in lower pricing from the vendor. Request discounts for both aggregate volume and for volume growth. As we increase the number of products being repackaged, or even bring more hospitals into our health system, we look for additional discounts. Potential shipping discounts should be reviewed—your hospital’s shipping contracts may be less expensive than the vendor’s. The length of time of the contract also is a negotiation point. If you are willing to commit to a five-year versus a three-year contract, you may be able to negotiate better terms. Also consider whether exclusive versus nonexclusive contracts would work for your organization.


Contract Negotiations
Once the final vendor is selected, proceed with a letter of understanding and then work with that vendor to complete a contract, finalizing the specific terms and conditions. I recommend leaving the negotiating of contracts to the contracting department. They bring significantly more experience to this process than pharmacy. Furthermore, it is not uncommon for discussions to become heated during the negotiations and it is better for a contracting staff member to handle this as opposed to pharmacy. For facilities without a contracting specialist, consider working with your GPO’s contracting team.


Managing the Contract
Upon execution of the contract, it would be a mistake to assume the process is complete. At this point it is important to monitor the service and provide feedback to the vendor. You have to put a methodology in place to measure the vendor’s performance and ensure they are meeting the obligations stated in the contract. For example, if the vendor has committed to a 48-hour turnaround, you need to track their compliance and provide that feedback. If the contract includes penalties for missing benchmarks, the process must be monitored and the vendor held accountable. It is also important to monitor regulatory compliance and track expenditures. Be sure to regularly report any savings to the finance department.

Tracking contract compliance is an important step in ensuring continued efficiency and in holding the vendors to the level of service they have committed to deliver. Our hospitals complete a semi-annual survey rating the vendor on a seven-point scale for their ordering and receiving process, turn-around time on orders, and quality of products received. We monitor the data and if scores begin to trend in a negative direction, we will work with the vendor to make improvements.

We also track our savings and report it to the finance department on a quarterly basis. This allows us to demonstrate reductions in our per-dosage cost and calculate a return on investment. In our organization, we track cost avoidance and calculate it as part of our return on investment. While it is simple to quantify savings when costs are reduced from year to year, measuring avoided costs is more conceptual. For example, if a patient receives the wrong medication, has an adverse event, and sues the hospital, the hospital could be liable for hundreds of thousands of dollars. However, by bar coding all of the medications, the hospital avoids the adverse event and the ensuing financial loss. We calculate this cost avoidance and include it in our ROI determinations (see Figure 2).


Ultimately, the goal of outsourcing is to increase efficiency and allow pharmacists to focus on what they have been trained to do: improve patient care. Using an RFP to guide the vendor selection process will allow you to do just that. An RFP is a formulized, low-risk approach that can deliver consistent results. Making an upfront
commitment to developing a quality document will allow you to choose a vendor with confidence based on sound data.

Noel C. Hodges, RPh, MBA, is the director of pharmacy services for HCA Central Atlantic Supply Chain where he is responsible for pharmacy supply chain operations including identifying and executing continuous improvement opportunities. Noel received a pharmacy degree from Purdue University and a master’s of business administration from Strayer University.



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