Drug Cost Containment Initiatives within a Hospital Pharmacy Budget

Drug costs are a constant target for expense reduction initiatives within a pharmacy budget. Effective medication cost containment strategies differ between drug use in inpatient settings vs. managed care and ambulatory care settings.  Here, we present some recommended guidelines to manage drug costs in hospitals and health systems where health-system pharmacies typically have responsibility for purchasing and distributing drugs.

Four Primary Factors Drive Growth in Overall Drug Expenditures:

Price - Unit price of existing medication.

Utilization - increase in number of users or days of use.

Mix - use of newer more expensive drugs in place of older cheaper drugs.

Innovation - new more expensive drugs used to treat conditions that were not treatable before. 

In most hospital pharmacy budgets, a relatively small number of drugs (50– 60) typically account for 80% of most hospital drug budgets. Budgeting and cost-containment efforts should focus on those drugs, and the cost-management plan should especially concentrate on those top drugs in which it is feasible to influence prescribing patterns.

  • Can you prescribe generic drugs to bring cost down?
  • Can you decrease the unit cost of drugs through the pharmacy's drug wholesaler or group-purchasing organization (GPO)?
  • Can you reduce expenditures for an expensive drug class by consolidating to a new, preferred therapeutic that limits the choice of drugs needed and further limiting use of designer drugs to cases of no alternatives?
  • Can you use 340B and indigent care programs to lower pharmaceutical costs? 

There are 3 main avenues for purchasing pharmaceuticals at discounted rates: GPO contracts, facility contracts, and wholesaler own-use contracts.

GPOs utilize the aggregate purchasing power of many facilities to negotiate pricing agreements with drug manufacturers. Look for GPOs that offer routine surveillance, preferably an automated service, that ensures that contact prices are applied to all purchases.

Facility Contracts
The alternative to GPO contracting is individual contracting. This type of contracting may be done at the facility or the health-system level. In some cases, equal or better pricing than GPOs can be obtained. 

Wholesaler Own-Use Contracts 
Wholesalers are also able to take advantage of special pricing on certain branded and generic drugs and offer those products to their customers as part of the wholesaler’s proprietary contract portfolio.

If your pharmaceutical formulary includes expensive drugs including biologics (monoclonal antibodies) and other specialty drugs it may be beneficial to negotiate Facility Contracts and direct Wholesaler Contracts in addition to working with your GPO.

“Our main focus when working with our clients is pharmaceutical and medical supply chain management. Data analytics allows us to customize a program for each client. This saves money, streamlines processes, and saves our clients time. Our partnership and knowledge transfer brings true value to the business relationship.”

Becky Kalinowski, PhD
ERA Advisor

 

Want to learn more? Download our free white paper here!

  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client