Creating a systematic approach to evaluate and implement drug cost containment could be a valuable contribution for you to make to your organization.

A group of rural hospitals in two western states have formed a Pharmacy Council to drive improvements in supply chain efficiency and drug cost containment. I had the opportunity to tell the group's story in a poster presentation at the American Society of Health-Systems Pharmacies' annual Midyear Clinical Meeting in New Orleans. Now I'll share it with you.

Collectively, the hospitals are known as Health Future, a limited liability company formed in 1979. Health Future is based in Medford, Ore., and represents 20 small hospitals in rural Oregon and Nevada.

Health Future has a number of subgroups called “councils” that are formed around specific areas of hospital operations and that represent the executives, directors and managers responsible for their respective area. One subgroup is the Pharmacy Council. The Pharmacy Council consists of directors of pharmacy from the member hospitals, pharmacy buyers, consortium staff, a representative from the GPO, and representatives from the wholesaler. I sit on the Pharmacy Council as a representative of McKesson, the wholesaler for the Health Future hospitals.

Building a Hospital Pharmacy Council for Drug Cost ContainmentPurpose of Pharmacy Council is Controlling Drug Spend

The Pharmacy Council's sole purpose is “direct cost containment,” or limiting or reducing the amount of money the hospitals spend on drugs for their patients without jeopardizing the quality or safety of care they provide. Direct cost containment falls into two categories: cost savings and cost avoidance. Cost savings is paying less for the same pharmaceuticals. Cost avoidance is not paying more for drugs or not paying for more expensive drugs when less expensive alternatives are available.

The Pharmacy Council meets in person on a quarterly basis at a central location and meets on a monthly basis via a conference call.

At the quarterly meetings, which run a day and a half, the Pharmacy Council discusses purchasing opportunities and challenges, discusses drug availability and vendor performance, evaluates the financial impact of past decisions and decides which future initiatives to pursue. They may hear presentations from invited drug manufacturers. They decide which proposals would be best for the hospitals. A representative of the hospitals' group purchasing organization attends and makes the necessary contractual arrangements to buy the approved drug for the negotiated price in the agreed to volume for all 20 hospitals.

Cost containment opportunities are also presented to the Pharmacy Council by the GPO and wholesaler representatives at regularly scheduled meetings and conference calls. The GPO and Wholesaler each housed vital information needed by the directors to make informed decisions and are vital players in the drug cost containment success.

Everyone along the supply chain from manufacturer to purchaser is in the same room, which makes the process extremely efficient. Best practices are discussed and members are able to network regarding any progress or challenges in their individual hospitals.

Sharing Data, Information Key to Success

On the cost avoidance side, the pharmacy directors use the Pharmacy Council's quarterly meetings and the monthly calls to share information on topics such as new brand drugs on the market, new generic drugs on the market, the comparative effectiveness of new and legacy brand and generic drugs and physician prescribing practices. If one of the 20 hospitals finds a more cost-effective way of using a specific drug, then all of the members can benefit from that knowledge.

The pharmacy directors also share data on what their hospitals are spending on each drug, how much they're using of each and how they're using each. They're open to sharing and being transparent. They make themselves vulnerable to their peers. On one hand, that creates a bit of peer pressure to not be the cost or usage outlier on a specific drug. On the other hand, you have 19 other people who are willing and eager to help you overcome your specific obstacle to direct cost containment.

Key Elements of Building a Hospital Pharmacy CouncilOver the past five years, the hospitals collectively have achieved and documented $10 million in savings through the work of the Pharmacy Council.

Four Tips on Forming a Hospital Pharmacy Council

Savings like this makes creating a pharmacy council an attractive option for other hospitals, and I would recommend that you explore that opportunity. If you do, here are a few pieces of advice on making it work for the member hospitals:

  1. The participating hospitals shouldn't be competitors from an antitrust standpoint. Sharing price information could be problematic if they are competitors.
  2. Physical location can be a potential barrier. To make a pharmacy council work requires a commitment of time and resources for offsite meetings and travel.
  3. Culture is crucial. You have to be willing to share data and best practices and willing to offer and accept feedback.
  4. Hospitals participating in a pharmacy council must be able to systematize the sharing of data and information. That can be done through technology and standardized formats. Or, that can be done through a third party that can collect, organize and analyze data and information from disparate IT systems and formats.

In my experience with the Health Future Pharmacy Council we have successfully coordinated, implemented and quantified supply chain initiatives that accomplished pharmacy department drug cost containment goals, increased efficiency, encouraged member hospital accountability and formed a working partnership between the hospitals, the GPO and the Wholesaler.

I would encourage hospitals and directors of pharmacy to explore a pharmacy council to assist or drive strategic supply purchasing.

Cindy Jeter

About the author

Cindy Jeter is a supply chain management consultant for McKesson Pharmacy Optimization. As a Certified Purchasing Professional, Cindy is one of McKesson's top experts for supply chain consulting. Her focus includes best practice inventory management processes, wastage reduction and cost containment.