As reimbursement shrinks and operating margin gaps widen in an era of consolidation and increasing drug shortages, health system pharmacies need to find ways to streamline costs without compromising patient care. Those that have embraced strategies such as medication management and drug utilization review are often seeking additional ways to optimize their performance-based care delivery models. Many pharmacies are turning to centralized drug distribution to maximize clinical, financial and operational processes in their medication supply chain process while delivering on their patient care mission.

Quote Centralizing Drug Distribution for Health System PharmaciesThe Opportunities of Medication Consolidation

Large health systems today face a wide range of inefficiencies in the medication distribution process. The pharmacist's role is ever-expanding, which increasingly limits availability for non-clinical tasks. At the same time, significant health system pharmacy resources and costs are required to fill and replenish automated dispensing cabinets (ADCs), along with other distributive functions. The increasing high cost of medication therapy and managing drug shortages puts a strain on pharmacy inventory, which then puts health organizations at risk of medication stock-outs in the ADCs — which can affect patient medication therapy, patient safety and nursing workflow.

By centralizing pharmacy operations and distributing most medications from a single location, health system pharmacies are better able to improve inventory cost management, standardize formulary, eliminate redundancy, and streamline workflow to improve efficiency and reduce expenses. The full spectrum of advantages may include:

1. Reduce costs
By replacing task redundancy at a facility level with a single task performed at a system level, pharmacies can reduce inventory expenses. Plus, centralized drug distribution helps improve total costs by conserving nursing and technician time, increasing opportunities for clinical pharmacist intervention, and reducing hospital stay and legal costs.

2. Ensure medication availability and compliance
Consolidating drug services helps pharmacies optimize inventory levels, reduce stock-outs, minimize errors related to manual stocking, improve drug shortage management and generic compliance, and increase flexibility with the number of line items and National Drug Codes.

3. Improve patient safety
Standardizing drugs throughout a medical system helps reduce variation and improve pharmacist and caregiver familiarity with medications — which helps limit medication pick errors, increase patient safety and improve patient care.

4. Streamline resource allocation and workflow
Automation helps increase efficiency and share data across disparate information systems. With less inventory and labor at each individual site, staff can reallocate resources to patient management that were previously dedicated to medication distribution. This reflects industry best practices established by the American Pharmacists Association's and American Society of Health-System Pharmacists' Advancing the Pharmacy Practice Model Initiative.

Key Considerations

When pharmacies are part of a health system with multiple facilities, or are currently outsourcing some of their drug distribution needs, centralized drug distribution could help optimize their medication supply chain. When evaluating their options or establishing a centralization plan, health system pharmacies should keep these considerations in mind:

1. Know what to expect from the implementation process
It can take anywhere from three months to a year for pharmacies to centralize their drug distribution, depending on whether they already have a dedicated pharmacy location — and whether they start with a comprehensive program or in a few select areas of their pharmacy, then expand as they go.

2. Anticipate limitations to formulary standardization
It may not always be possible to fully standardize a formulary across facilities, given that some facilities participate in the 340B program and others do not, and specific patient-care medication therapy needs or having specialized services may not be available at all locations. In addition, variations in formulary could increase complexity and cost by requiring different line items per facility, such as a 10 mg drug dosage in one, and the same drug in a 20 mg dosage in another.

Graphic Centralizing Drug Distribution for Health System Pharmacies3. Be aware of state medication distribution regulations
Pharmacies should make sure they understand all relevant state regulations for drug distribution before they centralize. Some states require hospital systems to be licensed as a distributor or wholesaler, even if they are servicing their own system. There may also be regulatory concerns related to transporting medications across state lines. And if their system has some facilities that participate in the 340B program and others that do not, pharmacies must ensure that their technology and formulary for every hospital maintains compliance in the program.

4. Determine what needs to be centralized
It may not benefit pharmacies to centralize all drugs at once — or ever. For example, many health systems choose not to centralize Class 2 drugs because the labor and inventory savings don't warrant the extra regulatory paperwork requirements. Centralizing in phases can help manage costs, but this will require other resources over time. They should evaluate the cost/benefit ratio of each area of their pharmacy based on their patient mix and distributive service to determine what makes sense to centralize, and when.

5. Insource to improve quality and safety
When the movement to outsource steroid injections led to patient deaths in New England, this called outsourcing into question as a safe and effective means of eliminating distributive functions. Today, the trend is for health systems to handle distributive functions themselves — for better quality control internally, at a lower cost. When considering insourcing, it is also a good time to assess the cost/benefit ratio of centralizing the process.

6. Evaluate whether a consultant can help the process
A consultant can help pharmacies evaluate the costs and benefits of consolidating and centralizing drug distribution functions. Depending on their budget and desired level of collaboration of services may range from feasibility assessment to business plan development to implementation support.

Prepare for Success

Pharmacies can maximize their ROI in centralized drug distribution by defining their success metrics and doing a thorough cost/benefit analysis before they begin. Common supply chain benchmarks and success standards include:

  • reductions in stock-outs
  • decrease in redundant inventory
  • lower staff time spent on distributive tasks and missed picks
  • improved patient care

Additional benefits assessed include the opportunity to standardize formulary. Once health system pharmacies centralize, these metrics can be standardized with policies and procedures, and quality goals, then measured and refined over time.

Related: Learn about McKesson's Hospital Pharmacy Supply Chain Solutions

Barbara Giacomelli

About the author

Barbara Giacomelli, Pharm.D., MBA, FASHP, is an Area Vice President with McKesson Pharmacy Optimization. She has 30 years of experience in health system pharmacy where she has held various pharmacy management and leadership positions in community, academic medical centers and health systems in Philadelphia and southern New Jersey. Throughout her career, Barbara has facilitated and led numerous projects related to automation, technology, workflow optimization, supply chain management, ambulatory pharmacy and clinical pharmacy services. She is a Fellow of ASHP and Past Chair of the ASHP section of Informatics and Technology. She earned her BS in Pharmacy from the University of Connecticut where she was selected as 2014 Alumni of the Year. She also received her PharmD from the University of Colorado and MBA in Healthcare Administration from Widener University. Barbara has spoken nationally, participated in numerous webinars and published on a variety of topics. She is also a Lean Six Sigma Green Belt.