Rising drug spend is a top-of-mind issue for everyone—from the chief executive at the hospital to the patient receiving care. Today, the United States pharmaceutical market is facing a dichotomy. On one hand, there is an explosion of new drug approvals for niche indications with astronomical price tags upon market entry, while on the other hand, significant price deflation in the generic drug market has contributed to market consolidation, manufacturer exit, and drug shortages. As pharmacy administrators navigate this complex and dynamic environment, understanding the various intertwined factors that influence the clinical and operational aspects of the pharmacy enterprise will better equip hospital executives to lead discussions with their clinical staff about strategies to achieve and maintain their organizational goals.
FACTORS THAT PRESENT OPPORTUNITIES AND CHALLENGES TO THE HOSPITAL PHARMACY ENTERPRISE
Chief pharmacy officers and pharmacy administrators are operating in a seemingly contrasting environment today. While a decade ago it was sufficient for pharmacy leadership to be vigilant about their inpatient pharmacy budget and follow state pharmacy practice requirements to run a successful department, today’s hospital pharmacy enterprise is a complex set of businesses, where clinical knowledge, collaborative patient care, and financial acumen intersect to reduce cost, maintain quality, and generate positive outcomes for the healthcare organization and its patients. Below is a short discussion on the various factors that impact the hospital pharmacy enterprise.
Inpatient Cost Reduction
Developing and managing a tight health-system drug formulary is imperative to cutting costs in the inpatient setting, due to bundled payment systems. However, more and more, new drugs with exorbitant price tags are being approved with stringent administration and monitoring requirements that need the expertise and watchful eye of hospital clinicians. A price tag of $2 million for a drug therapy is no longer unheard of. Many health systems are creating High-Cost Drug Committees with per dose and per treatment cost thresholds that are set to trigger an evaluation of clinical, site of care, and revenue cycle parameters to ensure judicious use.
The persistent scarcity of critical generic drugs has lasted over a decade and shows no sign of abating for myriad market and regulatory reasons. Drug shortages cost the U.S. healthcare system about half a billion dollars in increased expenditures every year.1 Half of that comes from the increased labor costs associated with managing shortages, and the other half from sourcing expensive substitutes to those drugs that are unavailable but medically necessary. These supply chain disruptions have presented significant challenges for maintaining a just-in-time inventory. In fact, the prolonged nature of drug shortages has cultivated hoarding practices borne out of the desperate need to maintain access to vital therapeutic options for hospitalized patients. At Acurity, we have observed a trend of price increases when medications experiencing a shortage are on the road to market recovery, adding insult to injury and affecting the pharmacy budget negatively.
Ambulatory Care Opportunities
While it is paramount to run efficient Pharmacy & Therapeutics Committees, establish and maintain high standards of clinical pharmacy practice, champion medication safety and antimicrobial stewardship efforts, and spearhead medication management in alignment with accreditation standards, pharmacy leaders must look ahead to potential revenue growth opportunities in the ambulatory arena. Some of these areas include ambulatory infusion services, meds-to-beds programs, and specialty and retail pharmacy services. These areas present opportunities for building financial strength. Yet dynamic changes in payment models necessitate careful exploration along with revenue cycle management strategies. It is imperative to maintain a thorough understanding of federal/state practice and reimbursement rules coupled with a knowledge of payer contract stipulations in order to be able to realize financial gains.
Value-based care carries important risk and revenue implications for healthcare organizations. A large part of value-based care may be determined by transitions of care initiatives, identification of cost-effective therapies, timely access to medications, patient adherence to medications, and influencing outcomes through medication therapy management. The hospital pharmacy enterprise can play an integral role in all these aspects with a goal of keeping costs low, collaborating with the clinical team toward better patient outcomes, and seeking reimbursement for services rendered. Here, too, limited drug distribution networks for specialty medications, accreditation challenges in specialty pharmacy, pharmacy benefit manager payment clawbacks, spread pricing practices, and exorbitant fees from contracted retail pharmacy partners can present barriers that must be overcome. For pharmacists, being able to practice at the top of their license (within the scope of the state’s pharmacy practice act and bill for services) is an important acknowledgment of their expertise in medication management. However, billing for pharmacist services is still in an exploratory stage in many hospitals, due to lack of familiarity with the process.
With heightened scrutiny over pharmaceutical manufacturer pricing practices, double-digit price increases across therapeutic classes are not as common as observed in years prior. Other than a few opportunistic instances where manufacturers have taken price increases over 10% in a given year (e.g., while approaching patent expiry, market or regulatory loopholes, etc.), overall price inflation hovers in the low single digits. Precipitous price drops in multisource generic entrants continue to occur and help offset brand price increases.
In contrast, there is a trend in the continued growth of new branded specialty drugs, generally introduced to the market at such a high cost on entry that they are not routinely subject to periodic price inflation. The FDA is shattering records for new drug approvals, especially in the field of oncology with gene-guided therapy, modalities for refractory metastatic conditions, and first-in-class entrants. It is also notable that treatments for conditions previously managed in the outpatient setting may be shifting to the inpatient setting, due to the approval of intravenous biologicals that require stringent adverse event monitoring with a hope of quicker onset of action. It is apparent that breakthrough treatments with significant price tags are the new norm. It is too early to determine whether these novel therapies reduce the overall cost of care even though there is a substantial impact on the hospital pharmacy budget.
Biosimilars are copies of complex biologic drugs that have enjoyed blockbuster status for many years. While biosimilar market launch and widespread adoption has lagged behind the number of approvals, due to prolonged patent litigation and payer preferences, that tide is slowly changing in their favor. In some cases, due to the availability of multiple biosimilars approved for a branded product, prices have become competitive, and the market seems to be primed for a price reduction in the overall treatment category. Every health system needs to develop a policy for their evaluation and adoption into formulary, along with clinician education.
Regulatory Compliance Requirements
Regulatory standards for sterile compounding practices and associated supply chain relationships (e.g., outsourced compounding vendors) continue to be a focal point for the FDA and hospital accreditation agencies. Health-system leaders should be aware that this renewed regulatory scrutiny spans multiple areas of the organization, including environmental services, infection control, quality, and risk management, in addition to the Pharmacy Department, where sterile compounding takes place. There is also a renewed emphasis on drug diversion and health-system efforts to develop strategies to mitigate controlled substance diversion, especially in light of the opioid crisis gripping our nation. Pharmacy leaders once again must spearhead efforts through the use of cutting-edge technology, data mining, continued education, and multidisciplinary collaboration to keep close tabs on their controlled substance inventory, use, waste, and prescribing practices.
The hospital pharmacy enterprise continues to be presented with opportunities along with challenges in order to realize optimal safety, security, quality, practice, and financial outcomes. Acurity has developed a portfolio of solutions—from educational resources to programs, technology, and consulting—that are available from our family of companies and Premier, our national performance partner, to help our hospital members achieve this mission. Contact an Acurity representative to help assess which solutions can best support your specific needs.
Source: Premier, Inc. Lowering the cost of prescription drugs: reducing barriers to market competition. March 13, 2019. Available at: https://www.premierinc.com/downloads/Premier-Statement_Energy-and-Commerce-Drug-Pricing-Hearing_March-2019_FI.pdf. Accessed June 18, 2019