Leading Hospitals Turn to Advanced Strategies for Pharmacy Savings

Leaders at Froedtert use predictive and bulk buying for certain types of medications.

Across the country, healthcare leaders are watching their pharmacy budgets expand due to drug price inflation, says Philip Brummond, director of pharmacy at Froedtert Hospital, part of the Froedtert & the Medical College of Wisconsin (MCW) health network in Milwaukee. “We’re seeing 5 to 10 percent annual [price] increases across most classes of drugs,” he says.

New gene therapy drugs like the new chimeric antigen receptor (CAR) T-cell therapies for oncology will also swell pharmacy budgets. Such products can cost nearly half a million dollars for a single infusion. “These are products that finance directors and pharmacy directors will need to keep a close eye on—just one to two patients can cause major changes in drug spend,” he says.

Frequent drug shortages also drive increased prices and encourage hospitals to buy more and warehouse products so they can provide patients with the therapies they need.

Fortunately, hospitals and health systems can take proactive steps to help keep their pharmacy budgets in line.

Making Pharmacy Part of the Care Team

When pharmacy budgets rise, some leaders might assume the best course of action is to cut FTEs. But Brummond says cutting pharmacy FTEs is usually not the answer—in fact, it can cause drug spend to rise. “When you start cutting pharmacist resources, your ability to manage those relationships that are needed to drive utilization goes away—and that can create some significant challenges in maintaining costs,” he says.

At Froedtert Hospital, 100 percent of inpatients receive care from pharmacists who are embedded within the medical teams. These pharmacists take medication histories and conduct medication reconciliation to ensure patients only receive the medications they need in the hospital and make appropriate substitutions based on products in their formulary. At discharge, pharmacists are involved in patient counseling and work with case managers to ensure the recommended drugs are covered by patients’ insurance.

The pharmacy department is unique in that labor costs make up approximately 20 percent of pharmacy budgets, while medications comprise 80 percent. Having pharmacists embedded into multidisciplinary teams helps the organization meet its targets for quality and safety, readmissions, and financials, he says.

Optimizing the Formulary

In recent years, the Froedtert & MCW health network merged the pharmacy and therapeutics (P&T) committees at each of its hospitals and clinics into one enterprisewide committee that oversees one formulary. By standardizing its formulary and centralizing purchasing in the primary care clinics, the health network created approximately $600,000 in annual savings.

Therapeutic interchange is another important tool that can help manage costs in classes with multiple therapies for a particular drug indication. Currently, seven formulations of inhaled corticosteroids, all with similar safety and efficacy profiles, are on the market. The P&T committee identified one preferred agent on the formulary, and pharmacists embedded within the medical teams will automatically substitute the preferred agent if an inhaled corticosteroid is ordered.

Using Smarter Purchasing Strategies

Froedtert & MCW pharmacy leaders use predictive buying and bulk buying for certain types of medications. “Knowing that drug prices increase on somewhat regular intervals, this can warrant an overall cost savings,” Brummond says. For example, the Froedtert & MCW health network saved $150,000 by bulk buying vaccines.

They also saved another $150,000 by switching to a different generic product in the progestin drug class and purchasing a large quantity. “We have pharmacy buyers who watch market trends and negotiate bulk purchases at a lower price per unit,” he says.

Engaging Clinicians

Pharmacists at Froedtert Hospital work closely with physicians on several initiatives, including a program designed to ensure appropriate antibiotic use. Specifically, pharmacists educate and collaborate with providers to make sure patients are receiving the most appropriate antibiotic therapy at the lowest cost. Pharmacists also monitor patients who are prescribed broad spectrum antibiotics and recommend narrow spectrum agents when appropriate. Through this collaboration with physicians, they cut both moxifloxacin and ciprofloxacin utilization in half. In addition, they reduced meropenem utilization by 75 percent.

“In the past year, we have reduced overall anti-infective use by 5 percent and anti-infective cost by $3 per patient day,” Brummond says. “This not only saved dollars, but also ensured judicious use.”

Leveraging Technology

Pharmacists across the Froedtert & MCW health network use analytics to identify opportunities to promote appropriate utilization, reduce drug spend, and optimize appropriate site of care in areas such as oncology, transplant, rheumatology, gastroenterology, and cardiology. Specifically, they aim to identify prescribing variation and develop physician outreach strategies.

The pharmacy team also is working with the IT team to explore ways to denote high-cost drugs in the electronic health record (EHR). The team wants to display medication costs in relative terms—low, medium, and high. Brummond believes offering prescribers guidance on costs will become standard practice in the next two to three years.

See related sidebar: Another Innovative Strategy: Create Your Own Drug Company

Heeding Lessons Learned

Brummond offers the following advice for organizations looking to better manage their pharmacy budgets.

Bring pharmacy services in house. A dozen ready-to-use drug formulations that were once purchased from outside compounding pharmacies are now made in house at Froedtert & MCW health network. As a result, the organization saves approximately $800,000 annually.

The organization also handles its retail pharmacy services in house.

Focus on the site of care. The health network has realized significant savings in its bone marrow transplant program by treating patients in the outpatient setting versus the inpatient setting.

Partner with service lines. Froedtert & MCW pharmacists team up with physicians in departments such as oncology and transplant to identify opportunities to reduce drug costs without compromising care. Their efforts focus on standardizing care to follow clinical guidelines. “I can’t stress enough the importance of having strong physician champions who are willing to partner with pharmacy and understand the need to optimize drug spending within the organization,” Brummond says.

Include detail in pharmacy budgets. Having drug classes carved out as line items in the financial software is critical. “The finance team should work with the pharmacy team to make that happen,” he says.

Focusing on Specialty in the Future

Looking ahead, managing specialty drug costs will become even more important to keeping pharmacy budgets in check, Brummond says.

“Approximately 50 percent of new drugs coming to the market are being designated in the specialty classification,” he says. “It’s very important that these medications are used for the appropriate patients. A pharmacist, linked with a provider, can make sure the safety and outcomes you are getting from those costs are what they should be.”

Interviewed for this article:

Philip Brummond, PharmD, MS, is director of pharmacy, Froedtert & the Medical College of Wisconsin Froedtert Hospital, Milwaukee.

Dan Liljenquist is vice president of the Enterprise Initiative Office, Intermountain Healthcare, Salt Lake City.