Situation
A pharmacy’s inventory impacts not only the health of its patients but also the financial health of the business. On any given day, a pharmacy’s shelves could be filled with a thousand products and medications priced anywhere from a few hundred dollars to a few thousand. And with drug prices trending upwards, pharmacy expenditures are taking a big hit.
With ever-increasing drug costs and heavy financial responsibilities, it is imperative that hospital pharmacies have clear and efficient systems in place to effectively manage their inventory. Failure to do so means that a lot of money may be left on the table, which can significantly impact the organization’s bottom line.
This was the case for a large tribally-operated health system in Oklahoma that offers healthcare and pharmacy services to 400,000 patients across 12 clinic sites as well as mail order deliveries. With multiple clinics—each with their own pharmacy—spread across the entire northeast region of the state, the health system was carrying around $3 million in drug waste, exacerbated by challenges such as:
- The lack of a gatekeeper to oversee the inventory, resulting in multiple people making purchases with no communication between them
- Over-purchasing products on promotion, resulting in an excess of inventory
- Losing money when the excess inventory expired at the higher retail price as opposed to the promotion price at which it was purchased
Solution
The health system engaged CompleteRx to first conduct an assessment that would help identify gaps in their inventory processes, then guide them on how to best manage their inventory. During the assessment, a CompleteRx inventory analyst discovered multiple opportunities for the health system to increase their profitability by optimizing their operations around inventory.
Establishing Baseline and Par Levels
A baseline inventory and par levels were determined for each site by gathering the client’s purchase history through their wholesaler and reviewing their utilization data. Taking that information, CompleteRx used a proprietary system to establish a minimum and maximum shelf requirement.
Training and Implementation
CompleteRx met with leadership and staff to train them on the system and address concerns they had about running out of product. Once everything was set, CompleteRx monitored the system for any outliers and met with staff to address the issues and continue educating them throughout the process.
Results
With the implementation of the proprietary min/max platform and continued monitoring and guidance, CompleteRx helped the health system increase inventory turns from 6.29 to 8.44 and reduce their drug waste by 33%, resulting in a net savings of $1.27 million.
Key Performance Improvements
- Inventory Turns: Increased from 6.29 to 8.44
- Drug Waste Reduction: 33% decrease
- Net Savings: $1.27 million
- Largest Outpatient Site: Saw a reduction in inventory of $1.47 million, far exceeding the goal of $800,000
- Smaller Sites: Saw dramatic improvements on inventory turns as well
System Benefits
The new platform provided the health system a clear and defined measurement tool for establishing a minimum threshold that, when reached, would trigger orders. These orders would not exceed the maximum limit set, which had been determined to efficiently supply each site.
This single source allowed staff at each location to see and understand the inventory across the board, including at outpatient sites, inpatient sites, automated dispensing cabinets, and mail order facilities, thus eliminating the issues of miscommunication and over-purchasing.
Impact Across All Sites
The inventory comparison data shows significant reductions across all 10 sites, with the most dramatic improvements seen at the larger facilities. The standardized approach created consistency and accountability across the entire health system’s pharmacy operations.
