Hospital pharmacies are continuously adapting to increased demands with innovative solutions in an ever-changing world. With robust benchmarks and clear metrics in place, they have the tools and insight to stay competitive and make informed decisions that will deliver better outcomes for both the health system and the patients it serves.
What is Hospital Pharmacy Benchmarking?
Benchmarking is an essential tool that harnesses the power of analytics to help hospital pharmacies measure, evaluate, and leverage their performance across various areas such as cost, productivity, operations, and quality of patient care. It helps pharmacies understand where they are today while providing direction for where they want to go moving forward.
Hospital leaders and pharmacy directors understand that their situation is unique, but they also understand there is value in looking at the performance of multiple health systems as a group. Comparing data from numerous hospital pharmacies or departments and seeing it as a whole provides a high-level average and statistical analysis that is meaningful.
For example, consider the impact of a drug cost per adjusted patient day or pharmacy adjusted patient day. If a hospital pharmacy spends $10 million, and that number is viewed without any context, it may seem excessive. But if they follow the data and see that they spent $10 million over 10,000 patient days, that changes the conversation. It allows them to compare different size hospitals and normalizes the data.
By comparing their performance to that of other hospitals, pharmacies can identify areas of improvement and set realistic goals for themselves. This helps them to streamline their operations, reduce costs, increase productivity, and ultimately deliver high-quality patient care.
What Are the Hospital Pharmacy Metrics Commonly Used in Benchmarking?
There are many types of metrics that can be utilized to measure hospital pharmacy benchmarks and identify areas for improvement.
One of the most common data points to evaluate is financial performance, which includes anything from the cost of medications and prescriptions to labor costs to revenue surrounding outpatient vs. inpatient costs.
Drug purchases and the medication use process is another critical metric, including evaluating the number of medication errors, inventory turnover rates, and the percentage of orders completed within a specific time frame.
Measuring compliance with both internal and external benchmarks is crucial to ensure the hospital pharmacy is following all protocols set forth at the national level as well as within their own health care system. Additionally, operational metrics such as staff and nurse satisfaction as well as patient-centered metrics are also important for evaluating pharmacy performance and the quality of care provided.
When considering which metrics to use, it’s important to also look at hospital census data. This includes taking data from the pharmacy and the larger health care system and using those numbers to create a pharmacy adjusted patient day. The pharmacy adjusted patient day allows you to capture the data that is actually driving pharmacy metrics.
By using a combination of various metrics like these, hospital pharmacies are able to gain comprehensive insight into their performance and pinpoint the areas where improvements are needed.
What’s the Difference Between Internal and External Benchmarking?
External benchmarking utilizes known, standard national metrics – such as 340B compliance metrics – to compare the performance of one hospital pharmacy to others in the same market. This provides valuable insights into overall best practices, identifies areas where they are either falling behind or exceeding industry standards, helps set realistic goals for improvements, and allows them to stay competitive in the marketplace.
The disadvantage to external benchmarking is that it can be challenging to find similar health care systems for specific comparisons. The data isn’t always comparable due to varying factors such as organizational structure, variety of medical services, patient population, and health systems not sharing some metrics publicly.
Internal benchmarking steps in to fill the gaps when there are no national metrics to follow or when comparisons are incomplete. It compares your own hospital pharmacy to itself to see if it’s improving over time.
A great example of internal benchmarking is productivity. A health system can compare the performance of one pharmacy technician to another within the same pharmacy and determine how efficient their procedures are. Another example is medication errors. It’s difficult to get a standard number on med errors because health systems don’t often share them publicly. So increasing internal benchmark reporting allows the hospital pharmacy to gather enough data to be meaningful and drill down on numbers to find significant trends.
A big advantage of internal benchmarking is that it allows pharmacies to create best practices within their own organization and implement them across the board. It also fosters a culture of continuous improvement within the hospital pharmacy.
Some of the most evaluated pharmacy cost-based metrics are drug costs and labor costs. Data gathered around drug costs allows hospital pharmacies to identify opportunities to reduce costs, such as negotiating better prices with suppliers or implementing more efficient inventory management practices. Labor cost metrics include the costs associated with hiring and training staff, as well as salaries, benefits, and other expenses, allowing hospital pharmacies to accurately assess where their labor dollars are going.
It’s important however – no matter what type of financial metric is being evaluated – to look at what is driving the costs. A key focus, here, is inpatient vs. outpatient costs. For example, a hospital CFO may see that their hospital pharmacy spent $8 million last year, but if $4 million of that was on the outpatient side, hospitals must analyze the patient volumes, drug spend, related drug revenue and delivery costs differently than inpatient drug expenses.
Drug Related Benchmarks
From cost to revenue to inventory turns, measuring drug-related metrics is a crucial aspect of hospital pharmacy benchmarking.
Understanding financial metrics around drug purchases is key to managing cost. A hospital pharmacy should evaluate all drug purchases from wholesalers, direct manufacturers, and any specialty distributors.
Take this information and break it down by drug class, individual trade and generic name, and NDC number to get an accurate calculation of exactly what is being purchased and how much of each medication is being dispensed.
For example, in a clinical initiative for a specific drug, CompleteRx looks back at the hospital’s cost the year before we start the initiative. Our Clinical Director sets a reduction goal, then we report on the savings each month. That way, we are able to get a clear picture of cost and savings. In a recent initiative for managing the cost of a blood pressure medication, we set out to reduce costs by $48,148. The project resulted in an actual savings of $85,103.
Another important drug benchmark is measuring the revenue generated by each prescription filled by the pharmacy. This metric is crucial because it measures the profitability of the pharmacy. It can also be used to identify opportunities to increase revenue, such as expanding services or increasing the number of prescriptions filled.
Medication errors can have serious consequences for patient safety, leading to adverse outcomes, including hospital readmission and death. Measuring the number of errors made throughout the medication use process, including prescribing, dispensing, and administration of meds, protects the hospital and, most importantly, protects the patients.
The national benchmark for inventory turns is 12 to 14 per year, depending on the size of the hospital. This includes medication moved through tools like automatic dispensing cabinets. This metric is key because it evaluates whether drug purchases are efficient and ensures that hospital dollars and assets aren’t sitting on the shelves instead of performing for the hospital and improving patient care.
Say a hospital pharmacy has $5 million of inventory on the shelves with 6 inventory turns a year. If they increased to the industry standard of 12 inventory turns a year, that would free up $2.5 million in cash. Given the current uncertainties in the industry, hospitals are very focused on days cash on hand (DCOH) which is an important measure of hospital liquidity.
By using a combination of compliance metrics and benchmarks, hospital pharmacies can help ensure that patients receive appropriate, high-quality care that meets regulatory and clinical standards. Common compliance metrics include:
Drug diversion is the removal of a drug, typically a controlled substance, by a pharmacy or hospital staff member or any individual within the health care system who plans to use the medication for their own personal use or for some reason other than that for which it was prescribed. Benchmarks for drug diversion may include things like:
- Redefining policies and procedures so that they are clear and understood,
- Identifying how frequently to perform audits to help prevent discrepancies in a timely manner,
- Evaluating protocols to track procurement and inventory,
- Creating standards for prescribing, dispensing, and administration.
National Regulatory Standards and Guidelines
Adherence to regulations such as the Health Insurance Portability and Accountability Act (HIPAA) ensures patient privacy and security is protected. Compliance with drug safety regulations, such as those enforced by the Food and Drug Administration (FDA), is also critical. And other regulatory bodies like the Joint Commission provide rigorous standards to which pharmacies must comply in order to be accredited.
At CompleteRx, we go a step further in creating our own internal scoring system to measure data for compliance. We collect data internally across all of our hospitals and use it as our own company benchmark. This allows us to look at the entire range and identify any poorly performing sites and determine how we can move them closer to best in class.
In addition to our internal scoring system for compliance benchmarks, CompleteRx customizes performance improvement projects that are specific to each client. We look at metrics that will help fix issues such as turn-around times on orders, inventory levels, the efficiency of automated dispensing cabinets, and trends on med errors.
340B Related Benchmarks
Measuring pharmacy metrics regarding the 340B drug program is important to ensure that the hospital pharmacies and each contract pharmacy are utilizing the program effectively and maximizing its benefits.
A key metric to focus on is the Wholesale Acquisition Cost, or WAC, Premium percent. A pharmacy buys some of their drugs at the premium price in order to be allowed to buy the drugs on the 340B program for a discounted price. This calculated percentage is the WAC %. The industry target for WAC Premium % is 10% or less. CompleteRx aims to be well below this.
It’s also a good idea to track the discounts received through the program and compare them to the prices they would have paid without the program to determine the actual savings.
Keeping track of the number of patients served through the program is another important benchmark for measuring its effectiveness, allowing pharmacies to evaluate whether their efforts to provide affordable medications to vulnerable patient populations are successful.
Finally, compliance with all 340B program requirements is crucial to ensure that hospital pharmacies are using the program appropriately and avoiding any penalties, including compliance points such as maintaining accurate records, GPO prohibition (where applicable), preventing diversion, preventing duplicate discounts, and verifying patient eligibility.
How Should Hospital Pharmacies Utilize this Data and Information?
Hospital pharmacies should be evaluating their benchmarks on a regular basis in order to understand metric trends and track their progress in a meaningful way. Once the information is gathered, the data should be presented to staff and board members with clear explanations, including useful graphs or charts.
This helps the entire team to understand where you are currently and buy into where you want to go next. It allows them to prioritize the issues that need to be addressed immediately, placing patient care first. And finally, it informs any necessary plans that are developed to address opportunities for financial improvements and growth.
About the Author
Terry Copeland, R.Ph, MBA, MPH, Regional Vice President
Terry Copeland joined CompleteRx in 2021 and is the Vice President of Pharmacy Operations for the South Region. In his role, Terry has executive responsibility for the pharmacy operations, client management, and service delivery for the accounts in his region. In addition, Terry works closely with the business development team to assess new opportunities and develop solutions to meet the current and future needs of clients.
Terry has over 30 years of experience in management and operations of hospital and retail pharmacy operations. In addition to pharmacy operations, Terry has held senior leadership roles in the 340B provider industry and pharmacy service line development.
Terry received his Bachelor of Pharmacy degree from the McWhorter School of Pharmacy at Samford University in Birmingham, AL and holds a Master’s degrees in Business Administration and Public Health from the University of Alabama-Birmingham.