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Pharmacy’s Contribution to the Bottom Line

Some interesting new developments are happening in the pharmacy space. If you need a fresh reason to dialog with your pharmacy department, read on. It has long been true that constant regulatory changes and rising drug costs make it difficult for hospitals to receive a proper margin and reimbursement for the pharmaceuticals purchased and administered. Yet pharmacy accounts for as much as 10 percent of an average hospital’s total budget, making it vital for hospitals to proactively reconcile purchasing and charge data. Starting October 1, 2014, Genentech changed its distribution model for the drugs Avastin (Bevacizumab), Herceptin (Trastuzumab), and Rituxan (Rituximab). Now these drugs are available only through authorized specialty distributors for hospitals and clinics and not through the traditional wholesalers, which are commonly used, and that have either GPO discounts applied or 340B pricing. There are only 6 specialty distributors authorized by Genentech. This is a trend to watch as other manufacturers may follow this action. It is important to reach out to your Pharmacy team to understand the impacts to drug procurement, pricing and chargemaster maintenance, as well as the impacts to the formulary from changing distribution models that require purchasing only from authorized distributors without the traditional wholesaler or GPO relationships. Ensure that rising drug acquisition costs and subsequent pricing policies are reviewed frequently to remain price-defensible. Budget reviews and pricing strategies should take into consideration the future effect of changes if this distribution model should become the norm rather than an outlier. It is also important to recognize that the delivery frequency from these distributors is likely more challenging than the regular deliveries from the wholesalers, so stock levels and scheduling may be impacted. Craneware’s client, Effingham Hospital, was featured in Healthcare Finance News to discuss the increasing role of pharmacy in the revenue cycle and how decisions taking place in pharmacy can have a significant impact on the financial health of the entire hospital. In the article, “Hospital Pharmacies Aid Revenue Cycle,” Effingham Manager of Pharmacy Operations, Dustin Logan, shared how the hospital achieved $194,000 in savings by leveraging a greater awareness of pharmacy. “We can also save the hospital money by looking at revenue generated relative to the cost of medications,” said Logan. “Streamlining the formulary by cost and income brings it into better focus. Managing the formulary efficiently, along with billing help, means the pharmacy makes a contribution to the hospital’s bottom line.” What best practices does your organization have in place to ensure that administered medications are accurately coded, billed and reimbursed at an optimal level?