Tips for reducing hospital pharma costs

The ideal prescription for hospitals wanting to reduce their pharmaceutical costs could be tighter controls and staying on top of shortages.

Keith Hanchey, managing director in Navigant’s healthcare consulting practice, says that within specialty pharma, where therapeutic costs are greater than $1,500 per month, costs are increasing at 18-22 percent, annually. “In a hospital system setting, branded drugs are decreasing in utilization while generics are increasing in utilization at 3-5 percent increase in cost per year,” Hanchey said.

Meanwhile, Alex Jung, global strategy partner, Ernst & Young Healthcare & Life Sciences, predicts the buying power of hospitals and GPOs will diminish as they compete with large global wholesalers.

Because traditional supply chain discounting tactics are no longer novel, Jung predicts there will be more focus on outcomes-driven reimbursement models. He says  there is a good amount of risk tolerance around gain sharing or risk assumption arrangements.

[See also: Pharma firms rethink marketing strategies under the Sunshine Act.]

“Hospitals need to look examine ways to pool resources with other providers to increase the volume of purchasing power and protect prices,” Jung said. “Hospitals need to understand that traditional unit volume discounts are not going to be acceptable for much longer and they’ll have to assume more responsibility for partnering with every stakeholder in the value chain.”

Hanchey said hospitals are controlling costs through formulary or utilization management that limits certain drugs to therapeutic categories. He said hospitals can also limit the use of drugs to certain physicians based on specialty.

Todd Nelson, director of healthcare finance policy at the Healthcare Financial Management Association, said keeping the formulary up-to-date is a constant task for hospitals as new pharmaceutical treatments are released.

“As drug shortages occur and other items need to be substituted, staying on top of this will help to control the costs for the best patient outcome,” Nelson said.

In the future, Nelson said, we will continue to see increased automation of ordering functions (for the patient and the hospital), e-invoicing and formularies being built out further, as well as electronic alerts built into the hospital Electronic Medical Record.

Jung also predicts that industry leaders will form collaborations to help optimize research, therapies, and outcomes. “We are already seeing the seeds of early examples of this model,” Jung said.